Two years ago, OECD countries agreed to place limits on coal finance. Are countries following through on their commitments? The results are mixed. Most governments have stopped financing coal and shifted finance to clean energy projects. The worst actors, Japan and Korea, are continuing to provide billions for coal projects.
Continued government financing for international coal projects undermines the Paris Agreement and the prospects of a low-carbon future. To address climate change, governments must shift international public finance toward smarter, sustainable options such as solar and wind power.
The OECD Arrangement
In 2015, the “Participants to the Arrangement on Officially Supported Export Credits” agreed on new restrictions on export credits for coal-fired power plants. The “participants” include Australia, Canada, the European Union, Korea, Japan, New Zealand, Norway, the United States and Switzerland. The new restrictions took effect on January 1, 2017. They included partial restrictions on financing for coal-fired power plants, depending on the location, type, and size of the proposed coal plant.
Ending Financing for Coal: Health and Climate Benefits
According to a 2016 International Energy Agency report on energy and air pollution, coal is responsible for the largest share of air pollution in the power sector worldwide - leading to respiratory illnesses and premature deaths. Coal combustion accounts for two-fifths of global energy-related carbon emissions—more than any other fuel. The costs and life spans of coal projects stretch for decades, trapping developing nations in a system of incredibly dirty, carbon-intensive energy use. Instead of propping up their exporters of outdated coal equipment, OECD countries should be shifting investments away from fossil fuels towards low-carbon energy sources. For these reasons, the OECD agreed to adopt restrictions on coal finance in 2015.
Local communities in affected countries are resisting coal plants and demanding financing be for clean energy projects. However, their voices are ignored by the Japanese and Korean governments. Ironically, this is still true even in the midst of the COP23 climate change conference happening this week in Bonn, Germany.
— WALHI 40 TAHUN (@walhinasional) November 9, 2017
Coal vs. Renewables Financing by Major ECAs in the OECD (2013-2016)
From 2013 – 2016, ECAs were financing five times more coal than renewable energy. Financing for coal from 2013 to 2016 was about USD$15 billion while financing for renewables was about USD$3 billion.
Progress Report: Are OECD Countries Limiting Financing for Coal?
Unfortunately, the export credit restrictions are not sufficient, as countries are still able to provide billions in project financing for coal plants. While Norway, the UK and Canada have not been financing coal abroad and have shifted support to clean energy, Japan and Korea are still financing coal plants abroad. At the moment, the export credit agencies of the following OECD countries are still planning on financing more coal plants with over USD$7 billion, in spite of the host of risks to the climate, health and livelihoods. Financing for clean energy pending totals only USD$250 million.
Japan and Korea are planning to provide the most financing—billions of dollars for new coal projects overseas, even if not in the form of officially supported export credits. Japan in particular has not clarified why certain plants it will finance abroad do not have to follow the OECD rules restricting financing for coal plants. The Japanese government must step forward and either explain why it is violating the OECD agreement, or clarify why it does not need to meet the same standards as other developed nations.
The “worst actors” when it comes to institutions financing coal include the Japan Bank for International Cooperation, the Export-Import Bank of Korea, Nippon Export Investment and Insurance and Korea Trade and Insurance Corporation.
Even worse, Japan continues to insist that its construction of more expensive “ultra-supercritical” coal plants is good for the environment. This totally ignores the reality that not building a coal plant would be the best option.
Here is the list of projects that should be cancelled if OECD countries want to show they are committed to climate action, a safe environment, and human health.
Upcoming Coal Plants
In spite of the OECD Arrangement to Limit Finance for Coal-Fired Power Plants, these projects may still move ahead.
Signs of Progress
Fortunately, there have been positive signs from Korea that policymakers may be wise enough to end financing for coal plants abroad. During the 2017 National Assembly Audit in the fall, the president of KEXIM was questioned by the Strategy and Finance Committee about the risky investments in coal projects abroad. Thanks to a coal finance study from the environmental group Solutions For Our Climate, there was a bill introduced in the National Assembly amending the Korea Export-Import Bank Act, under which it will be subject to stronger scrutiny when investing in coal projects. This bill, and similar ones for the Korea Development Bank and National Pension Service, are expected to be passed in the coming months. Due to the large role of public financial institutions in Korean financial markets, effective restrictions on public financial institutions may lead to the cancellation or restructuring of both domestic and foreign coal plants. (Just last week, Dangjin Eco Power, revealed plans to cancel two planned coal plants domestically).
Korea funded over USD$8 billion in coal projects in the last decade, but passing this legislation would be a sign of leadership in the fight against climate change and would also demonstrate fiscal responsibility in promoting clean energy over dirty energy. And since Korea is home to the global Green Climate Fund, it is only right that it sets an example for other nations on how to help developing nations finance low-carbon energy production.
With the OECD restrictions and the clear dangers of climate change looming, it’s time for OECD countries to discuss how to implement a full ban on financing for all coal projects -- including all types of coal plants plus coal mining. The OECD must also commit to ramping up financing for renewable energy—which is minimal compared to planned financing for coal plants.
It’s time for countries to do more about climate change, not spend more money supporting more coal plants—one of the primary drivers of the carbon pollution that leads to climate change.
- OECD countries should direct their financing institutions to fully disclose energy financing data. At present, some institutions like KEXIM, Hermes and KSURE publish little to no financing information about current and upcoming projects on their websites. Especially in the case of Japan, the government needs to clarify the criteria by which it is exempting coal projects from meeting the OECD rules, since there is no transparency on this issue and it appears Japan has several upcoming projects in violation of the rules on coal-fired power plants.
- OECD countries should introduce domestic rules or legislation to end public financing for coal plants.
- OECD countries should direct their public finance institutions to prioritize finance for clean energy projects, in line with the Paris Agreement and UN Sustainable Development Goals.
Support for coal directly undermines the Paris Agreement’s overall goal of limiting carbon emissions and the potentially catastrophic impacts of climate change. Public financing, quite simply, should be redirected to support the low-carbon transition in developing countries. We can’t afford to waste another cent on coal. It’s time to shift the way we think about power.
— Mongabay Org (@MongabayOrg) April 27, 2017
— Mongabay Org (@MongabayOrg) April 27, 2017