Opening Keynote Address to SA Coal Industry Day

20-minute live speech, with Q&A on 27 July 2021

Michelle Manook, Chief Executive, World Coal Association

EMBARGOED UNTIL, AND SUBJECT TO, DELIVERY

INTRODUCTION

• Good morning and please let me commence by acknowledging our high-ranking government officials and my fellow colleagues.
• What a privilege to provide this keynote address to this important event at a time when it’s clear that the global coal industry is experiencing an existential crisis.
• The title of this address – ‘Why we need to change the narrative about coal’ – emanates from my past two years as the WCA Chief Executive – it has been my education; my puzzle to solve; and my journey.
• The one thing that I would hope for you to take away from my address today, is that the global coal value chain – as a holistic industry – is neither omnipotent nor impotent.
• Rather – we need to and can be ‘potent’.
• And to be this we must behave in a way which earns back the respect of the world.
• It has become increasingly apparent to me after speaking to governments, financial, investment global stakeholders and the like – that the potency, and hence longevity, of our industry both in South Africa and globally will depend on two factors alone: self-belief and cohesion.
• Self-belief – the unequivocal conviction in our total contribution to modern society today and tomorrow – worthy of our existence – and the understanding of what we must do for both the economy and the environment as part of a responsible future.
• Cohesion – together we must stand – a proud coal industry – linked in a transformation chain – no longer siloed. Regaining our voice. Not shouting but confident that, despite what climate politicians, environmental extremists and supranational entities would like you to believe, we are saying it with our chest: “The Coal Industry is not dead”.
• But we need to understand two things:
• Firstly, we don’t just have a communication problem – it’s more serious than that. We have a brand problem; and our ‘brand coal’ has been destroyed.
• Secondly, creating a new ‘brand coal’ is necessary and will be a journey of change and technology transformation.
• So, who will lead this journey?
• I believe, it will be led by a new generation of coal players across the value chain who are emerging from the disruption we’re experiencing within our industry – caused by changing market dynamics; geopolitics; energy security; energy affordability; poverty; new non-traditional funding; asset divestments; availability of diverse energy technologies; shareholder activism; and industrialisation.
• I believe, this new generation of coal players will have a different mindset and a more sustainable business model ensuring that their investment case supports both economic and environmental goals.
• I believe, as a result they will be differentiated and rewarded as the responsible players in the coal value chain – the preferred coal stakeholder – and their investors and shareholders will be more educated.
• This is the World Coal Association’s thesis which underpins the Evolving Coal strategy, adopted in 2019. A strategy committed to rebranding, guided by the promotion of a responsible coal industry along our Responsible Coal Principles (based on the UN Sustainable Development Goals) and a clear climate change statement in support of the countries choosing their own pathways to decarbonisation. With these we are leading the conversation on coal based on facts – not emotion; and creating a business development platform for the new generation of like-minded coal players across the value chain to collaborate and create sustainable businesses, both commercially and environmentally.
• When people ask me how I cope doing this role I tell them, in coal you need to be pragmatic; resilient; philosophical and anchored in the facts. I am clearly not immune to the criticism or activism. But I believe the industry’s narrative has been distracted by these and it has driven deeper fragmentation across the coal value chain.
• I am not that distracted because I am afforded a very fortunate seat on the balcony. Seeing our global coal dance floor from this vantagepoint, I see immense opportunity for transformation. I also see the behaviours that hold us back from seizing those very opportunities.
• And so, the rebranding journey – the narrative shift – begins with the first challenge – having our value chain realise that signing on to be part of coal, means signing on to the transition to ‘new coal’ through technology advancement. This is achievable but like anything worth having it won’t be easy.
• I am always fascinated to watch people’s reaction to what I do. I always say – unequivocally – I work in coal. Not ‘energy’, not ‘resources’, not ‘sustainable carbon’, or any other terminology variant which seeks to hide or distance from coal. I believe people respect me more for this – even if they don’t agree with me.
• We believe that our problem lies with anti-coal activists and rhetoric. But the ‘extinction of coal’ in term and form is in fact being reinforced by our very own industry.
• There are not many senior leaders today across the value chain in the public sphere, and I include the finance and investment sector here – speaking up on behalf of coal. They are either silent, opaque, seek to differentiate their coal business based on emissions, or even emotional and defiant almost in denial of climate change. None of these behaviours are helpful and they do nothing but reinforce cancellation of coal.
• A mature unemotional positioning needs to get louder and the way to do this is with an industry grounded and leading with the facts. I like to refer to this as raising the Coal IQ.
• Raising the Coal IQ, sees us building our ‘fact puzzle’, showcasing the reality of coal as it relates to:

o The industry’s growth;

o Coal ledger – including costs and benefits/ Emissions and Economies; and

o Readily available technology and the necessary continued investments throughout the coal value chain.

Coal growth

• Despite what many would have us believe – coal energy is not in decline.
• Global coal capacity grew every year between 2000 and 2019, nearly doubling from 1,066GW to 2,045GW with more than 319 GW of new coal capacity being added in emerging markets between 2014 and 2018.
• Coal remains the world’s largest single source of electricity and will still be the biggest contributor in the fuel mix pie at 22% in 2040.
• Beyond electricity coal is literally a “building block” to industrialisation, critical to production of 90% of the world’s cement, 70% of global steel, and more than 60% of energy used to make aluminium.
• Global population is still likely to increase to 10 billion people by 2050, of which two thirds are estimated to live in urban areas, compared to only half today. Urban areas that will be built with enough steel and cement.
• Coal should not only be synonymous with the problem of emissions, especially considering the available technology to address emissions which I’ll get to in a moment.
• Nor should it be judged by the cost side of the ledger without an offsetting contribution on the benefit side of the equation. We no longer should be responding to just the ‘E’ in ESG – without educating on the:
• ‘S’ – coal’s total contribution; and the
• ‘G’ – the new coal players being the industry stewards supporting transparency.
• It is too easy to fixate only on coal’s emissions in the energy sector. It is also too easy to allow this discussion to dissolve into a winners and losers match.
• Winning on one side, should not mean losing on the other. In South Africa as you well know coal contributes almost 80% of total greenhouse gas emissions, of which 50% are from electricity generation – yet it employs more than 90,000 people throughout coal extraction in South Africa.
• Globally, coal energy with old technologies accounts for 40% of emissions but (just) coal mining alone employs about 8 million people and creates revenues of more than US$900 billion a year.
• Coal underpins a large part of the world’s economy and locally, the 2019 IRP (Integrated Resource Plan) identifies that “coal will continue to play a significant role in electricity generation in South Africa in the foreseeable future.

Transition towards Technology

• The emissions concerns are valid, but they can be addressed by the coal value chain itself through technology deployment.
• The global cut and paste function in climate politics – i.e., to eliminate coal and fossil fuels and replace it with renewables, has not reaped the required results to lower emissions – all it has done is minimised this critical debate into an unfortunate popularity contest taking us further away from the necessary discussion of the feasible pathways that get us on a working decarbonisation track.
• The sooner we do away with competing and polarizing language, the sooner we can include coal as part of the solutions we need to address emissions.
• It took a global pandemic and the world literally grinding to a halt, to achieve CO2 emissions that would put us on the path to net-zero carbon. The world is not even out of the pandemic and already the IEA expects emissions will increase by 5% this year to 33 billion tonnes, the second-largest increase in history.
• For the world to achieve the most ambitious scenarios from the International Energy Agency (IEA), wind power would need to increase from around 566 gigawatts today to 2,364 gigawatts by 2040. To support such a rapid increase 185 million tonnes of coking coal, equivalent to 18% of world production in 2018 would be required. It is not an ‘us vs them’ sprint, it is a ‘we all’ marathon where everyone must cross the finish line.
• If the primary concern is in fact emissions – then we should challenge our critic and shift the global solution focus to technologies – agnostically.
• Many believe there are no technologies and/or innovations which qualify the coal industry to continue to be part of the global decarbonisation ecosystem. Worse, many don’t understand coal’s role in steel or cement or supporting reliable and affordable baseload, which enables high energy intensive industries to operate, like manufacturing.
• We need to disabuse them of these misconceptions. There are commercially available technologies which exists today which qualifies coal to participate on a net zero pathway.
• Globally, the average efficiency of coal-fuelled power plants is 37.5%. If this was raised to 47.5% – which is possible with today’s technology – this would reduce global emissions by 2 Gigatonnes, the equivalent of four times South Africa’s emissions.
• Efficiency gains alone will not be sufficient to deliver the emissions reductions required in world of growing energy demand. But again, there is a potential solution, offering the vision of an ultra-low emissions future, via carbon capture and storage – CCUS.
• The IEA already acknowledges the role of CCUS, estimating it accounts for nearly 15% of the cumulative reduction in emissions between the Stated Policies Scenario and Sustainable development scenarios.
• What’s more, the Intergovernmental Panel on Climate Change has noted, that realising the Paris Agreement would be 138% more expensive – therefore simply unachievable – without CCS.
• Thus far policy support has been sporadic, notable recently in the Australian government’s support of half a billion Australian Dollars for CCS investment. Elsewhere, support is represented in the 65 CCS facilities that exist globally, of which 26 are operational and 37 in various stages of development.
• In South Africa, the 2019 IRP recognises the potential HELE technology can have for coal in South Africa’s energy mix, and the strategic partnerships necessary for CCS and CCUS technology for coal’s longevity in the country. The establishment of the South African Centre for Carbon Capture and Storage (SACCS) as far back as 2009, has placed the country in advanced stages of piloting its own CO2 storage project along its researched geological storage atlas.
• We speak a lot about mitigation when it comes to coal. We don’t speak enough about the constant innovation in the coal industry. Just last week I spoke with senior representatives from the American Coal Industry leading a discussion on a ‘net negative CO2 Baseload Power initiative’, achieved through co-firing coal/biomass with CCS.
• With more than 319 GW of new coal capacity being added in emerging markets between 2014 and 2018, and 1000 coal plants in various stages of development currently, we cannot afford to see developing nations forced into sub-economic paths, or emissions stemming from sub-optimal technology deployment.

Cost of the Transition

• Raising the Coal IQ, also means asking the tough but realistic questions around costs, such as: “Who will pay for this transition?”
• When people say to me ‘we are transitioning away from coal’, I ask them why and what they think this means – and costs?
• The world cannot sustain the sort of net zero projections being continually impressed upon it. For instance, to meet the IEA’s Net Zero to 2050 scenario, emerging and developing economies would need to increase clean energy investments more than sevenfold – from US$150 billion in 2020, to US$600 billion by 2030. By 2050, this figure would balloon to more than US$1 trillion despite developing nations experiencing a current 8% decline between 2019-202o and struggling with additional crisis highlighted by the COVID pandemic, response to it and recovery from it.
• As an organisation, we responded positively to the Paris Agreement, seeing it as an opportunity to renew commitments to financing the full suite of low emission technologies and to craft policy responses based on a ‘no regrets’ approach, taking an agnostic view to all fuels and technologies on the principle of common but differentiated responsibilities.
• We need to ensure that those signatories have the right to clean coal technology for the future. We need finance and investment institutions to continue to invest in and drive the support for and inclusion of clean coal technologies.
• Locally, the estimated cost for clean coal technologies of R60 billion (Rand) seems unattainable until it is compared to the economic cost of not having stable, secure generation available. Load shedding is estimated at costing South Africa’s economy R500 million per stage, per day, and a report by the CSIR Energy Centre shows that in 2019 alone, the cost to the economy was between R60 billion and R120 billion, totalling as high as R338 billion for the last decade.
• Widespread deployment of CCUS technology, or phasing in, has the potential to not only be an economic and environmentally acceptable route to a low carbon future but also to enable coal to form the basis of a future hydrogen economy. Here, hydrogen from coal and CCS priced at approximately $2.50-$3.50 per kilogram is a fraction of green hydrogen, which can be up to $26 per kilogram.
• Hydrogen from coal with CCS is proven and operating at commercial scale now. The Great Plains Synfuel Plant in America, produces around 1300 tonnes of hydrogen per day in the form of hydrogen rich syngas from brown coal gasification with CCS.

Investment versus Divestment

• And so, we arrive at the final piece in the fact puzzle- the critical need for an agnostic and educated financial and investment sector. Not virtue signalling. Not regulating through divestment policies in the absence of or ignoring clear government policy, or misguided investment cases not considering the UN Sustainable Development Goals as a measure; and/or the structural change and disruption to economies that would be required should an aggressive timeline be adopted, such as those proposed outside the spirit of common but differentiated responsibilities.
• The perception of and advocacy for global coal divestment is largely driven by Western sentiment muddled by subsidies and vested interest and incompatible global policy environments promoting a belief that renewables can replace coal. As the International Panel on Climate Change (IPCC) has previously stated, there is no near-term credible scenarios for a future energy system based 100 per cent on renewables; and in the words of Bill Gates: “Divestment, to date, probably has reduced about zero tonnes of emissions”.
• Having access to financing for responsible investments should be our collective aim; and it is good to know that investors are tackling the reality of this responsible transition:
• In January 2021, 4,488 institutional investors held investments totalling US$ 1.03 trillion in companies operating along the thermal coal value chain.
• Between October 1st 2018 and October 31st 2020, 665 banks that provided loans totalling US$ 315 billion and underwriting activities worth over US$ 808 billion.
• Financial strongarming by international institutions and the Global North into preferred policy pathways and energy mix decisions, cannot be elevated over the emerging and developing energy markets sovereign rights concerning energy, deep decarbonization and sustainable economic growth according to each jurisdiction’s needs and capabilities.
• COP 26 – we hope will be true to its roots. It cannot be a rubber stamp for idealistic but unrealistic pathways and commitments. All fuels and all technologies are, and need, to be remembered as included in the Paris Agreement. Collaboration is key to support countries in adopting their own decarbonisation pathways.

CLOSING REMARKS

• By the nature of my upbringing and what is innate to me – I am an optimist and many who have worked with me will tell you I am also a realist.
• Balancing competing interests and the inconsistencies between the coal reality and anti-coal sentiment will define us in the years to come.
• I do not believe that the coal industry will die. But if it doesn’t transform through technology and modernisation – I do not believe it can thrive.
• There is something very disrespectful about this debate – almost a feeling of the ‘peer pressure’ we might have experienced in our school days – and I point that out to any stakeholder that veers into this space. The definition of a ‘just transition’ in my view needs to be challenged. I do not see it as a transition away from coal but a transition inclusive of technology, respecting sovereign choices and realistic pathways which do not compromise a country’s economic growth. I thought that India Prime Minister, Modi’s comments were a timely reminder of our differences and tolerances – when he referred to his country as a “Climate Responsible Developing Country”. And in this regard these climate responsible developing countries commitments have been to find the funding and support to eliminate unabated coal.
• Of-course the coal industry could do more and certainly for my members they look forward to working with their peers in uniting our plight.
• Countries will need to conduct their own reality check and choose the energy pathway which best meets their economic, social and environmental needs. That right must be respected as rational and realistic to any achievement of a net zero outcome.
• The factors of economic recovery, development and growth; energy security and energy affordability should be weighted in the same way as the CO2 metrics.
• This I believe is the collective ambition we must develop.
• And so, the WCA is facilitating the recruitment for our movement – a joint venture if you will:
• We are “Project Global Coal”.
• All of us in the coal value chain – joint venture partners.
• We must work in the best interests of the Project – despite our different commercial and business interests.
• We will need a new ‘inclusion’ conversation which is practical, factual, society-driven and climate conscious: explaining that coal is critical to certain economies and existing clean coal technologies are vital to achieving emissions targets.
• Emphasising that coal is a natural supporter of renewables, providing stable grid-based electricity when the wind doesn’t blow, and the sun doesn’t shine. The two must coalesce and co-exist. And pointing to the innovation that is on the horizon. I can see that many of our global stakeholders are waiting for this coherent and perhaps braver assertion.
• I have been recently reminded of the African proverb: If you want to go fast, go alone; if you want to go far, go together. This is very powerful and apt for our time.
• When I joined the WCA, July Ndlovu said to me when I mapped out my Evolving Coal strategy “Michelle – I absolutely support your direction but don’t forget Africa!”. A year later he became my Chair. And a year after this I have the privilege of addressing the key coal players in this industry.
• I thank you for the opportunity to speak today. I genuinely look forward to more of the South African coal industry represented in our membership – guiding and leading us in unison to create a globally robust coal industry which will benefit us all.