Investors and the French Government are among those calling for investment into decarbonising coal plants to be labelled as “transition finance”.
The Coal Transition Commission (CTC), launched last year by the French and Indonesian governments, has published recommendations to accelerate the shift from coal to clean energy in line with the goals of the Paris Agreement.
“Private finance will need to play a key role,” noted the Commission, which has convened national policymakers, development banks, long-term investors and lenders, and international organisations.
“For this to happen at scale, regulators could consider clarifying that investing in reducing emissions from existing coal power plants is considered transition finance, subject to appropriate guardrails and disclosures.”
Coal is the largest source of electricity in the world, representing more than a third of global generation and more than 40% of all carbon emissions in the energy sector.
Scientific consensus says that, in order to avoid catastrophic climate change, no new coal plants should be built, and existing projects should be decommissioned by 2040.
“Coal plants in Asia alone will exhaust the remaining carbon budget if left to operate to the end of their ‘economic’ lives,” said Mark Carney, former Bank of England governor and the United Nations’ special envoy on climate action and finance.
But many net-zero-committed investors have policies banning investment into coal assets, presenting a challenge for policymakers seeking to finance the early retirement of coal projects – especially in emerging and development markets.
In 2021, Prudential, Citi, HSBC and BlackRock teamed up with the Asian Development Bank to devise a plan to decommission coal plants in the region, but the project is yet to bear fruit.
“CTC’s report rightly identifies that getting private finance flowing into [coal plants’] early retirement will require ambitious government policy, more catalytic public capital and definitions of transition finance that include coal retirement,” continued Carney, who also co-chairs the Glasgow Financial Alliance for Net Zero (GFANZ), which supported the Commission’s work.
French energy minister Agnès Pannier-Runacher called for “innovative financing instruments and clear regulations that would mobilise private finance at scale” to help decommission coal, while Ravi Menon, Singapore’s climate ambassador and former head of its monetary authority, urged investors not to divest from coal, but to start “investing in its early-phase out”.
Menon added that such investment would require “transition finance, catalytic capital, and carbon credits”.
Other recommendations in today’s report include the development of blended finance models, where money from multilateral development banks and governments de-risks investments for private institutions; the creation of “high integrity coal-to-clean carbon credits”; and the establishment of a pipeline of priority projects.
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