A host of western nations have tabled a proposal to ban export credit support for so-called “unabated” coal-fired projects, in a bid to further limit financing for some of the world’s most polluting power plants.
At an extraordinary meeting of the Organisation for Economic Co-operation and Development (OECD) Arrangement on Export Credits last week, the US, EU, UK and other wealthy nations said they would prohibit their state export credit agencies (ECAs) from backing unabated coal plants – those that fail to use carbon capture and storage (CCS) technology to reduce CO2 emissions.
A few OECD members have reportedly expressed initial reservations to the proposal, with an industry source telling GTR that a further meeting has been scheduled for late October as a consensus could not be reached with a small group of nations, including Australia and Japan.
The Japanese Bank for International Cooperation (JBIC) declined to comment on the matter, while the Australian government did not respond to a request for comment.
There’s little suggestion that the hold up in talks will slow efforts among most western ECAs to banish unabated coal from their portfolios for good.
In April, seven European countries pledged to end export financing support for coal, while the major G7 economies made a similar commitment in June.
That move saw Canada, France, Germany, Italy, Japan, the UK and US vow to “take concrete steps towards an absolute end to new direct government support for unabated international thermal coal power generation by the end of 2021”, which included nixing all trade and export finance support.
Non-profit organisation Oil Change International said in a June report that the majority of western ECAs have largely shifted away from coal in recent years, but previously criticised Japan and South Korea for continuing to approve “billions of dollars for coal projects” despite previous restrictions imposed by the OECD.
In 2017, rules came into effect prohibiting support for projects unless they used “ultra-supercritical” technology or are smaller plants in the poorest countries.
As recently as December last year, environmental campaigners condemned the Japanese and Korean ECAs’ decision to help finance the US$1.7bn Vung Ang II project in Vietnam.
South Korean President Moon Jae-in has since announced, in April, that his government would end all new financing for overseas coal projects.
At a G7 summit in June, Japan also committed to take “concrete steps” towards ending unabated coal financing by the end of 2021.
China changes tune
Just days after the OECD proposal to ban support for unabated coal, Chinese President Xi Jinping announced that the Asian superpower would also stop funding overseas coal projects.
According to research from the Boston University Global Policy Development Center, public lenders in Asia have been some of the most prolific backers of foreign coal projects in recent years.
In a July report, it revealed that Chinese public finance for new coal-fired power weighed in at US$15.6bn for the years 2013 to 2018, while Japan contributed US$9.4bn and South Korea US$3.4bn.
Together the three Asian countries accounted for 90% of the public financing provided for such projects during that period.
Speaking at a UN General Assembly on September 21, President Xi said the country would “not build new coal-fired power projects abroad”.
Kevin Gallagher, director of the Boston University Global Development Policy Center, says 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”.
The Asian Development Bank is also set to rule out support for the majority of coal projects, despite having not financed a transaction in the sector since 2013, and experts say the financing avenues available for developing countries sitting on coal reserves are shrinking fast.
“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,” says Kanyi Lui, a Beijing-based partner at law firm Pinsent Masons.
Lui adds that this is potentially an “existential threat for coal projects, especially those involving older technology or without CCS”.
Asia would likely be particularly affected, with a June report from think tank Carbon Tracker noting that 80% of global planned coal projects were in China, India, Japan, Indonesia and Vietnam.
As major powers look to dismantle public sector funding for coal, analysts have pointed to the potential for transition risks if not handled properly.
Gallagher tells GTR that it poses economic risks to emerging market countries that rely on coal for domestic energy use and export.
As such, he says it is of utmost important for finance to “continue to flow toward cleaner energy and for the adjustment costs of a transition”.
President Xi outlined plans to do just that, saying in his speech that China will “step up its support for other developing countries in developing green and low-carbon energy”, echoing statements made by the US and EU last week.
“In conjunction with ending the use of public resources for coal power, the US government at the OECD is examining ways to further support global exports related to renewable energy and climate change mitigation,” the White House added.