Astute policymaking, financial incentives needed to dislodge coal in Asia: industry

The phasing out of coal from Asia's energy mix needs a combination of prudent public policies and precise financial incentives that account for how deeply ingrained the fuel is in the region's social and economic structure, industry players said June 8 at the Ecosperity Week 2023 conference in Singapore.

"Making progress requires the right public policies. These include removing subsidies for the generation of coal power, and the pricing in of externalities. Policies are also needed to ensure power market rules and contractual arrangements, support the deployment of renewable generation and allow them to displace coal," said Glasgow Financial Alliance for Net Zero (GFANZ) co-chair Mark Carney.

"Even so, we recognize that significant public and private capital in APAC is currently locked into existing coal assets, many of which are relatively young and have long-term contracts in place."

GFANZ APAC Network aims to deliver a final report with guidelines for financial institutions to fund the managed phase out of coal power plants in the region ahead of COP28, and had launched a public consultation earlier this week, which will run until Aug. 4.

As part of the consultation, GFANZ had laid out 10 recommendations for financial institutions, such as the need to assess the stability of energy transition plans in the country where the coal power plant is in, as well as access to secure, reliable and affordable clean energy replacements.

"There's a risk that without recognized and credible approaches, private finance pulls back or even divests from coal-related exposures as part of its own efforts to decarbonize. This will be individually rational, but collectively, it would be a huge mistake," added Carney, who is also the UN Special Envoy for Climate Action and Finance.

"We need finance to go to where the emissions are to decarbonize."

Asia's dilemma

Although coal power use has halved in advanced economies from its 2007 peak, its use has not slowed in emerging and developing economies, despite coal generation being the largest source of CO2 emissions globally, said Carney.

"Economic growth in Asia is immense and is projected to be continuously growing for the next decades, unlike Europe and the US, which have slowed down ... quite significantly," said Climate Policy Initiative's director Tiza Mafira at the conference, adding that coal is still perceived to be the most affordable form of energy by the region.

In addition, coal-fired power plants in Asia average about 13-14 years of age, much newer compared to the US or Europe, where coal plants average between 40-45 years of age, which makes it easier for these regions to shut down such plants compared to Asia, added Mafira.

Financial incentives will be needed for investors to retire newer coal plants in the region, said Priyantha Wijayatunga, Asian Development Bank's energy sector group chief.

"Investors would expect a certain level of return during the plant life. So if you can bring the principle, if you can bring the same kind of returns within a shorter period of time, then naturally investors are inclined to accept such a deal. Of course, it may be the only way to attract them," he added.

"Decommissioning operational power plants is not that easy. You got to bring in similar energy services in some form of clean energy sources and that's not easy."

Renewables shift

Asia faces an uneven growth in renewable energy, even though the International Energy Agency expects global clean energy investments to exceed $1.7 trillion this year, surpassing coal, gas and oil investments, added industry players at the conference.

"Economics alone will not secure change at the pace that we need. We need integrated policy approaches in order to create room also for the inflow of new technologies," said IEA's chief energy economist Tim Gould.

Although countries like China and India have seen huge renewable energy growth, China is still the largest coal electricity generating country in the world, while India does not want to phase out coal, said Mafira.

Meanwhile, Indonesia – one of the largest coal exporters globally – has "timid" policies in expanding to renewables as it does not import that much coal compared to other neighboring countries like Vietnam and the Philippines, she added.

The country had received an initial $20 billion injection under the Just Energy Transition Partnership, which is financed by the US, Japan and various other countries, to retire coal plants and build up renewable projects, S&P Global Commodity Insights reported previously.

However, Singapore's senior minister Tharman Shanmugaratnam called such initiatives "slow" and "clunky" despite being the "right approach," at the conference on June 8.

"We really need to speed this up. And that's why [phasing out coal] should be Exhibit A when we talk about blended finance. It does require concessional capital, it does require different tiers of risk appetite, and we have to bring them together in order to manage this result and not keep kicking the can down the road," added Tharman, who is also the chairman of Singapore's central bank.