Why Are G20 Governments Financing Coal Over Renewables?

Despite national commitments to reduce greenhouse gas emissions, some G20 countries still fund highly polluting coal projects. The catch is most of these emissions don’t count towards their carbon footprint - these countries are funding coal projects abroad. If G20 nations are serious about their Paris Agreement goals, they should not be exporting their highly polluting technologies to developing countries. The analysis below and accompanying database (available here) reveal that public finance for coal (coal mining and coal power plants) was about $10 billion in 2016, far more than the $4 billion in financing for renewable energy projects. With the recent G20 Leaders’ Declaration and G20 Hamburg Climate and Energy Action Plan both reiterating the importance of low carbon development, it’s time for the G20 countries to shift their public finance away from coal to clean energy projects.

The case against coal

Given coal’s negative impacts on climate, health, and the environment, G20 governments’ financing for coal represents a misuse of billions in public funds. Coal accounts for two-fifths of global energy-related carbon emissions—more than any other fuel. It also causes a terrifying array of health problems. A report from the International Energy Agency cited coal and oil combustion as the main cause of the outdoor air pollution linked to 3 million premature deaths each year. And a recent report by the Asian Development Bank notes that Asia would be severely affected by unabated climate change, with “temperature increases in Tajikistan, Afghanistan, Pakistan, and the northwest part of the People’s Republic of China (PRC) projected to reach 8 degree Celsius” by the end of the century under a business-as-usual scenario:

“These increases in temperature would lead to drastic changes in the region’s weather system, agriculture and fisheries sectors, land and marine biodiversity, domestic and regional security, trade, urban development, migration, and health. Such a scenario may even pose an existential threat to some countries in the region and crush any hope of achieving sustainable and inclusive development.”

If the climate, environmental and public health impacts aren’t reason enough, the corruption scandals involving the coal industry should be another reason for governments to reconsider funding coal projects abroad. For example, Marubeni, a Japanese company involved in several coal plants abroad, was fined for bribing high-ranking government officials in Indonesia. And Brazilian company Oderbrecht admitted to paying Dominican Republic officials $92 million in bribes for 17 construction contracts, including for the Punta Catalina coal power plant. The project was going to be financed by the Brazilian Development Bank, but following the corruption investigation, the loan was cancelled.

The economics of coal projects are also worsening and risk becoming stranded assets, as wind and solar power costs continue to drop. In China, existing coal plants are sitting idle while new projects are being scrapped. In India, unexpectedly high capital costs are forcing companies to take massive losses. Meanwhile, wind and solar continue to break records for lower and lower costs.  Australia, South Africa, Saudi Arabia, and Chile are all building wind and solar projects that are cheaper or competitive with coal power plants. With the rapidly falling price of renewables, coal is no longer the cheapest option. As countries rethink outdated notions about “baseload” power being synonymous with coal, it is clear that the energy mix of the future is undergoing a massive shift away from coal.

Coal finance—only good enough for developing countries?

The good news is that, in recent years, global renewable energy investments have far outpaced coal investments. The bad news is that public financing still favors coal, and there are significant regional variations in funding. The bulk of public investments in renewable energy happen in developed countries, China, or India, while public financing for coal projects is largely limited to developing countries.

G20 public finance institutions invested $10 billion in coal projects in developing countries in 2016, compared to less than $2 billion for renewables projects.

In contrast, G20 public finance institutions financed no significant coal projects in developed countries in 2016, while supporting over $2 billion in renewable energy projects. In other words, public finance institutions are now only financing coal projects in developing countries, not developed countries.

The coal projects tended to be larger scale, with an average investment by G20 public institutions of nearly $800 million dollars per project. For instance, Japan provided over $3 billion in public funds for a massive 2 GW coal plant in Indonesia, the Java Batang coal plant. Average public financing per renewables project was only about $100 million. The largest project in terms of public financing was the Beatrice Wind Farm in Scotland at $800 million, with most projects being closer to the $90 million range, such as wind and solar farms in Pakistan, Canada, India, Mongolia, and Uruguay.

One particularly noteworthy finding is the huge gap in public financing available for South and Southeast Asia – a region that is clearly underutilizing its large renewable energy potential. G20 public finance from 2013 to 2016 for South and Southeast Asia supported nearly $10 billion in coal projects, compared to only $1 billion for renewables. Some of the largest coal projects included the Java Batang Coal Plant (2000MW), Payra Coal Plant (1320MW), and Song Hau Coal Plant (1200MW), while the examples of G20 public financing for wind and solar projects include the Sidrap wind farm (75MW), Thatta wind farms (150MW) and support for solar module production in Vietnam.

Recipient Countries for coal and renewables finance

Recent international public finance for coal has concentrated on several countries, including Indonesia, Russia, Vietnam, Bangladesh, and Australia. Some of these such as Indonesia, Vietnam and Bangladesh have rapidly growing electricity demand. Meanwhile, several countries that have committed to renewable energy at a high level politically have seen more public finance invested in renewable energy, such as Germany, Morocco, the UK, Netherlands and South Africa. From 2013-2016, coal investments were concentrated in developing countries, though a few developing countries such as Morocco, South Africa and Chile have also seen sizeable renewables investments.

The majority of G20 public finance for future projects is still aimed at supporting coal projects. A much smaller amount of financing for renewables is projected. The pipeline of at least $30 billion in publicly financed coal projects includes coal power plants in Egypt, Vietnam, Pakistan, Brazil, Ghana, and Indonesia. By contrast, there is only $11 billion in public financing planned for renewables projects, for example in Morocco, South Africa—an amount that is far below that for planned coal projects and far below what we need to fulfill the Paris Agreement.*

Leading Countries in Financing Coal

For coal projects, the bulk of public financing has come from the governments of China, Japan and Korea, and Germany, with some funding coming from multilateral institutions or other sources.

China, Japan and South Korea are also the leading financers of upcoming coal projects, many of them Asia, a region which the Asian Development Bank’s recent report on climate change risk noted could face up to 6-8 degrees Celsius of warming by the end of the century, which would bring catastrophic economic, agricultural, health, and social impacts.

Misguided Investments in Coal

A handful of developed countries make up the bulk of public coal finance overseas. Public coal financing increasingly comes from Export Credit Agencies (ECAs) such as Export-Import Banks rather than from development institutions.  This trend indicates the intent for these coal projects: to profit companies based in the financing country, often at the expense of local communities. While a local company in the recipient country takes on the loan for a project, and while local governments often take on a large share of risk, ECAs support such projects because companies in their home countries will profit.  Foreign companies can help bring expertise to new markets, but given the severe environmental and economic risks associated with coal projects, G20 governments should be financing less coal and more clean energy projects—which bring far less harm to local communities.

Many Japanese-supported coal projects include engineering, procurement, and construction contracts that profit Japanese companies such as Marubeni, Toshiba, Sumitomo, and IHI. Keidanren—the Japanese Business Federation that represents these companies’ interests—has a “Strategic Promotion” policy paper which explicitly targets countries in Asia for promoting coal use. Japan’s government claims its “high-efficiency” coal technology will contribute to the sustainable growth of the host country.  Civil society groups in Japan and around the world reject this excuse, saying this ignores the significant environmental, health, and social impacts. Expert analysis shows that even relatively efficient coal-fired power plants are incompatible with globally-agreed climate goals. The myth of clean coal does not stand up to scrutiny.

China also promotes coal finance abroad to benefit Chinese companies who hold an increasing shares of construction and equipment contracts. Given the overcapacity of coal power in China, overseas projects provide business opportunities for these companies.  China’s State Council encouraged these international projects in a May 2015 statement, (though the support was not limited to coal—it included solar and wind power.)

South Korea’s companies are also building coal plants abroad. For example, the Korean Export-Import Bank-financed Korea East-West Power (EWP), a public utility company, won a joint bid to build a coal plant in Indonesia. The Korea Trade Insurance Corporation and the Korean Development Bank are financing the project, which will earn the Korean company a profit of $2.7 billion over the life of the project—at the expense of local communities. Korean company Doosan Heavy Industries & Construction has also won many contracts for coal projects in Vietnam, India, and elsewhere.

Increasing Public Finance for Renewables

Some institutions, such as the European Investment Bank, German development bank KfW,  Asian Development Bank, International Finance Corporation, Overseas Private Investment Corporation, African Development Bank, and European Bank for Reconstruction and Development (see chart below) have made significant progress in shifting their international investments from polluting coal projects to clean energy projects. However, more institutions must follow this path in order to reduce carbon emissions and the climate threats associated with coal projects.

Source: NRDC analysis, including data from the Global Coal Plant Tracker, Platts, IJGlobal, and other sources.

Even the biggest financers of coal projects, China, Japan and South Korea, are also financing projects in the clean energy space, and we encourage them to move more and more of their international energy financing towards clean energy in the future. China’s support for the 1000 megawatt Quaid-e-Azam solar park in Pakistan, South Korea’s support for the El Pelicano Solar Plant in Chile and the Al Fujeij Wind Farm in Jordan, and Japan’s support for the Tsetsii Wind Farm in Mongolia are all indications that a shift in the types of projects funded is already possible and should be prioritized over investments in coal.

Shifting financial flows to clean energy: Recommendations

Ending financing for coal isn’t a radical notion. Many private financial institutions already restrict funding for coal plants, citingmultiple risks associated with the coal industry, these being not just environmental, but economic and regulatory as well.”

By investing public funds in coal projects abroad, G20 countries show that while they may care about hitting their own domestic Paris Agreement targets, they do not care enough about the overall Paris Agreement goal of limiting carbon emissions and the potentially catastrophic impacts of climate change. 

Here are recommendations to better align G20 public finance with the G20’s stated climate principles:

  1. G20 governments within the OECD need to strengthen the OECD Agreement to limit financing for coal power and immediately end international public financing for coal power plants, except for very rare circumstances in which there is no other option to provide immediate energy access in low-income communities.
  2. G20 countries who are not participants to the OECD Agreement should develop more concrete guidelines for investments from export credit agencies and development institutions, establishing strict limits on financing new coal projects.
  3. G20 countries should direct their bilateral and multilateral development agencies and export credit agencies to establish and implement policies that promote and prioritize the financing of zero-emission clean energy projects such as wind and solar, in line with the goals of the Paris Agreement and the G20’s Hamburg Climate and Energy Action Plan.

G20 countries have some of the most advanced industrial and manufacturing capabilities in the world. They should be using their public financing to support the low-carbon transition in developing countries, not building polluting, carbon-intensive coal power projects. The numerous examples of wind and solar projects above that are already funded by G20 financing institutions show that this is possible and that these are smart investments, which will help the recipient countries to develop their economies in a cleaner, more sustainable way.

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*Note that the project information and financing totals in the database are estimates based on available public information. Some proposed projects may not be built due to changing economic, social or local conditions.

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This post was co-written with Carley Reynolds.

About the Authors

Han Chen

International Climate Advocate, International and Climate & Clean Air programs

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