The coal industry faces an existential crisis in developing countries, as major economies cut export credit and other financial support for new power plants. But experts warn that unless G20 countries make a concerted effort to boost global renewable energy capacity, emerging markets may unwittingly find themselves locked into fossil fuels for decades to come. Felix Thompson reports.


As governments strive to meet Paris climate agreement goals, public financing options for new coal-fired power projects across the developing world look set to dry up.

China has long been cited as the largest public financier of overseas coal development, but in a UN General Assembly speech in September, President Xi Jinping announced the Asian superpower would no longer provide overseas financing for coal projects.

Kevin Gallagher, director of the Boston University Global Development Policy (GDP) Center, said at the time that China “deserves great praise for pledging to stop building coal plants overseas – the first developing country to make such a pledge and the last of the major public financiers of overseas coal to do so”.

According to research released in July by the GDP Center, China, Japan and South Korea accounted for 90% of public financing of coal-fired power globally from 2013 to 2018.

At the same time, export credit agencies (ECAs) in the western world and multilateral development banks are also reducing support for the sector.

Many of the ECAs within the OECD Arrangement on Export Credits have been scaling back exposure to the coal industry since restrictions were imposed in 2017 on the “least efficient” plants.

Analysis from campaign groups Oil Change International and Friends of the Earth US, released in late October, revealed that many ECAs have shifted from the sector, halving their support for coal between 2015 and 2020. The research showed that ECA backing for coal projects slumped from US$23.8bn in 2015-17 to US$11.7bn in 2018-20.

And in October, members of the Arrangement, including the US, UK, EU, Japan and South Korea, agreed to formally stop providing export credit or tied-aid for unabated coal-fired power projects.

The move was hailed as a key step in closing loopholes within the previous OECD coal restrictions, which had left the door open to certain members’ ECAs backing new power plants.


“Existential threat”

In a September analysis of all non-OECD countries apart from China, climate think tank E3G calculated that the pipeline of proposed new coal-fired power plants has contracted by 77% since 2015.

E3G found planned development had become increasingly concentrated in just nine countries: India, Vietnam, Indonesia, Bangladesh, Laos, Zimbabwe, Mongolia, Pakistan and Bosnia and Herzegovina. Together, they accounted for roughly 80% of non-OECD coal projects under planning beyond China, the think tank said.

But in some cases, even those countries – which remain largely reliant on coal-powered energy – have abandoned plant construction projects or are scaling back expansion.

Vietnam made a surprise commitment at the Cop26 climate summit in November to stop permitting and building new coal projects, while Bangladesh announced in June that 10 out of 18 coal plants it was planning to build will be cancelled. Indonesia’s state-owned electricity provider has likewise said it will stop building new plants from 2023.

Christine Shearer, programme director for coal at Global Energy Monitor, a non-profit that tracks fossil fuel projects, tells GTR there are various factors behind the recent uptick in coal cancellations across the developing world.

Coal projects often face “significant public opposition” due to their environmental, health and climate impacts, she says.

“Many coal plants are also behind schedule and over budget, due to overly optimistic assessments of their viability… [and] coal is becoming increasingly less competitive compared to alternatives like wind and solar power.”

With major coal-funding nations having ruled out support for the sector, Shearer says “we are absolutely seeing the beginning of the end” for new coal-fired power plants in developing nations.

“Developing countries have been highly dependent on public financing from China, Japan and South Korea to fund the construction of new coal plants. With all three countries now pledging to end new coal plant financing, along with the G20, coal plant developers are left with limited options – most domestic banks in these countries are not sufficiently capitalised to fund large coal plants,” Shearer says.

Kanyi Lui, a Beijing-based partner at law firm Pinsent Masons, told GTR in September there is potentially an “existential threat for coal projects, especially those involving older technology or without carbon capture and storage”.

“The potential financing sources for developing countries looking to build coal power plants are going to be very limited going forward in light of Xi Jinping’s speech and OECD efforts.”


What next, after coal?

As coal power plant development slows down, the next step will be reducing the overreliance of developing countries on coal for their energy needs.

BP’s Statistical Review of World Energy report, published in July, found roughly 48% of the primary energy consumed across Asia Pacific in 2020 came from coal. According to the report, coal provided around half of Vietnam’s energy needs, and 43% of Indonesia’s. In the Philippines, coal’s share of fuels used for energy was around 40%, with Taiwan at approximately 34% and Pakistan just under 18%.

By contrast, renewable energy – excluding nuclear and hydro – was responsible for just 5% of primary energy fuels consumed across Asia Pacific.

“Asia’s energy transition is accelerating but the pace remains too slow,” says Gavin Thompson, vice-chairman for energy, Asia Pacific, at consultancy Wood Mackenzie. “Asia’s future growth still looks too reliant on fossil fuels, particularly coal,” he wrote in an October briefing.

Across Africa, oil and gas are the two dominant sources of primary energy, with BP’s analysis showing that the share of energy supplied by coal stood at 22% across the continent in 2020. Much of the demand was based in South Africa, where burning coal provided approximately 70% of the country’s energy needs.

For many nations, such reliance will continue unless financial assistance is provided by G20 countries to assist with the transition towards renewable energy sources.

Indonesia’s finance minister told Reuters in November the country could ditch coal by 2040, instead of 2056, but it would need funding from multilaterals, private lenders and wealthy governments to “retire coal earlier and to build the new capacity of renewable energy”.

Development banks are working to meet these needs. In October, the Asian Development Bank (ADB) unveiled a new energy policy, formally halting finance for extraction and power in the coal and oil sectors, and pledging to “support our developing member countries in the critical and urgent task of expanding access to reliable, affordable, and clean energy”.

The bank promised to deliver US$100bn in climate financing between 2019 and 2030, a jump of US$20bn from a commitment made in 2018.

Western governments have also said they will look to promote and incentivise green and renewable deals through their ECAs.

In late November, an alliance of seven European countries that included Denmark, France, Germany, the Netherlands, Spain, Sweden and the UK, said they would work to enact reforms and introduce “green incentives” in the export credit sector.

While details were lacking on what these measures might look like, researchers at Germany’s Offenburg University suggested ECAs within the OECD Arrangement could rejig the rules to include incentives such as lower minimum pricing.

China’s President Xi also vowed in September to “step up” support for other emerging market countries in developing green and low-carbon energy.


The gas conundrum

As developing markets move away from coal, environmental activists fear there is a risk they may become locked into gas over the coming decades, driven in part by financing from public lenders such as ECAs and multilaterals.

Natural gas has been touted as a cleaner and less polluting “bridge fuel” for countries in East and Southeast Asia looking to transition away from coal, White & Case notes in a February 2021 analysis.

“Natural gas-fuelled power has also been promoted as well suited to complement solar and wind power since it can ramp up or down flexibly in response to fluctuations in intermittent power from renewables,” the law firm adds.

But while natural gas produces half as much carbon dioxide as coal, emissions from the industry are growing rapidly.

Non-profit Climate Analytics forecasts that the use of natural gas needs to fall 65% below 2020 levels by 2040, but says in a November report that demand is soaring. “Gas is the new coal,” the report’s authors say.

The International Energy Agency also said last year that for the world to reach net zero emissions by 2050, no new investment in gas as an energy source can be made beyond 2021. Demand for gas must be slashed by more than half over the next three decades, it said.

Against this backdrop, an October report from Global Energy Monitor finds that US$379bn in new gas infrastructure expansion is currently planned across Asia, including US$189bn of gas-fired power plants, US$54bn of gas pipelines, and US$136bn of new liquefied natural gas import and export terminals. Such development would add 320GW in Asia and nearly double the region’s existing capacity for gas.

The report adds that public financiers have previously helped support such projects, and there is a “risk this will continue”.

“A survey of global public financing shows that public institutions provided US$22.4bn in financing for gas projects in Asia between 2014 and 2018. Recent announcements by the Asian Development Bank, World Bank and others show that these institutions have not yet committed to withdrawing from gas financing, and remain open to funding midstream infrastructure and power plants,” it says.

Whereas the ADB’s new energy policy ruled out financing for extraction and power projects in the coal and oil sectors, it left open the possibility of financing natural gas.

Oil Change International and Friends of the Earth US say in their October analysis that ECAs are ramping up support for gas at a much faster rate than renewable energy.

Export credit support for renewable energy has grown but remains meagre, it finds. Just 7% of total energy support from ECAs went to the renewables sector between 2018 and 2020, and fossil fuels have attracted far greater support as recently as 2020.

Overall support for renewable energy deals rose to US$10.6bn between 2018 and 2020 compared to totals of around US$7.5bn in 2015-17, the paper finds.

At the same time, G20 ECAs backed US$54.3bn in financing for the fossil fuel sector in 2018-20, with gas attracting 37% of all their financing for energy over the three years – by far the most favoured energy source.

“G20 public finance institutions definitely need to step in to finance much more energy in developing countries. It’s just that this finance should be for renewable energy, which is already cost-competitive with fossil fuels, even when storage is included,” says Bronwen Tucker, public finance campaign manager at Oil Change International.

A paper released in late November by researchers at Offenburg University revealed that 20 export-import banks and ECAs surveyed as part of a questionnaire would need to boost climate financing 6.8 times current levels to between €45.3bn and €57.4bn by 2030 “in order to reach required climate finance volumes by the end of the decade”.