The World Bank has announced that it will restrict its funding for coal-fired plants.

The move comes on the heels of US president Barack Obama saying he will place sharp restrictions on state financing of new coal plants overseas, “unless they deploy carbon-capture technologies, or there’s no other viable way for the poorest countries to generate electricity”.

Obama’s statement will likely affect the actions of US Exim, the US export credit agency, which has financed a series of large coal-fired plants over the past few years, including a 4,800MW plant in South Africa (to which it lent US$805mn in 2011) and a 4,000MW Indian plant (to which it lent US$917mn in 2010).

US Exim is currently considering the funding of the Thai Binh Two 1,200MW coal-fired plant in Vietnam, which will emit an estimated 6.7mn tonnes of CO2 a year. A US Exim spokesperson has confirmed to GTR that the Thai Binh Two plant application will be considered under the agency’s current environmental procedures and guidelines.

He also says that the board of directors will “within the next few months consider how it will respond to the president’s climate initiative”. He points out that Obama’s statement does not constitute a directive to US Exim. The agency, while part of the government, operates independently and its government-appointed directors will be meeting over the coming period to discuss how best to incorporate Obama’s initiative into its policies.

In a statement, chairman Fred Hochberg says the agency is committed to working with Obama to reduce greenhouse gas emissions, “including his call to end public financing for most new coal-fired plants overseas”.

ECAs funding environmentally unfriendly projects domestically or overseas have long been a bone of contention. While most are bound by OECD standards and adhere to the criteria set by the Equator Principles Association and the IFC, many feel that taxpayers’ money shouldn’t go towards projects that are detrimental to the planet.

GTR contacted the UK’s ECA UK Export Finance (UKEF) and was informed that the agency hasn’t funded a coal-fired plant for over a decade. A spokesperson says: “The government has stated its intention that UKEF and UK Trade and Investment (UKTI) should become champions for British companies that develop and export innovative green technologies around the world, instead of supporting investment in dirty fossil-fuel energy production. UKEF has not supported a coal-fired power station since 2002. Meanwhile, UKEF is participating on behalf of the UK in negotiations to agree export credit terms and conditions within the OECD that will encourage the use of low carbon goods and services.”

The World Bank’s policy shift is outlined in a report entitled Toward a Sustainable Energy Future for All: Directions for the World Bank Group’s Energy Sector. The report says that the bank “will cease providing financial support for greenfield coal power generation projects, except in rare circumstances where there are no feasible alternatives available to meet basic energy needs and other sources of financing are absent”.

The IFC, the commercial arm of the World Bank, was already following a directive from the group to steer clear of coal-fired plants, Ajay Narayanan, the IFC’s head of sustainability recently told GTR.

Both the World Bank and Obama’s words have been greeted with condemnation from the coal industry. The Republican Party, too, has accused the president of waging a “war on coal”. But environmental campaigners have generally reacted positively.

Amanda Starbuck, energy finance programme director at Rainforest Action Network, tells GTR that she “hopes the World Bank’s new position will encourage the rest of the private sector to wake up to the very real risks associated with financing carbon emissions”.

In 2012, the US banking sector provided US$20.8bn of support for the coal industry, despite consumption of coal for power generation falling by 11%. Starbuck acknowledged the significance of the recent developments but says the financial sector has a long way to go.

“Addressing carbon emissions from new coal-fired power plants is a significant piece of the climate challenge, but it is just one piece,” she says. “The World Bank needs to take a holistic approach and set targets for reducing the carbon emissions financed across the bank’s portfolio of activities.”

Of Obama’s climate change policy, she says: “Coal’s share of the US energy mix has now dropped below 40% and will continue to decline, while the industry’s political influence is seriously diminishing. Obama’s willingness to take a clear position away from the coal lobby is further evidence of this.”