Some of the world’s largest economies want to finalize a plan ahead of this year’s UN climate summit to halt new private sector financing for coal projects, five sources with direct knowledge of the matter said.
If adopted, the draft proposal from the Organization for Economic Co-operation and Development would be the first step by a multilateral institution to curb the financing of coal, one of the biggest causes of climate change, which produces more CO2 emissions than oil or oil. gas when it is burned for energy.
The draft plan, which aims to establish a “gold standard” policy for how financial institutions approach coal, instructs investors, banks and insurers to freeze new financing for existing or planned coal projects, and put an end to financing companies building coal infrastructure, the sources said. .
Under the plan, financial institutions would finance the early retirement of coal-fired power plants, rather than divesting these assets. And early closures of coal-fired power plants must be accompanied by clean energy financing to replace lost coal capacity.
Commercial banks’ lending and underwriting to the coal industry totaled $470 billion between January 2021 and December 2023, NGO Urgewald said in a report last month.
OECD countries – whose 38 members include most of the world’s largest market-oriented democracies – are preparing feedback on the proposal, which will be put out for public consultation before it is formally adopted ahead of the UN COP29 climate summit in Azerbaijan in November .
The OECD policy would be non-binding, but would aim to set an international standard used by companies’ boards and shareholders.
Previous OECD guidelines – for example on child labor – have been adopted by a number of multinational companies and provide a standard for dealing with countries where no formal child labor laws exist.
France, the United States, Britain, Canada and the European Union are among those backing the proposal, part of a “Coal Transition Accelerator” initiative that France devised at the COP28 climate summit last year, the sources said.
That project, which also focused on lowering the cost of capital for clean energy investments, was supported by coal-dependent emerging economies, including Indonesia and Vietnam – both of which have signed multibillion-dollar deals with donor countries to reduce their dependence on coal.
The biggest resistance to the OECD proposal comes from Japan, three sources say. Japan is the world’s third largest coal importer and gets more than a quarter of its energy from coal.
OECD members adopt new guidelines by consensus.
Japan’s Ministry of Economy, Trade and Industry did not immediately respond to a request for comment.
Some sources said the proposal could be further watered down, possibly to end project financing but not general corporate lending, or it could focus on investments in power plants rather than all of coal infrastructure.
Group of Seven country leaders – including France, the US and Japan – are expected to debate their efforts to phase out coal at a summit in Italy next week. Two sources said the outcome of the G7 summit could influence the objectives of any OECD deal.
Governments, including the G7, have banned or limited public financing for coal energy in their drive to meet climate targets, so most coal financing now comes from the private sector.
According to S&P Global, only a quarter of financial institutions currently have policies that limit their coal financing. Global coal energy capacity stands at over 2,000 gigawatts – with another 500 gigawatts of new capacity under development, most of it in China.
Coal project owners could face complex economic challenges if they have to shut down plants early.
For emerging economies with young coal-fired power stations, such as India and Vietnam, early retirement can be complex if the investments required to build the plant are only repaid over the full life of a plant – typically about 40 to 50 years.
