By I. Hansana, Jadetimes News
Major Economies Aim to End Private Sector Coal Financing Before UN Climate Summit
Several of the world’s leading economies are working to finalize a plan to halt new private sector funding for coal projects ahead of this year’s UN climate summit, according to five sources familiar with the matter. The draft proposal, developed by the Organisation for Economic Co operation and Development (OECD), marks the first initiative by a multilateral institution to restrict coal financing a major contributor to climate change due to its high carbon dioxide emissions.
Draft Proposal Details
Gold Standard Policy: The draft plan seeks to establish a "gold standard" policy for financial institutions regarding coal investments.
Halting Financing: It instructs investors, banks, and insurers to stop financing both existing and planned coal projects and cease funding companies involved in building coal infrastructure.
Funding Early Retirement: Instead of divesting from coal assets, financial institutions would be encouraged to fund the early retirement of coal plants, with provisions to finance clean energy projects to replace the lost coal capacity.
Financial and Institutional Context
Coal Industry Financing: Between January 2021 and December 2023, commercial banks provided $470 billion in lending and underwriting to the coal industry, as reported by NGO Urgewald.
OECD Feedback: The OECD, which comprises 38 member countries including most of the world’s major market focused democracies, is collecting feedback on the proposal.
Public Consultation: A public consultation is planned before the formal adoption of the policy, targeted for the UN COP29 climate summit in Azerbaijan in November.
Setting Standards: Although non binding, the OECD policy aims to set an international standard that would guide the decisions of companies’ boards and shareholders. Previous OECD guidelines, such as those on child labor, have been adopted by multinational companies to set standards in regions lacking formal regulations.
Support and Opposition
Supporters: Supporters of the proposal include France, the United States, Britain, Canada, and the European Union. This initiative is part of the "Coal Transition Accelerator" conceived by France at last year’s COP28 climate summit, which also aimed to reduce capital costs for clean energy investments.
Emerging Economies: Emerging economies like Indonesia and Vietnam, heavily reliant on coal, have backed the initiative and entered into significant financial agreements to reduce their coal dependence.
Opposition: Japan, the world’s third largest coal importer, has voiced significant opposition to the OECD proposal. Over a quarter of Japan’s energy is derived from coal, and Japan’s ministry of economy, trade, and industry has yet to comment on the matter.
Future Outlook and Potential Adjustments
Consensus Requirement: The OECD requires consensus among its members to approve new guidelines, and the proposal might be adjusted.
Possible Changes: Possible changes include halting project finance but allowing general corporate purpose lending or targeting investments specifically in power plants rather than all coal infrastructure.
G7 Summit Influence: G7 leaders, including those from France, the U.S., and Japan, will discuss their coal phase out efforts at an upcoming summit in Italy. The outcomes of this G7 summit could influence the final form of the OECD agreemen
Broader Implications
Government Restrictions: Governments, including the G7, have already restricted public funding for coal power to meet climate goals, making private sector financing the primary source of coal funding.
Institutional Policies: Currently, only a quarter of financial institutions have policies limiting coal financing, according to S&P Global.
Global Coal Power Capacity: Global coal power capacity exceeds 2,000 gigawatts, with an additional 500 gigawatts under development, primarily in China.
Economic Complexity: Early retirement of coal plants is economically complex, especially for emerging economies like India and Vietnam, where initial investments in coal plants are intended to be recouped over several decades.