Author: Peter McCawley, ANU
The use of coal needs to be cut back as quickly as possible. Activists in developed countries are calling for new regulatory controls over global finance to curb investments in coal. They have pointed to recent announcements by China promising to end the financing of foreign coal-fired power plants as a clear sign that coal is on the way out in Asia.
But another view — heard mostly in large developing countries — is that the transition to a green world will take time. Voices from these countries who oppose environmental controls on international finance argue that, for the time being, coal is still needed to promote development.
These different views reflect different priorities. Proponents of the ‘end coal now’ lobby are concerned with the global climate change agenda. Their main concern is not with current living standards, but with living standards after 2040.
Proponents of the ‘steady transition’ lobby agree that global climate change goals are important — but have other priorities. They point to the fact that rich countries are already well-supplied, but that energy poverty is still widespread in developing countries. They say that the goal of rapidly increasing the quantity of energy must be given high priority.
Beneath this gap between the divergent priorities of rich countries and developing countries is the difficult issue of finance. It is going to be expensive to finance the transition in energy systems across the world.
There is the question of the US$100 billion that rich countries promised would be provided by 2020 as ‘climate finance’ to help developing countries go greener faster. This was first mentioned during the UN talks in 2009 in COP15 when rich countries promised to provide US$30 billion for 2010–2012. They also agreed to mobilise long-term finance for a further US$100 billion a year by 2020.
The trouble is that the language built into these references to ‘climate finance’ has been so loose as to be almost meaningless. But whatever the references mean, nothing like an annual flow of US$100 billion has been forthcoming. Official statements from rich countries at COP meetings tend to tactfully avoid mentioning the matter. Unsurprisingly, delegates from developing countries have not forgotten this promise and keep referring to the matter when they address UN meetings.
For some time, major multilateral development banks (MDBs) have been under strong pressure to cease funding new coal-fired plants in developing countries. Both the World Bank and the Asian Development Bank (ADB) began to move in this direction in 2013.
In view of the political pressures from rich countries, the MDBs have no choice. These institutions are expected to align their programs with international goals set down in documents such as the 2015 Paris Agreement.
But there are downsides. Decisions to cease funding coal plants in developing countries mean that it is harder for the World Bank and the ADB to address the huge problems of energy poverty in developing countries. In the past, these institutions have spoken of the need to address global poverty. They are now struggling to come up with programs that cut back on support for coal-fired investment in electricity generation in developing countries while also helping to provide energy to poor people in these countries.
A related problem is that developing countries still plan to invest in coal-fired plants. They can continue to do this without funding from the MDBs because this funding makes up only a tiny part of their overall needs.
The ADB estimates that the total current investment in Asia’s electricity systems is over US$800 billion per year. The ADB recently announced a plan to provide US$100 billion in climate finance in the Asia Pacific region between 2019–2030 — about US$10 billion per annum. This promised funding is around 1 per cent of the annual investments in the electric power sector in the region. Clearly, decisions by the MDBs to withhold funding for coal-fired electricity plants will have little impact on investment plans in Asian countries.
Neither does China’s announcement that it will no longer support foreign coal-fired power plants make much difference. China will still fund many other projects across Asia. Countries could borrow from China for a different project and fund coal-fired energy plants themselves.
A third issue is financing from the private sector for energy programs. Governments in OECD countries have been keen to deflect discussions about official funding for the global energy transition by pointing to the role that the private sector will play in funding renewable energy projects. But there is a myriad of problems in relying on the private sector.
It is almost impossible to get a reasonable estimate of the level of private sector funding which might be available to support renewable energy projects across the globe. All sorts of financial targets are mentioned but dissolve into vague wish lists.
The private sector plans to finance an array of energy projects. But chances are that many of these will never eventuate. It would be a mistake to expect that these vague plans for private financing will fill the gaps left when governments in rich countries fail to support emerging energy needs across the developing world.
Peter McCawley is Honorary Associate Professor in the Indonesia Project at the Crawford School of Public Policy, The Australian National University. He was formerly an Australian Executive Director on the Board of the Asian Development Bank, Manila.