OECD agrees deal to restrict financing for coal technology

Coal in China. [timquijano/Flickr]

Members of the Organisation of Economic Cooperation and Development (OECD) struck a deal on Tuesday (17 November) to restrict subsidies used to export technology for coal-fired power plants, ending months of wrangling.

Representatives of the world’s richest countries agreed a deal to end export credits for inefficient coal plant technology to take effect in January 2017, with a review in 2019 that could allow the deal to be strengthened.

This week’s talks at the Paris-based OECD were viewed as a final chance to end export credits for coal, the most polluting of fossil fuels, before the two-week United Nations climate summit on a global deal to curb climate change begins on Nov. 30, also in Paris.

“This is the first time these guys have significantly constrained their financing of coal-fired power plants,” said Jake Schmidt, international policy director for the Natural Resources Defense Council.

While the United States already restricted coal technology exports, the new OECD agreement would force countries like Japan and South Korea to limit theirs for the first time. The European Union plans to end domestic coal subsidies by 2018.

Japan, wary of regional competition from China, had been at the vanguard of opposition to phasing out coal export credits that benefit companies such as Toshiba Corp.

But prospects for a deal improved after Japan agreed to a compromise proposal with the United States last month.

Tuesday’s deal modified that agreement and would limit lending for coal plants to the most efficient coal-fired power plants using ultra-supercritical technology.

A compromise provision tabled by South Korea and Australia added an exception to allow the construction of smaller, less efficient “supercritical” coal plants of up to 500 megawatts in developing countries.

It would allow some exemptions in emerging economies where up to 90 percent of the country has electricity access, including India, Indonesia, the Philippines and South Africa.

“The agreement is a victory for multilateral efforts to address climate change though it’s a limited victory,” said Steve Herz of the Sierra Club, adding that countries like Korea, Japan and Australia “continue to put their interests ahead of global cooperation.”

He added that the deal has the potential to remove around 850 previously eligible coal plant projects out of the global pipeline,

The coal industry has said coal is still a necessary energy source, especially in poor countries that have few other options.

At a meeting in Turkey this week, leaders of the world’s largest economies, the G20, reaffirmed their commitment “to rationalise and phase out inefficient fossil fuel subsidies”.

Environmentalists have demanded that European banks stop financing the coal industry abroad. German banks alone have injected €5.7 billion in the Philippines’ coal sector in the last three years, mainly in the form of stocks and bonds, with only a limited part being made up of direct loans. Deutsche Bank is the largest investor, having invested €4.5 billion, with Allianz a distant second, with €1 billion. The biggest beneficiaries are the power plant operators TEPCO and the Ayala Corporation.

Oxfam, and the Philippine Movement for Climate Justice (PMCJ) called for German banks to come up with a "coal-exit plan" before the COP21 climate conference in Paris later this month. It would be an important step in climate protection and send a signal to the growing protest movement in the Philippines, led by the Catholic Church.

But a coal phase-out plan in the next month is unlikely, as the sector is booming across the region. The governments of Southeast Asia are sticking with coal, as it is a reliable energy source that will be able to support the rapid growth of their economies for years to come. In the Philippines, energy-intensive mining is also a key industry.

>>Read: NGOs call on German banks to stop funding coal

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