Fossil fuel phase-out: Development banks need to play a bigger role
A couple of months ago, COP28 called for the acceleration of efforts “towards the phase-down of unabated coal power”. Limiting temperature rise to 1.5°C requires stopping the construction of new coal power plants, that’s for sure. But it also requires retiring existing plants before the end of their lifetimes, which can be more challenging. Public development banks (PDBs) are well-positioned to help overcome barriers to coal phase-out and support countries with the transition to decarbonised electricity systems. A growing number of these banks are exploring strategies to accelerate the early retirement of coal plants. Yet these efforts may carry risks of unintended adverse impacts.
Together with NewClimate Institute, we reviewed the instruments PDBs can use to support the early retirement of coal plants in the Global South. We also looked more closely at the challenges and risks these instruments may pose. We find that to achieve lasting emission reductions, PDBs should first seek firm commitments from partner country governments and other stakeholders to phase out coal and other fossil fuels. These banks can then engage in different ways with policymakers and power producers to support coal phase-out. But no matter the challenge, they should not use scarce public funds for little decarbonisation impact.
PDBs have a significant role to play in supporting a just energy transition across countries, from offering advisory services and technical assistance to different forms of financing. Yet the transition away from coal, with its potential consequences on energy access, local communities’ livelihoods, and the broader social and economic impacts it may have, is just one example of a pressing climate and development issue PDBs need to address. They need to play an even bigger role in achieving development and climate outcomes where needed, as called for by the international community. I4CE will continue to work on how PDBs mainstream climate considerations and transform the way they operate, for them to meaningfully contribute to countries’ low-emissions and climate-resilient development pathways.
