Fossil fuel exclusion policies

Explanation

Coal  

The 2021 energy policy of the Asian Development Bank confirms that it will not finance “new coal-based capacity for power and heat”. It will also “support the early retirement and decommissioning of coal resources “.  Included within this exclusion is coal mining, processing, storage, and transportation. Furthermore no investments will “modernize, upgrade, or renovate coal facilities that will extend the life of existing coal-fired power and heating capacity.”

Oil and gas 

For oil and gas, the ADB position is more nuanced. The ADB “will offer limited and conditional support to natural gas projects. However, it will not:

• support upstream or midstream oil projects.
• support any natural gas exploration or drilling activities

The things it will finance include:

• limited downstream oil projects where necessary
• selective in its support for midstream and downstream natural gas.

ADB may finance natural gas infrastructure such as gas T&D pipelines, LNG terminals, and storage facilities— and natural gas-based end-use facilities subject to a set of screening criteria consistent with the Paris Agreement. The 2021 policy states that

“ADB’s support for natural gas-based power generation will be conditional on evidence that the project employs high-efficiency and internationally best available technologies, reduces emissions by directly displacing other fossil fuel-based thermal power capacity, or results in a lower grid emission factor estimated as an average over its operational life”.

Furthermore, projects involving natural gas must adhere to the following tests. How each test is applied in practice is required: 

• No other low-carbon or zero-carbon technology, or combination thereof, can provide the same service at an equivalent or lower cost at a comparable scale. 
• The project’s operating lifetime is consistent with the carbon stabilization trajectory aiming to achieve carbon neutrality by about 2050, and by a time set by DMCs that is consistent with their NDCs. The project also avoids long-term lock-in into carbon infrastructure and the associated risk of creating stranded assets.
• The project is economically viable considering the social cost of carbon and an operating lifetime consistent with condition.

Recommendation: The Asian Development Bank should provide more detail on how it will apply each of the following test. 

The ADB Safeguards Policy Statement includes the ADB’s environmental safeguards and is in turn based on the World Bank Group Environment, Health and Safety Guidelines. These safeguards apply to projects that are directly financed by ADB and “risky” projects done by financial intermediaries, which are either Category A or Category B. The World Bank Group guidelines used do not reflect the best available technologies in this area. The section on thermal power plants was due to be revised during the 2019 calendar year, clarification would be welcome as to whether this is still the intention. The Safeguards Policy Statement is also therefore due an update. This review is another opportunity for a policy statement to exclude fossil fuels.  

With regards to financial intermediary lending, the ADB Safeguards Operational Review states that the “ADB conducts due diligence to assess all projects to be supported and the financial intermediary conducts due diligence to assess subprojects. Any subprojects categorised as A will also need to be appraised and monitored by ADB” 

Supply-side energy efficiency 

The ADB does not require a certain emission performance standard for its lending. The ADB follows the IFC Environment, Health and Safety Guidelines.  For power generation, funded facilities should be in the top quartile of energy efficiency for the region. Rehabilitation must achieve significant improvements in efficiency. This does not seem to consider the extension of the lifetime of fossil fuel assets and their associated emissions through efficiency improvements.  

Recommendation: For the ADB power generation energy efficiency must include robust lifecycle emission performance standards.