Financial Energy Transition Mechanism announced at COP26; seeks to replace coal with renewables in Asia

Posted on 09 November 2021

New partnership aims to accelerate the transition from coal to clean energy in Southeast Asia, in a just and affordable manner, and to lay the groundwork for similar initiatives around the world.
GLASGOW (9 November 2021) - The Asian Development Bank (ADB), together with Indonesia, the Philippines, Viet Nam and key public and private sector players, launched a partnership to design and establish an Energy Transition Mechanism (ETM) at COP26 last week. 

This innovative model, using blended finance to accelerate the retirement of coal power plants, aims to accelerate the transition from coal to clean energy in Southeast Asia, in a just and affordable manner, and to lay the groundwork for similar initiatives around the world. It will develop renewable energy to replace retired coal plants.

Coal-fired electricity generation accounts for 30% of global CO2 emissions and the majority of that generation can currently be found in Asia. The IPCC special report on Global Warming at 1.5℃ calls for a reduction in global coal capacity by 60%-80% by 2030, and almost 100% by 2050. Curtailing new coal projects in Asia is an essential part of the global effort to phase-out coal by 2050.

A full scale-up of ETM in Indonesia, the Philippines, and possibly Viet Nam could cut 200 million tons of CO2 per year, the equivalent of taking 61 million cars off the road, ADB says. 

The mechanism is an attempt to accelerate the transition from coal to clean energy in Southeast Asia, in a just and affordable manner. It involves public and private finance to reduce coal-fired power generation by closing younger coal plants (not just those at the end of their life), so increasing the need to develop clean energy alternatives to meet demand. It aims to boost the growth of renewable energy using an equitable, scalable, and market-based approach. 

Vanessa Perez-Cirera, WWF Global Deputy Lead Climate & Energy, said: “Countries must commit to an energy transition that leaves no-one behind. This new mechanism from ADB shows a good understanding of the urgent need to replace coal with renewable energy in a way that provides a just shift for those affected. As evidence is showing, if well managed, this transformational change can be not only good for climate and nature, but also creates more and better jobs and, higher competitiveness.”

The ETM partners, including the Rockefeller Foundation and SEforAll, have committed to jointly conducting a thorough feasibility study for each pilot country, focusing on the optimal business model. It will then bring together concessional resources from donor governments and philanthropies to leverage large amounts of commercial capital with the goal to trigger a decisive shift towards decarbonization.

Dean Cooper, WWF Global Energy Transition Lead, said: “This is a useful attempt from ADB to move from supportive policy for low-carbon solutions to the radical action that is urgently required. We need to be sure about the most effective use of such funds. We shouldn’t underwrite investments in fossil fuels, since this sets a dangerous precedent. We certainly support the allocation of additional resources to ensure a just energy transition for people who will lose jobs and income - this may be a more effective use of funds than offsetting the losses of fossil fuel investors.”

According to ADB, the ETM will be designed to focus on power system reliability and affordability; robust measurement, reporting and verification protocols to track greenhouse gas mitigation impact, and ensuring the shift from coal to clean energy is just and equitable for affected workers and communities.  Again, this is well-aligned with global intentions for a just energy transformation.  

But there remain concerns about the focus on the limited and appropriate use of carbon credits, the cost of stranded assets, rather than direct finance for renewable energy alternatives, to stimulate private investment.

David McCauley, WWF-US Senior Fellow for Sustainable Finance, said: “ADB’s motives are very good.  The ETM country feasibility studies must examine existing market and policy constraints to be overcome and fully justify financing to shorten the lives of existing coal-fired power plants. We know that wind and solar are already cheaper options, so the analysis requires identifying legal and institutional constraints to the transition - especially long-term power purchase agreements - and incentives for renewables investment where dirty power supplies are locked in.”

For further information, contact Mandy Jean Woods mwoods@wwfint.org 
Wind turbines generating electricity on the sea at Bac Lieu, Viet Nam.
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