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Asian Infrastructure Investment Bank

AIIB is right to shun coal for cleaner energy investments

Helena Wright applauds the decision by the world’s newest development bank to follow the example of its peers on energy investments, providing a platform for China and the EU to lead action on climate change

PUBLISHED : Tuesday, 20 June, 2017, 4:56pm
UPDATED : Tuesday, 20 June, 2017, 8:03pm

Much has been said about how Beijing and the European Union will now take over America’s mantle and lead the world on climate change. The world’s newest development bank – the Asian Infrastructure Investment Bank – held its annual meeting in South Korea last week and approved its new energy-sector strategy. The investments funded by this new bank will turn all the fine words into action and set the way forward for the EU and China on the all-important issue of climate change.

AIIB’s vice-president Thierry de Longuemar confirmed that the bank “won’t finance” coal-fired power plants. This sends a strong signal that the bank plans to follow the example of other development banks by staying away from coal funding. This is great news.

AIIB must steer its energy policy towards renewable sources

The AIIB, headquartered in China, has initial funding in the region of US$100 billion, and the scale of its operations means it has the potential to be a game changer in the region. It was launched with a mission of being “lean, green and clean”, and its president, Jin Liqun ( 金立群 ), has said the bank wants to learn from the best practices of its peers.

Happily, US President Donald Trump can have no influence over the path it chooses as the United States is not among the bank’s shareholders. While there were alarming reports in recent weeks that Australia, a major coal exporter, was lobbying for the bank to allow coal funding, the AIIB’s leadership has made it clear that it wants nothing to do with this.

Jin has confirmed “there are no coal projects” in the bank’s pipeline, and that it places “great emphasis on helping our members transition towards a low-carbon future”. Insiders have also said there is no demand for coal projects coming from client countries.

How China can replace the US as a champion of clean energy

In the wake of Trump’s exit from the Paris climate deal, the other bank shareholders, which include the UK, France, Germany and China, should be looking towards the AIIB as a forum where they can move ahead to implement the Paris agreement. EU and Chinese leaders have already reaffirmed their continued commitment to the Paris deal. There is also hope that the “clean and green” aspirations of the new bank can be applied to China’s Belt and Road Initiative.

The AIIB’s resolve must not weaken. More than 80 per cent of the world’s coal reserves will need to stay in the ground to avoid calamitous climate change

Phasing out coal is crucial to keeping global warming within safe limits. As a region, Asia could not be more important to climate change, as it is where more than 90 per cent of the coal plants currently under construction are located.

The AIIB’s resolve must not weaken. More than 80 per cent of the world’s known coal reserves will need to stay in the ground to avoid calamitous climate change. Coal investment is totally incompatible with the globally agreed target of keeping the temperature rise well below 2 degrees Celsius of warming. Since coal-fired power plants have long economic lifetimes of over 40 years, building new ones would mean locking in emissions over this period, at a time we need to be phasing out coal.

As highlighted by the Global Commission on the Economy and Climate, the investment choices made over the next three years will decide whether the world follows a smart, inclusive growth pathway, or a high-carbon, inefficient and unsustainable one.

There is a growing consensus that investing in coal is not a sensible development strategy. Coal is not only dangerous in terms of climate change, but it also imposes a cost on public health. It is usually left to governments and individuals to pick up the health bill. For example, in the US, accounting for the cost of externalities caused by coal power (including health costs) triples the price of electricity from coal, making it one of the most expensive forms of energy.

The real reason for China’s U-turn on climate change

Encouragingly, China announced earlier this year that it would be cancelling more than 100 coal power plants that were planned or under construction, while India has also just announced plans to cancel nearly 14GW of coal power stations. This has been driven in part by rising concerns over air quality. The UK, France and several other nations are phasing out coal completely.

Regional groups including civil society organisations in Vietnam have also called on the bank’s management to abandon dirty energy sources, recognising that coal plants in Vietnam have had adverse effects on people’s health, including thousands of premature deaths.

It is great news that the AIIB is looking to adopt the sensible policies of its peers. The other multilateral development banks, including the World Bank and the European Bank for Reconstruction and Development, have taken a similar approach, pledging not to finance coal except in exceptional circumstances, and committing to supporting countries to implement their climate pledges.

The AIIB must now follow through on its promises and take up regional clean-energy opportunities. Clean-energy costs are falling dramatically, with record-breaking investments in renewable energy taking place in both China and India. In India, solar power prices recently hit a record low, making it easier for India to meet its climate goals. The price of solar power in India is now is 18 per cent lower than the average price for electricity from coal-fired plants.

Trump’s opposition to climate action puts him on the wrong side of history. China and the EU now have the opportunity to step up and deliver leadership on the global climate imperative, including through the AIIB. Signals from the annual meeting are encouraging, and provide a basis for the AIIB to move forward to becoming a truly clean and green investment bank.

Dr Helena Wright is senior policy adviser at the global climate change think tank E3G