Think-tank Questions ADB Coal Buy-Out Scheme

The Center for Energy, Ecology, and Development (CEED) on Wednesday expressed support for the Asian Development Bank’s (ADB) exploration of ways to encourage early retirement of coal facilities in the Philippines and neighboring countries but prodded the Bank to clarify its plan to do this by setting up a “carbon reduction facility” that would buy and operate existing coal-fired power plants (CFPP).

The multilateral development bank and other key financial institutions reportedly intend to pursue a scheme to buy out coal power plants and wind them down within 15 years, supposedly to allow the countries to shift to renewable energy, with ADB now allotting up to US$1.7 million to conduct feasibility studies on the cost of early closures of coal plants.

“When ADB made an announcement in May that it will no longer fund coal and would instead seek to support the phaseout of existing coal power plants in the region, we welcomed it as recognition of the Bank’s obligation to atone for having fueled massive coal expansion in Asia in decades past. Now, we hope to understand why it intends to do this with a buy-out scheme which, on first impression, is incompatible with its no-coal policy. With it, ADB is effectively going to finance and even take part in the operations and share in the profits of these projects for another 15 years,” said Gerry Arances, Executive Director of CEED.

In a letter addressed to ADB regional, climate and energy executives, including newly installed Chief of Energy Sector Group Priyantha Wijayatunga, Arances, inquired about the status of the Bank’s feasibility studies on coal phase-out and sought clarification on the operational changes that will be implemented among power plants considered for the buy-out scheme, as well as on the rationale of the 15-year winding down period.

“A 15-year winding down period means exposing the power sector to 15 more years of unreliable, inefficient, and pollutive CFPPs,” CEED’s letter read, while also pointing out that companies behind the operating coal plants are meanwhile “[absolved from] internalising the negative externalities and social costs brought about by the pollution that they create.”

CEED also questioned ADB’s decision to work with finance institutions still channeling financial support to the coal industry, with this initiative possibly conversely further incentivizing CFPP developers to continue pursuing new projects knowing that the risk of stranding assets and potential losses will be mitigated.

“Blackrock, Citigroup, and HSBC are funding, whether directly or indirectly through other financial institutions, new and pipeline coal plant projects in the Philippines. It seems counterintuitive that in its coal retirement initiative, ADB is partnering with the same financial institutions who are still funding new coal-fired power plants in the Philippines,“ the letter read.

Civil society and coal-affected communities will continue engaging the bank to ensure 1.5°C aligned energy development directions, be it in ADB’s coal phase-out plans or its ongoing energy policy update process, the group said.

“The immediate and just phase-out of coal and transition to clean and affordable energy from renewables in climate-vulnerable Philippines and the rest of Asia must be the ADB’s priority in all its energy related initiatives. We will not tire in reminding the Bank on and demanding for this,” Arances said.