Independent evaluation finds disconnect between ADB energy policy and financing

The Asian Development Bank headquarters in Mandaluyong City, Philippines. Photo by: AndreaADB / CC BY-SA

MANILA — The Asian Development Bank needs to update its decade-old energy policy and make explicit its stand on financing coal, according to the latest independent evaluation of the bank’s energy program and policy.

While the bank has not approved coal power plants in recent years — the last one being in December 2013 — on paper ADB’s 2009 energy policy still allows for coal investments, a mismatch that creates confusion among bank stakeholders.

“As the leading development organization in Asia, ADB cannot keep an ambiguous position on this contentious issue. It should exercise its leadership role by emphasizing its support for decarbonizing the [energy] generation mix and phase out coal power generation in [developing member countries],” according to the report.

Should aid be used to fund fossil fuel investments?

Billions of aid dollars are spent on fossil fuel activity each year. Supporters say there is no alternative to getting some countries the energy they need to develop — but detractors say that is a poor excuse.

Updating the policy is critical to align it with the bank’s institutional priorities under ADB’s Strategy 2030. Gender equality, urban energy, and climate change adaptation and resilience, for instance, which are part of Strategy 2030’s priorities, are not included in the policy. In 2019, much of the bank’s climate finance, or $5.5 billion, went to climate mitigation efforts. Only $1.5 billion was made available for climate adaptation.

The policy also needs to align with new global agreements, such as the Paris Agreement, which aims to reduce greenhouse gas emissions and keep global temperature rise to below 2 degrees Celsius.

The recommendations were made amid continued global interest in coal, particularly in Asia. Most of the operating and planned coal-fired power plants are on the continent, a number of which are ADB developing member countries. Coal-fired generation continues to attract interest given its lower cost and dependability, although there’s ongoing decarbonization happening in the United States and Europe.

But ADB should help its member countries phase out of coal, mitigate the impacts of its member countries’ existing coal power plants, and reduce global greenhouse gas emissions, as per the evaluation. This could be done through a number of ways, such as converting coal power plants to gas combined ones, although the evaluation also cautioned the bank to be selective in natural gas projects. While it produces less carbon dioxide, natural gas is still a form of fossil fuel. It also produces methane, which has a greater impact on the atmosphere, according to the U.S. Environmental Protection Agency.

The evaluation recommends the bank put in place clear criteria in selecting natural gas and other fossil-fuel projects, which other multilateral development banks like the European Investment Bank have done.

“Overall, fossil-fuel projects need to provide a stronger justification than other clean energy options in order to be selected, and quantitative screening criteria could be employed to allow for an objective selection of project alternatives,” according to the report.

Bank investment in “dirty energy” has been a contentious issue for years. Think tanks and civil society groups have long pressed the bank to divest from these investments, and rethink its energy policy.

In response to the evaluation, bank management said it “agrees that the current policy is no longer adequately aligned with the global consensus on climate change, ongoing global transformation of the energy sector, and operational priorities of ADB's new Strategy 2030.” Management agrees to revisit and update the policy, but note the importance of stakeholder consultations on the role of fossil fuel in the region’s energy mix, “including on whether to formally withdraw from financing new coal-fired power and heat generation capacity, among others.”

It added that detailed implementation guidance documents will be prepared to clarify the use of coal and other fossil fuels, including screening criteria for fossil fuel generation projects such as natural gas, to ensure the consistency of bank policy with international goals.

Yongping Zhai, chief of the bank’s energy sector group, told Devex in an email that the bank will soon start stakeholder consultations on the energy policy update to prepare for an initial draft sometime in early 2021.

“Depending on the progress of the consultation and consensus building, I think we can target Q4 2021 for ADB Board consideration,” he said.

About the author

  • Jenny Lei Ravelo

    Jenny Lei Ravelo is a Devex Senior Reporter based in Manila. She covers global health, with a particular focus on the World Health Organization, and other development and humanitarian aid trends in Asia Pacific. Prior to Devex, she wrote for ABS-CBN, one of the largest broadcasting networks in the Philippines, and was a copy editor for various international scientific journals. She received her journalism degree from the University of Santo Tomas.