Coal money shrivels as climate talks turn to finance
Coal and silver collide at climate talks in Glasgow, Scotland, where a series of private and public sector funding plans are unveiled to help end the world’s most polluting fossil fuel.
The money goes to shutting down coal-fired power plants, supporting coal-dependent communities in their transition to cleaner energy, and generating investments in renewable alternatives.
“The story has always been about how the economy evolves and that clean energy is more competitive. The big challenge is that most of these coal-fired power plants operate in markets where they don’t feel competitive pressure, ”said Tyeler Matsuo, senior partner at RMI, a nonprofit focused on energy systems.
“These are the kinds of financial mechanisms that tackle these structural and contractual barriers to phasing out coal so that we can accelerate the transition from coal globally,” she added.
One of the initiatives launched today is the Asian Development Bank’s Energy Transition Mechanism (ETM), a partnership to accelerate the phase-out of coal-fired power plants in Southeast Asia through a dual-track fund that would help shut down old coal-fired power plants while promoting clean energy. investments.
It will start with pilot projects in the Philippines and Indonesia, both of which rely on coal for more than half of their energy production. Once at full scale, the goal is to remove 50 percent of the coal fleet in these countries over the next 10 to 15 years.
“We have to demonstrate with ETM that we can do it, and we can do it in a way that is cost-managed, manages all the elements of just transition and does not disrupt the secure power supply so that they can continue to grow their economies, ”said David Elzinga, Senior Energy Specialist at the AfDB based in Manila.
Such efforts are not without challenges, however.
A report released by RMI today assessed a number of financial mechanisms. These include blended finance approaches like the Energy Transition Mechanism and other ideas – like one that would compensate owners of coal-fired power plants for early shutdowns by monetizing the benefits of emission reductions.
He found that while such initiatives have potential, they also carry risks.
One of them is to make sure that they do not provide excessive profits to owners of coal-fired power plants. Another is to ensure that public money is used efficiently.
A report from the Sierra Club said that retirement mechanisms must be intentionally designed to focus on equity and impact. “This requires both clear policies to avoid ineffective or inequitable results, and inclusive and transparent processes to negotiate solutions and set broad goals,” he said.
They are important because energy demand in Asia is expected to double by 2030, and coal-fired power plants there are much younger than those in more industrialized economies.
According to the International Energy Agency, coal-fired power plants in Asia have been online for an average of 13 years, compared to over 40 years for the average coal-fired power plant in the United States (Climate wire, November 2).
There are big questions to answer, said Joe Thwaites, climate finance expert at the World Resources Institute. “But accelerating the retreat from coal is a really, really important piece of the puzzle.”
Further announcements on cutting fossil fuel financing are on the table during the climate talks known as COP 26.
A progress report released this morning indicates that $ 130 trillion in private capital is available to help decarbonise the planet over the next 30 years. About 450 banks and other financial institutions are rapidly increasing their liabilities to move the global economy away from fossil fuels, according to the Glasgow Financial Alliance for Net Zero.
The alliance also announced that Michael Bloomberg, the billionaire climate advocate, will co-chair the group with Mark Carney, a former central banker who founded the Glasgow Financial Alliance for Net Zero in April.
“Accelerating the adoption of clean energy and other sustainable infrastructure quickly enough to avoid the worst impacts of climate change will require billions of dollars in new investments, possibly in the order of $ 100,000 billion.” , the co-chairs wrote in a Bloomberg op-ed. . “Most of this will have to come from the private sector, especially after the enormous toll the pandemic has taken on government budgets. “
The agreement with South Africa called “model”
The UK, France, Germany, the US and the European Union announced yesterday that they will pool $ 8.5 billion over the next three to five years to help Africa South to accelerate the transition of its coal-dependent economy to clean energy and transport.
The partnership is expected to prevent up to 1.5 metric gigatons of carbon emissions over the next 20 years, according to a UK government statement. Details of how the plan works will be released in the coming months, he said.
Ursula von der Leyen, president of the European Commission, said it could serve as a “model” for phasing out coal in other countries.
South Africa is the largest emitter from the fast growing African continent thanks to its heavy dependence on coal.
In September, it increased its emissions reduction target for 2030 to align with its longer-term plans to reach net zero by mid-century. That same month, delegates from the countries involved in yesterday’s announcement traveled to South Africa to begin negotiating the deal (Climate wire, September 30).
According to the IEA, coal will need to be phased out globally by 2040 if the world is to keep global warming at the 1.5 degree limit set out in the Paris climate agreement.
“We cannot make the Paris Agreement [goals] and meeting our climate goals without a focus on phasing out coal. It is not enough to focus on renewable energy capacity, ”said Mafalda Duarte, CEO of Climate Investment Funds. “And it’s a huge undertaking because we have to literally phase out 100 gigawatts of coal every year … until 2040. It’s like a coal-fired power plant every day.”
The Climate Investment Funds, a $ 10.5 billion multilateral development instrument, will announce funding for four countries – including up to $ 500 million for South Africa – on Thursday as part of its investment program for accelerating the transition from coal.
The world’s 20 largest economies have said they will stop funding international coal projects by the end of this year, and a growing number of financial institutions have also withdrawn their support for coal. However, they have been slower to commit to ending fossil fuel financing more broadly.
Further private sector announcements will be on the table today as the climate talks enter their third day. There are also unresolved issues to be resolved and money to be made up.
“This COP is managing the largest financial program the intergovernmental process has ever had,” said Lorena González, senior UN climate finance associate at the World Resources Institute.
And that way, she said, there are a lot of things that make it a “finance COP”.