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COP26

Climate fund to back India, Indonesia, Philippines coal phaseout

$2.5bn program unveiled by multilateral Climate Investment Funds at COP26

Unloading coal in Ahmedabad, India, in October: Decommissioning coal facilities is considered more complex than adding renewable infrastructure.   © Reuters

TOKYO -- The multilateral Climate Investment Funds will invest about $2.5 billion to help developing countries that rely on fossil fuels to phase out coal, initially targeting India, Indonesia, the Philippines and South Africa.

One of the world's largest funds for supporting green action revealed the plans on Thursday. It said its Accelerating Coal Transition program would focus on the decommissioning and repurposing of existing coal assets, such as power stations and mines, as well as creating sustainable economic opportunities and social protection programs.

The four selected countries "are very heavily dependent on coal in terms of their energy matrix ... [and] have still a considerable amount of coal-fired power plants that are competitive," CIF's chief executive, Mafalda Duarte, told Nikkei Asia in an interview. They account for 15% of the world's coal-related emissions, according to the fund.

Investment incentives and dramatically declining costs have made renewable energy more attractive in recent years. Renewables have long been a focus for the CIF, with the fund backing 26 gigawatts worth of capacity. However, "decommissioning coal is a lot more complex than building new renewable energy power," since economies are already dependent on the existing assets, Duarte said.

Developing countries tend to have coal-fired power plants that are still relatively new, with years of use ahead. According to Duarte, about 80% of coal facilities in India are still economically competitive. The use of coal also supports direct and indirect jobs, as well as municipal revenues, pensions and other sectors including railways.

To carry out a successful energy transition, she explained that renewable energy capacity and supporting infrastructure, such as electricity grids and batteries, need to come hand in hand with the retirement of coal assets.

The CIF was set up in 2008 and is based at the World Bank Group to help fill the financing gaps developing nations face in responding to climate change. The ACT program was endorsed by the Group of Seven advanced economies in June, which committed up to $2 billion in additional resources for the fund. The money will be delivered through multilateral banks such as the Asian Development Bank and the African Development Bank.

The fund also announced on Wednesday that it would issue investment-grade bonds to mobilize $50 billion for clean technologies in developing countries over 10 years. Part of this could also be used for coal transition, as well as for other areas such as storage systems and e-mobility, according to Duarte.

Duarte said the next steps in the ACT program would be for the four countries and the multilateral banks to start discussions on proposals to make to the CIF as early as within a year.

By design, every dollar of investment the CIF makes in clean technologies would bring an additional $10 from other financiers. "When we now get into the countries, we are able to mobilize even more financiers so that we can put together packages of investments that are quite ambitious," she said. The program could also expand to other countries, she added.

On Wednesday, the ADB launched a partnership with Indonesia and the Philippines for an Energy Transition Mechanism, which seeks to retire coal-fired power plants on an accelerated schedule and replace them with cleaner power sources. "ETM has the potential to accelerate the retirement of coal plants by at least 10 to 15 years on average," Philippine Finance Secretary Carlos Dominguez said in the announcement.

The ETM aims to retire 50% of the coal assets in Indonesia, the Philippines and possibly Vietnam in the next 10 to 15 years, the ADB said. Japan has announced a $25 million grant for the mechanism.

Many players are on board with retiring more coal assets in Southeast Asia. "We're hoping that we'll be able to work very closely with the Indonesian government through the Asian Development Bank," said Joe Curtin, director at the Rockefeller Foundation, which has made some investment commitments to the ADB. He told Nikkei Asia that he is hoping to initially retire 10 coal plants in Indonesia and replace them with renewable energy.

"We want to remove barriers to energy transition," Curtin said. "We want to create the enabling environment, regulatory reform, investment grade, policy frameworks ... because that's the way you get private capital to flow," he added.

Duarte said she hopes the ongoing COP26 climate summit in Scotland will provide a clear pathway toward meeting the $100 billion climate financing goal for developing countries -- and a road map to provide more.

Since developing countries use about 70% of the total global energy supply and represent the largest share of the world economy, "this battle [against climate change] will be won in developing countries," she stressed.

Additional reporting by Maïlys Pène-Lassus.

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