On Tuesday, representatives from 34 of the world’s developed and major emerging economies reached an agreement to phase out public financing that supports the construction of new coal power plants around the world. Member countries of the Organization for Economic Cooperation and Development (OECD) announced that starting in 2017, all OECD countries will immediately stop providing export credit support for new coal-fired power plants, except when the most efficient technology is used or in the poorest countries where there are no viable alternatives.
Export credit support encompasses a wide range of financial tools and includes publicly backed loans and insurance for businesses seeking to export products to new markets around the world. This agreement ends export credit eligibility for all large coal-fired power plants with a capacity above 500 megawatts, except for the most modern coal-fired power plants, dubbed “ultra-supercritical” power plants. These new plants are still relatively uncommon — in fact, only one such plant exists in the United States. The agreement also allows support for less efficient plants with a capacity under 500 megawatts in very poor developing countries.
This move represents a significant step in limiting financing of new coal generation around the world. The agreement will end public financing for 85 percent of proposed coal-fired power plant projects seeking OECD export support, rendering more than 300 projects currently in the pipeline ineligible for credit. From 2007 to 2014, OECD countries provided over $40 billion in public financial resources for international coal projects, of which 77 percent went to coal-fired power plants. OECD export credit agencies contributed the majority of these resources — over $31 billion. During this time-frame, Japan and Korea — both members of the OECD who did not restrict coal financing before this agreement — were the number one and number three providers of public coal finance respectively.
Although proponents of coal financing for international projects say that these projects are important for increasing electricity access among the poor, export credits have rarely supported electrification efforts in the poorest countries. Oil Change International has found that of the 142 coal projects financed in the past eight years, none were in low-income countries. In general, continued support of coal-fired power plants undermines international efforts to combat climate change, and public financing for these projects effectively subsidizes continued reliance on coal around the world.
This agreement marks a major diplomatic achievement by the Obama administration. In a speech at Georgetown University in 2013, President Obama announced that the United States would stop providing export credit for coal-fired power plants overseas, and that he would work to encourage other countries and international financial institutions to do the same. This decision was followed the next month by decisions to restrict coal financing from the World Bank and the European Investment Bank. Since that time, Denmark, Finland, Iceland, Norway, Sweden, France, Germany, the Netherlands, and the United Kingdom announced similar restrictions for their export-credit agencies. And now the entire OECD has stepped forward.
With this agreement, developed countries will now have to take additional measures to ensure that developing countries and new international institutions such as the Asian Infrastructure Investment Bank, or AIIB, don’t attempt to fill the gap with the export credits of their own. During Chinese President Xi Jinping’s recent State visit, the U.S. and China agreed “to work towards strictly controlling public investment flowing into projects with high pollution and carbon emissions both domestically and internationally.” It will be important to build diplomatic pressure on China to honor this commitment and to see that the AIIB — of which many OECD countries are members — follows suit.
Pete Ogden is a Senior Fellow with the Energy Policy team at the Center for American Progress. Ben Bovarnick is a Research Assistant with the Energy Policy Team at the Center.