By: Mary Schapiro, Vice Chair of GFANZ, and Ravi Menon, Chair of the GFANZ Asia-Pacific Network Advisory Board
One of the best ways to fight climate change is to accelerate the retirement of coal power plants. Every credible pathway to avoid the most severe impacts of climate change requires accelerating the closure of the world’s coal capacity. For example, the International Energy Agency’s net-zero emissions scenario recommends a halving of unabated coal fired power generation by 2030 and a complete phase-out by 2040.
Transitioning away from coal brings broader economic and social benefits. Replacing coal with renewables will enable more affordable energy prices over time, especially as the cost of renewable energy generation is projected to continue declining. The IMF estimates that for every dollar invested in coal retirement and new renewables, three dollars are generated in social benefits.
Done right, the early retirement of coal will reduce billions of tons of emissions, boost public health, and improve access to affordable, sustainable and reliable energy.
To reap the rewards of coal phaseout, governments, financial institutions and energy companies need to work together to enable the roll out of renewables, fund the closure of coal power plants, and facilitate a just transition that benefits surrounding communities.
Coal Phase-out in Asia-Pacific (APAC)
Early phase-out of coal is especially critical in Asia Pacific. Coal plants in APAC account for a fifth of global energy-related carbon emissions. They will exhaust around 60% of the remaining carbon budget for 1.5 degrees C if they continue to operate as planned.
The context for coal retirement is far more challenging in APAC compared to Europe and the United States, where environmental standards, increased competition from renewables, and advanced age of the plants have led to declining coal capacity. In Asia, coal power plants are younger and new plants continue to be built, driven by development needs. According to the IEA, China, India and Southeast Asia will account for 70% of the growth in global electricity demand from 2023 to 2025.
Significant investment and decisive policy actions will be needed to shut down coal power plants while they remain economically viable. The IMF estimates that $29 trillion of investment is needed to end coal globally and replace it with renewables – with nearly half of this in Asia. But financial institutions face fiduciary and reputation risks from the spike in financed emissions should they choose to invest in early phase-out projects.
Managed Phaseout of Coal in APAC
The Glasgow Financial Alliance for Net Zero (GFANZ) APAC Network is launching a consultation on a practical guide to help financial institutions understand how to identify and finance coal retirement plans that create a positive climate impact and an inclusive just transition. In developing the draft guide, we are in the process of consulting major banks, insurers and asset managers as well as power companies, governments and NGOs.
Our work so far has confirmed there are three critical steps to getting finance flowing to coal phase-out projects:
First, countries and power companies must develop credible transition plans. Net-zero committed financial institutions will not invest in retiring plants if a country or utility continues to build replacements. Energy market reform is vital to ensure low carbon energy sources can be deployed quickly and coal plants shut down early.
Second, we need to blend public and private finance. Public capital should be deployed in a way that can crowd-in private capital to ensure the biggest possible impact. Platforms like Just Energy Transition Partnerships (JETPs) for Indonesia and Vietnam, which GFANZ supports, are helping to align governments, financial institutions, MDBs and civil society to make these first two steps happen.
Third, we need new models of financing. For instance, financial institutions could either finance plans for early retirement of coal facilities or purchase them to put in place such plans. These types of investments are not only aligned with the transition to net zero, but a necessary part of it.
The draft guide aims to ensure investment in the early retirement of CFPPs achieves meaningful emission reductions, is commercially viable and addresses the impact on jobs and communities.
Regulators will need to provide clarity on the standards that coal retirement transactions must meet as they refine their taxonomies. Ideally, the G20 and other global organisations should agree on standards for such transactions and define the thresholds for climate impact.
Getting these steps right will unlock billions of dollars in private investment in Asia’s energy transition, helping cut emissions and air pollution while securing affordable energy and new green jobs. The GFANZ APAC Network will step up its efforts to develop the practical tools that will help financial institutions take decisive climate action.
 International Monetary Fund, The Great Carbon Arbitrage (2022)