After a concerted push from the United States, members of the Organization for Economic Cooperation and Development agreed Tuesday to slash subsidies aimed at exporting technology for coal-fired power plants.
The decision by the world’s wealthiest countries to eliminate export credits for the least efficient coal plants, which will take effect Jan. 1, 2017, and can be strengthened four years later, marks a major negotiating success for the Obama administration in the run-up to U.N. climate talks later this month. The U.S. and several other key global players–including France, the World Bank, the European Investment Bank and the European Bank for Reconstruction and Development–have already limited its export financing for coal plants and had been pressing other nations, including Japan and South Korea, to follow suit.
A senior administration official, who briefed reporters about the agreement reached in Paris on the condition of anonymity, said that under the new rules OECD countries would still provide export credits for coal plants using ultra-supercritical technology and help finance slightly less-efficient plants in the world’s poorest countries. But the policy would effectively cut off public financing for 85 percent of coal plants currently in the pipeline, he said.
Jake Schmidt, who directs the international program at the Natural Resources Defense Council, estimated that these export agencies typically fund between five and seven coal plants a year. A large number of private banks follow the OECD guidelines for their own lending practices, he added, so the move could have “a ripple effect.”
“This agreement is a sign that using scarce public financing to support overseas coal expansion is coming to an end,” Schmidt said. “It will help spur more renewable energy opportunities by redirecting this financing towards climate solutions instead of climate destruction.”
OECD countries play a major role in bringing coal-fired plants online worldwide. They have helped finance more than $35 billion worth of coal plants in the past seven years, administration officials said. According to leaked OECD documents, its export credits supported projects accounting for 23 percent of the approximate 15.3 gigawatts of new global annual coal power capacity installed outside of China between 2005 and 2012.
While the administration started pushing for the policy change two years ago, Japan had resisted the idea in part because China was continuing to provide financial support for coal plants in developing countries. The Chinese government agreed to strictly control its support for overseas projects with high carbon emissions as part of its most recent climate agreement with the U.S. in September, which allowed Japan and the U.S. to forge a compromise proposal.
Even that compromise sparked objections from South Korean and Australian officials, according to several individuals familiar with the new policy, so it was modified to allow financing of power plants of 500 megawatts or less in countries where 10 percent or more of the population lack regular access to electricity.
That concession translates into “a less than 1 percent change” in how many power plants will now be eligible for international financing, the administration official said.
Michael Westphal, a senior associate at the World Resources Institute, said he and others had hoped the agreement would be “stronger in a number areas,” and “The proof will be in the pudding as to how much coal finance this agreement curtails, given the loopholes.”
Still, he called it “another nail in the coffin for coal.”
Paul Bledsoe, who worked on climate under President Bill Clinton, said the world’s richest countries need to make it clear during the upcoming climate negotiations that they are willing to help fund renewable energy projects in the developing world even as they cut their support for high-carbon projects there.
“While this deal represents an important advance on coal finance, it also creates a serious obligation for OECD countries to vastly step up financing of broad-scale clean energy projects in developing countries, or they risk justifying critics who contend they are denying the world’s poor access to the energy they need to escape poverty,” Bledsoe said. “Clean energy finance will be a key issue in Paris climate negotiations.”