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AIIB makes backtrack on coal financing

Asia / 08-02-17 / by
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The Asian Infrastructure Investment Bank (AIIB) has issued a draft energy strategy which suggests it may finance coal projects.

The proposal document, which is due to be approved in June, says that the development bank will consider funding coal-fired plants under certain circumstances. Should this be the case, it would run counter to the bank’s assertion that it would be a “clean, lean and green” financier.

“Carbon efficient oil and coal-fired power plants would be considered if they replace existing less efficient capacity or are essential to the reliability and integrity of the system, or if no viable or affordable alternative exists in specific cases, particularly in low income countries,” says the document, which was written after lengthy public consultations.

There has been great speculation in recent months as to what the AIIB’s stance on coal will be. On one hand, environmentalists are looking to China (which is the majority shareholder in the AIIB) to take the lead on climate change.

The AIIB is seen by many as an extension of Beijing’s foreign policy operation: by financing projects in Asia, Chinese companies will hope to profit, thereby boosting the domestic economy.

On the other hand, other member states such as Australia and Indonesia have been lobbying for the AIIB to finance coal projects, particularly as most other development banks have restrictive policies on coal financing.

Indonesia has been seeking a US$1bn loan from the AIIB to finance 35,000MW of coal projects in the country by 2020. As the eighth-largest shareholder in the development bank, and having committed US$672mn to its coffers, it could reasonably hope to have some sway.

Australia is a bigger shareholder still, and has contributed A$5bn to the US$100bn AIIB. It is reported to have been lobbying very hard for the AIIB to finance coal-fired plants, as it bids to continue its strong exports of carbon products around Asia.

The draft strategy was greeted warmly in Canberra, with the Australian treasurer Scott Morrison telling local media: “Australia’s national interest demands that coal continue to be part of our future energy equation, not just here in Australia, but around the world.

“That is why following our strong representations, I am pleased that the AIIB has now put fossil-fuel generation investments back into the mix for their energy sector strategy, which is now under discussion.

“This is an important and practical recognition by the AIIB of the role that fossil fuels will continue to play in the energy mix of most of its member countries and that investments can support and accelerate the transition toward a low-carbon energy mix using lower-carbon emissions from fossil fuels.”

Again, this conflicts with the rhetoric coming from senior officials in the bank. Jin Liqun, the president, has repeatedly said that the AIIB will broadly follow the same energy financing strategy as the likes of the World Bank and Asian Development Bank (ADB), which both have very limited scope for financing coal.

Meanwhile, at the World Economic Forum in Davos this January, the AIIB vice-president for strategy and policy, Joachim von Amsberg, suggested that the bank would avoid coal financing.

He said: “There’s a strong consensus that AIIB has to be a green bank and the portfolio has to show that it’s a green bank and if the portfolio is full of coal projects you won’t look like a green bank.”

Commenting on the draft strategy, Scott Morris, senior fellow at the Centre for Global Development, tells GTR: “It seems broadly consistent with the principles of the other the MDBs, but it’s not entirely clear. The World Bank’s approach hinges on pretty detailed operational guidance from 2010, which spells out what ‘no viable alternative’ means in practice. Also, it’s unclear to me what ‘integrity of the system’ would mean in practice.”

Morris poured cold water on suggestions that China would usurp the US as the world leader on climate change-combatting initiatives, pointing to the destructive lending done by state-owned banks and agencies around the world.

He says: “I neither see the AIIB being the champion of a pro-climate, pro-development approach, nor do I see it as a leading source of coal financing. From China’s interests, they have used their bilateral programmes to aggressively finance coal.”

While the policy has yet to be formally adopted, it would appear that Morris’ scepticism is fairly well grounded.

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