Power Shift: New Report on International Coal vs. RE Finance

One year after the Paris Agreement entered into force, are countries really shifting their financial flows to be consistent with a low-greenhouse-gas-emissions future? Our latest report, Power Shift, compares G20 governments’ financing for coal projects and renewable energy projects abroad. Our findings indicate that countries are still financing more coal than renewables projects abroad. Some progress has been made in shifting flows away from dirty energy like coal and into clean energy projects like solar and wind, but more needs to be done.

Main findings: G20 nations, and the multilateral development banks in which they play a key role, financed $38 billion USD in coal projects abroad but only $25 billion in renewables projects between 2013 and 2016. Unfortunately, there’s a pipeline for over $28 billion USD in future coal projects compared to only $14 billion USD for future renewables projects that G20 nations are financing beyond their borders. Given the falling costs of renewable energy and the dire health and environmental impacts associated with coal, governments should not be using their funds to invest in more coal projects abroad. The Paris Agreement called on nations to support a low-carbon future. G20 financial institutions could lead the clean energy transition, but not all of them have made that commitment.  

Why support renewable energy?

Renewable energy is taking the globe by storm, becoming competitive with and sometimes even cheaper than coal power. According to a 2016 report by the International Renewable Energy Agency, prices for solar PV modules and wind turbines have fallen roughly 80 percent and 30 to 40 percent respectively since 2009, thanks to technology improvements and economies of scale by the countries that have invested heavily and installed large amounts of solar and wind capacity, such as China, Germany and the U.S. Given the climate challenge the planet is facing, this shift is a crucial step in reducing global emissions and providing countries with access to clean energy. Many G20 countries are leading this transition. China invested $366 billion in renewable energy domestically from 2013 to 2016, 30 percent of the global total, followed by the United States (18 percent), Japan (12 percent), the UK (7 percent) and Germany (6 percent.)

Why evaluate countries foreign investments?

In addition to G20 countries’ domestic actions to expand renewable energy, it is also important to evaluate how they are using their public funds abroad. This report examines the public financing provided by G20 countries to developing countries, and whether their international actions to support clean energy are in line with their domestic actions. The report finds that G20 countries’ financing for renewable energy projects abroad has indeed grown, but more effort is needed to shift investments away from coal to renewables.

Why shouldn’t countries support coal power?

Coal power plants represent the single largest source of global carbon emissions from combustion. These emissions jeopardize our chances of realizing the Paris Agreement’s goal of limiting global temperature rise to 2 degrees Celsius above preindustrial levels, and making best efforts to keep it below 1.5 degrees Celsius. Coal power plants also emit a range of harmful air pollutants (e.g., sulfur dioxide, nitrogen oxides, particulate matter, and mercury) that negatively impact the environment and public health. Nevertheless, G20 nations have invested billions—and counting—in coal power projects beyond their borders, and are just starting to ramp up financing for renewable energy to reach comparable levels.

Top 10 Findings from the Report

1.       Countries Financing Coal Projects: The report shows that G20 members provided at least $38 billion USD in public financing for overseas coal projects from 2013 to 2016. During that period, the five biggest G20 coal financers were China ($15 billion USD), Japan ($10 billion USD), Germany ($4 billion USD), Russia ($3 billion USD), and South Korea ($2 billion USD). These five countries supplied 89 percent of G20 coal financing. Multilateral institutions in which G20 countries play a prominent role provided another $3 billion USD, representing 8 percent of total financing.

2.       Countries Financing Renewables Projects: During the same period, G20 countries invested only $25 billion USD in solar, wind and geothermal energy abroad. The top five renewable energy financers were Germany ($4 billion USD), United States ($3 billion USD), Japan ($3 billion USD), France ($1 billion USD), and China ($0.6 billion USD). These five countries supplied 46 percent of G20  renewables financing. Multilateral banks provided $13 billion USD, 50 percent of the financing for renewables projects.

3.       Future Coal Versus Renewables Projects: Most G20 public finance for future projects is still aimed at coal, to the tune of $28 billion USD. By comparison, only $14 billion USD in public financing is being considered for renewable energy.

4.       Top Potential Financers of Future Coal Projects: The leading potential financers for upcoming coal projects abroad are China ($13 billion USD), Japan ($9 billion USD), South Korea ($3 billion USD), India ($1 billion USD), and Australia ($1 billion USD). Germany, the United States, Italy, and Russia may provide additional financing for coal, although the amount of financing is not yet disclosed.

5.       Hotspots for Coal Projects: From 2013–2016, G20 financing supported coal projects in Vietnam (9GW), Indonesia (9GW), India (6GW), Morocco (2GW), Mongolia (2GW) and in many other countries.

6.       Coal in South and Southeast Asia: The imbalance between investments in coal versus renewable energy is especially stark in South and Southeast Asia, where financing for coal projects from a handful of G20 institutions far exceed investments in renewable energy. G20-financed coal power plants may have support from some government officials and utility companies in recipient countries, but they often face strong opposition from the local communities. Also, demand for stronger pollution standards is increasing. Yet G20 countries continue to support power companies, generator and turbine manufacturers, and construction companies involved in coal power projects, rather than help developing countries diversify away from coal and into renewable energy.

7.       Financial Institutions Responsible for the Most Coal and Renewables Projects: Among the G20 financing institutions involved, export credit and insurance agencies financed far more coal than renewable energy projects. The multilateral development banks finance both renewables and coal. Other G20 public finance institutions have a mixed track record. Some have paved the path to renewable energy. Others, such as Japan International Cooperation Agency and China Development Bank (based on available public information), provide far more support for coal projects despite global commitments like the Paris Agreement and the United Nations Sustainable Development Goals. While all nations need to honor the Paris and SDG commitments, G20 nations have a special responsibility as the lead influencers in the global economy. Continued financing for coal by G20 nations also directly undermines the G20 Climate and Energy Action Plan for Growth, released in the summer of 2017 in Hamburg, Germany.

8.       Policy decisions to limit financing for coal are gaining popularity: Policies adopted by some of the G20 countries as of January 2017—through membership in the OECD arrangement on export credits—will limit financing for coal plants in the future. Rapidly falling costs for renewable energy are making these technologies competitive with, and sometimes even cheaper than, coal power, especially if we fully count the costs from coal’s health and climate impacts.

9.       Multilateral support for renewable energy is growing and outweighs support for coal:

10.   Bilateral support for renewables is growing, albeit more slowly: Over the past three years, some G20 institutions have begun to recognize the superior viability of large-scale renewable energy projects and moved their money accordingly. Some G20 bilateral financing institutions have now shifted most of their support into renewable energy projects across dozens of countries. This list includes the U.S. Overseas Private Investment Corporation and Germany’s KfW Development Bank. Even some of the institutions financing the most coal power projects overseas (e.g., China Development Bank, Japan International Cooperation Agency, and Japan Bank for International Cooperation) have expanded their portfolios to include renewable energy.

Report Recommendations

Based on the responsibility of G20 countries to lead the fight against climate change and the important role they should play in helping developing countries build low carbon energy systems, we recommend that:

  • G20 governments should direct their financing institutions to fully disclose energy financing data.
  • G20 governments need to immediately end international public financing for coal power plants, except in very rare circumstances in which there is no other option for energy access in low-income communities.
  • G20 governments should direct their public finance institutions to prioritize finance for clean energy projects, in line with the Paris Agreement, Sustainable Development Goals, and the G20’s Hamburg Climate and Energy Action Plan for Growth.

While G20 members may be making progress toward their own commitments under the Paris Agreement, their investments in coal projects abroad impede global climate progress and undercut the agreement’s ultimate potential. In short, the G20 countries need to put their money where their mouth is and shift all of their investments from coal to clean energy.

What’s Next?

At COP23, we saw the formation of a global alliance to phase out coal, led by Canada and the United Kingdom. However, some of the biggest coal financers listed in our report, such as China, Japan, Korea, Germany and the United States, have not joined the alliance. Furthermore, the US administration used the COP23 climate conference to promote increased coal use, an outrageously hypocritical political stunt at a conference devoted to tackling climate change. Meanwhile, China has increased its cooperation on renewable energy development with other nations, such as through the recent agreement with Vietnam on renewables, and Korean lawmakers have started questioning the financing provided by Korea’s export credit agency for coal projects abroad. The newest major MDB, the AIIB, has approved financing for renewables projects in Egypt and has yet to finance any coal projects. Our report and data show that there are currently more coal projects than renewables projects that G20 countries are planning to finance abroad. But, perhaps these most recent developments are signs that a radical shift away from coal financing and into more renewable energy projects could be on the horizon.

A note on the NRDC Consolidated Coal and Renewable Energy Database 2017

We collected data from a variety of public and commercial sources (see Methodology section of the full report) to analyze G20 public financing for international coal and renewable energy projects (solar, wind, and geothermal) in the form of loans, grants, equity financing, guarantees, and technical assistance funds. We reviewed financing for projects by G20 export credit and insurance agencies and bilateral development finance institutions as well as the multilateral development banks in which G20 countries play a major role: the World Bank, African Development Bank, Asian Development Bank, Inter-American Development Bank, European Investment Bank, European Bank for Reconstruction and Development, and Asian Infrastructure and Investment Bank. Since some of the public financial institutions involved do not fully disclose energy financing data, it is possible our figures could be underestimates for some institutions.