In Coal Setback, Rich Nations Agree to End Export Credits

Updated on
  • OECD deal would end export funds for 85 percent of coal plants
  • U.S., Japan land deal two weeks before Paris climate summit

Members of the Organization for Economic Cooperation and Development struck an historic agreement Tuesday to scale back public financing for coal-fired power plants, dealing another blow to the industry ahead of a global summit on climate change in Paris.

Under the agreement, detailed by the White House in a conference call, the world’s richest economies will restrict subsidies that helped companies export technology to build coal-fired power plants, among the largest sources of emissions blamed for rising global temperatures. The policy would cut off financing for 85 percent of coal projects going forward, according to a senior administration official who briefed reporters. The official requested anonymity because he wasn’t authorized to speak publicly.

Major lenders including the U.S. Import-Export Bank, the World Bank, and the European Investment Bank have already cut support for coal projects. The new agreement among the 34 OECD nations means countries including Japan and South Korea will for the first time restrict their funding as well. It’s more bad news for a coal industry already hit by slumping global prices, new environmental regulations and slowing growth in China.

Obama Victory

The agreement is also an international environmental victory for President Barack Obama, whose domestic climate policies remain under attack. The Republican-led U.S. Senate voted Tuesday to block new rules on power-plant pollution, saying they’d be too costly. The White House threatened to veto the measure.

According to an analysis by the World Resources Institute in Washington, about 1,200 coal-fired plants have been proposed for construction across the globe. More than three-quarters are in India and China.

“Climate change is one of the greatest challenges of our time,” OECD nations said in an official communique on Tuesday. “We reaffirm our commitment to rationalize and phase out fossil fuel subsidies that encourage wasteful consumption."

The National Mining Association was critical of Obama’s role in the agreement and said the president was glossing over the fact that the phase-out doesn’t begin until 2017 and still permits financing of advanced coal technology.

“The president is on the wrong side of history,” National Mining Association spokesman Luke Popovich said in an e-mailed statement. “He may think coal’s day is done, but the 19 other rich nations of the OECD evidently don’t, let alone the emerging nations that will continue to rely on coal long after he’s out of office.”

Japan Opposition

The Obama administration has sought the international financing change for years but faced opposition by Japan, which objected to reducing subsidies benefiting domestic technology exporters, including Toshiba Corp. The breakthrough came earlier this year when the two countries agreed to a deal to allow some financing to continue.

Japan is the biggest backer of public coal financing globally, according to a June report co-authored by the Natural Resources Defense Council, a U.S. environmental group, and partners. The country also ranks last among Group of Seven nations in efforts to move away from coal, according to a statement last month from E3G, a non-profit group promoting a low-carbon economy.

‘Ultra-Supercritical’

The new policy, which will take effect in a year, would provide subsidies only for so-called “ultra-supercritical” coal-fired power plants -- those built to the most stringent environmental standards. The Obama administration estimates that 85 percent of coal power plants will be ineligible for financing from OECD countries going forward.

Financing restrictions would again tighten in four years under the agreement. 

Industry representatives said the OECD agreement reflects a recognition that coal will be needed to power the developing world for years to come.

"It tacitly acknowledges the importance of continued financing for advanced coal technologies and then is heavily conditioned to reflect the continuing importance of coal to the world," Popovich said.

The Obama administration official said OECD financing had helped the purchase of more than $35 billion in coal products over the past seven years.

Some Concern

The accord was welcomed to a degree by environmental activists in Japan, though with some trepidation.

“This agreement is an important step forward as the OECD has set the tone to restrict new coal power plants globally,” the Center for a Sustainable Environment and Society, the Kiko Network and the environmental group Friends of the Earth Japan, said in an e-mailed statement. “But even ultra-supercritical plants emit about twice as much carbon as plants powered by natural gas, so revisions at an early date are needed to make support for coal power be excluded in principle.”

The deal represents the culmination of months of talks, and comes after negotiators from South Korea and Australia were able to secure an exception allowing the construction of small coal plants in developing countries that don’t meet the most stringent environmental standards. The administration official described the concession as immaterial to the overall deal.

“Our position has been that the promotion of highly efficient coal power generation is an effective and realistic measure to tackle climate change,” an official at Japan’s foreign ministry said by phone. “We welcome the agreement as Japan’s position has been sufficiently reflected in the agreement,” the official said, speaking on condition of anonymity in line with ministry policy.

The announcement of the agreement comes two weeks before world leaders are scheduled to gather in Paris for global climate negotiations. The talks among almost 200 nations may culminate in the first agreement committing all countries to rein in carbon pollution from coal and other sources.

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