SE Asia’s new coal plan has only half a solution

The Asian Development Bank (ADB) and a handful of financial institutions will take an ambitious proposal to end Southeast Asia’s coal addiction to the COP26 climate talks. They want to speed up the shift away from the dirtiest fossil fuel by buying out coal-fired power plants and closing them early, while fostering green alternatives. Good news, considering the ADB only formally stepped back from funding the black stuff this year and coal power plans in this region risk putting global climate targets out of reach.
As outlined today, though, it’s at best a fragmentary fix.
Indonesia, the Philippines and Vietnam — the three pilot countries — have young power plants, opaque long-term pricing agreements, and do not yet make carbon emissions sufficiently costly. Unlike other parts of the world where such early retirement plans have been tested, often with aging and inefficient plants, there may not be the incentives for enough operations to be sold. This isn’t one nation in crisis — like South Africa, also considering a coal exit plan — but countries with fragmented grids, differing markets and distinct domestic imperatives.
What looks worthy on paper may have inadequate impact at a high cost, while distracting
from more mundane but vital
investments.
To be clear, the developing world needs support to accelerate the energy transition. It’s also true that financial ingenuity is vital to harness the power of capital markets. But as they lay out the plan’s detail, institutions supporting it, like British insurer Prudential Plc and HSBC Holdings Plc, must acknowledge the limits and pitfalls of theoretically neat financial solutions.
There’s no doubt about what’s at stake. Global coal use in electricity generation must fall by 80% below 2010 levels by 2030 to avert climate disaster. But while much of the world has shifted, Indonesia, Vietnam and neighbours have been growth hotspots. The overwhelming majority of new coal-fired generation is in developing Asia. Coal capacity doubled in Southeast Asia since 2010.
There are signs of change as funding dries up, but it’s too slow. The fuel is still perceived as inexpensive and reliable, despite renewable energy now being frequently cheaper. Even as Indonesia moves toward a very modest carbon tax and increases investment in green energy, domestically mined coal remains critical to employment and exports.

—Bloomberg