Obama's New Proposed Regulations On Coal Energy Production Met With Ire Through Kentucky's Coal Country

The leaders of Brazil, Russia, India, China and South Africa (known as the BRICS) recently met to launch a newly-created international fund called the New Development Bank (NDB). The BRICS represent roughly a fifth of the world economy and 40 percent of the global population. The NDB will have an initial capital pool of $50 billion and maintain a currency reserve of $100 billion. The Shanghai-based NDB aims to challenge the World Bank and the International Monetary Fund (IMF), the two dominant Western international institutions.

The first deviation that the NDB will take from the IMF and World Bank is funding coal-fired power plants. In June 2013, President Obama announced the Treasury Department will no longer approve financing for traditional coal plants abroad, except in “very rare” cases. That same month, the World Bank agreed to a new energy strategy that limited the financing of coal-fired power plants to “rare circumstances” in order to address the impact of climate change. Following this policy shift, the United Kingdom and the Netherlands also stopped funding.

The leaders of the BRICS nations have a much different view on coal and how the resource should be developed in the future. To start, many of these nations have very large coal endowments. In terms of reserves, Russia has the second largest (behind the U.S.), followed by China and India (fifth). In terms of production, China is the world’s largest coal producer, by a wide margin, while India is third, Russia sixth, and South Africa seventh.

Besides Russia, which holds the largest natural gas reserves, and Brazil, which enjoys large hydro-electric capabilities, India, China, and South Africa are extremely dependent on coal for electricity generation. In 2012, China relied on coal for 81 percent of electricity generation, while India (68 percent), and South Africa (94 percent) also required a significant amount of the resource. Even as other fuel sources grow in these countries, most experts believe that coal will produce the majority of their electricity for the foreseeable future.

Rising global coal demand can be an economic growth engine for Russia and South Africa. In South Africa, Richards Bay Coal Terminal, the world’s largest coal facility, exported a record 70 million tons of coal in 2013, primarily to China, India, and Europe. The coal mining sector employs more than 139,000 people and accounted for about 1.8 percent of GDP. With a GDP growth of only 2.8 percent in 2012 and an unemployment rate that hovers around 25 percent, coal is a vital part of South Africa’s economy. In Russia, President Putin has declared a goal to increase coal output by 30 percent by 2030. With the second largest proven reserves, minimal environmental interference, and an insatiable demand from Asia, this goal seems obtainable.

So far, an absence of low-carbon stipulations with regard to these BRICS initiatives has already unnerved environmentalists. They argue that despite its history dating to 1944, only recently has the World Bank shifted away from fossil fuels and towards clean energy. As three of the five BRICS countries, along with dozens of other developing countries, expect to rely on coal for the majority of their electricity generation for decades to come, the New Development Bank could play a key role in financing the ever growing fleet of new coal-fired power plants.