In May 2021, the Asian Development Bank (ADB) —one of the region’s biggest energy financiers— made some big announcements. In a new draft energy policy, the Philippines-based multilateral bank pledged to cut down all financing of fossil fuels.
Environmental groups regarded this decision as an important step in the fight against climate change. However, the new policy still leaves some doors open for fossil fuel activities.
Although the bank will suspend financing for new coal projects, ADB will continue to finance gas projects in certain cases, like when there is no access to electricity in the area or where renewables are not as cheap.
In the draft, ADB says it “may finance natural gas projects (including gas transmission and distribution pipelines, terminals, storage facilities, gas-fired power plants, natural gas for heating and cooking)”.
ADB’s policies on conditional funding of gas “could allow as much as 78% of the Bank’s gas finance since the Paris Agreement to continue, for a total of $700 million per year” said Susanne Wong, a Senior Campaigner at Oil Change International (OCI), a research and advocacy organization focused on the cost of fossil fuels.
This would be out of sync with climate science, Wong added. If the world wants to achieve the critical figure of net zero emissions by 2050, there can be no new carbon, oil and gas projects from now on, said the IEA in a May, 2021, report.
“We’re very concerned that the ADB will interpret the gas conditions very loosely and allow most of its gas finance to continue,” Wong added.
After being consulted, the bank defended gas projects in these particular conditions. “Gas can play a balancing role to support intermittent renewable energy and increase access to clean cooking and heating,” the bank’s Chief Energy Sector Group, Dr Yonping Zhai told Climate Tacker.
Currently, the primary energy supply in the Asia Pacific region is coal. But Wong added that the buildout of gas infrastructure is the biggest concern, since new coal infrastructure is becoming less profitable.
ADB is preparing studies to build a 1,600km gas pipeline across Turkmenistan, Afghanistan, Pakistan and India. Wong explained that the Bank has also backed fossil gas imports and power plants in the Philippines and Bangladesh, among other countries.
The bank has channeled massive funding into Asia’s energy sector. In the last decade, ADB channelled $42.5 billion into the energy sector across the region.
The bank’s new draft energy policy is open to public consultation. A final version is set to be finalised later this year.
New commitments
ADB’s new energy policy came in light of “global commitments on climate change, the changing landscape in the energy sector, and ADB’s Strategy 2030”, according to the draft.
The bank’s Strategy 2030 takes into account the Sustainable Development Goals (SDGs) and the Paris Agreement, the main international treaty that aims to contain global warming to 2°C.
Titled ‘Energy Policy: Supporting Low Carbon Transition in Asia and the Pacific’, the draft seeks to revise the bank’s Energy Policy, which hadn’t been updated in 12 years.
In ADB’s words, it’s 2009 Energy Policy “is no longer adequately aligned with the global consensus on climate change”.
Specifically, the draft says ADB will: not finance any coal mining, oil and gas field exploration, drilling or extraction activities. Coal is particularly highlighted, as the bank said it will not finance any new coal-fired capacity for power and heat generation or any facilities associated with new coal generation.
The multilateral bank also claimed it will not participate in investments to modernize, upgrade, or renovate coal facilities that will extend the life of existing coal-fired power and heating capacity, unless it is to re-engineer such plants for use of cleaner fuels, such as fossil gas or renewable energy sources.
Additionally, ADB pledged to support member countries in mitigating health and environmental impacts of existing coal-fired power plants and district heating systems by financing emissions control technologies. Italso said it will help its members retire existing coal plants early.
Funding for gas
Even though the bank pledged to stop financing of fossil fuels in the new energy draft, the document also states that funding for fossil gas will be provided on a conditional basis.
Wong, campaigner with OCI, feared that proponents of gas like ADB “will ignore that renewables are now cheaper in most parts of the world.”
According to a June, 2021 report by International Institute for Sustainable Development (IISD), “gas is not needed, as renewable-based alternatives for most of its uses are either already cheaper or are expected to be within a few years.”
“One argument for allowing gas financing might be that it is a cheaper alternative to coal for countries which have natural gas reserves like Thailand,” said Lidy Nacpil, coordinator of the Asian Peoples’ Movement on Debt and Development (APMDD). “But gas is not a cleaner fuel [than coal],” she added.
Gas pipelines often leak a greenhouse gas called Methane, which is more than 25 times more potent than carbon dioxide. This odorless and colorless gas traps more heat than CO2 and thus has a bigger “warming potential”.
Methane leaks are hard to track and often go underestimated. A 2018 study published in the journal Science showed that methane leaks from oil and gas supply chains in the United States were 60% higher than what government agencies reported.
In spite of this, gas projects continue to expand in Asia. According to OCI’s Shift the Subsidies database, ADB has spent more than $4.7 billion on gas development since the 2015 adoption of the Paris Agreement.
“If you think of gas as ‘bridge fuel’ which will take you from coal to renewables, then where does the bridge end? It’s not a bridge to nowhere, right?” Hassan said.
Japan, on its part, continues to make multi billion dollar commitments to finance LNG infrastructure and expand the market for LNG in Asia. With a shareholding of 15.6% each, Japan and the United States are the biggest shareholders at ABD.
Polluting intermediaries
Financing for fossil fuels is not always direct and clear. Sometimes, financial intermediaries intervene in financial transactions. They can be commercial banks, investment banks, investment funds, infrastructure funds and private equity funds.
To illustrate exactly how indirect support for fossil fuel works, let’s consider ADB’s equity holding in Clifford Capital Holdings, which makes ADB part-owner of this finance company. Clifford Holdings, on its part, has investments in gas projects.
According to Dr Yongping Zhai, Chief Energy Sector Group at ADB, the energy policy “will apply to all ADB projects including sub-projects financed through financial intermediary loans.”
This means the bank pledges to stop indirect financing of coal, but will continue to finance gas through intermediaries in some cases.
ADB has not directly provided financial support for coal since 2013. The bank “was already actively phasing out coal,” so this draft energy policy needed to be “a fuller phase-out of fossil fuels,” said Bronwen Tucker Analyst at OCI.
She added that it’s important that ADB includes its commitment to rule out financing coal via intermediaries in writing in the final policy. The bank should also provide details of how it will screen their financial intermediary loans for such projects, she noted.
There’s also the question of disclosure of information. From the policy, it’s unclear if intermediaries will give a full list of their projects to ADB, said Rayyan Hassan, Executive Director at NGO Forum on ADB, a network of organizations that monitor projects, programs, and policies of the bank.
Dr Zhai explained that financial intermediary loans are approved with screening criteria for sub-projects so as to ensure compliance with energy policy and other policies like those regarding safeguards.
Also, he added, all subprojects financed under financial intermediary loans are reviewed by ADB and require such projects be made public by the financial intermediary institution that further lends ADB loans.
In a similar line, the European Investment Bank (EIB) is in the process of implementing their policy to exclude fossil fuel finance through intermediaries, Tucker explained.
In November 2019, EIB announced that it would stop funding coal, oil and fossil gas projects by the end of 2021.
On their part, the World Bank’s private finance arm, the International Finance Corporation, excludes most coal finance and some oil and gas finance via intermediaries.
Access to energy
Since the signing of the Paris Agreement in 2015, ADB has financed $4.9 billion for fossil fuels and $5.2 billion for clean energy, according to data from OCI’s Shift the Subsidies Database
Almost half of all energy funding has gone to fossil fuels, but this strategy has also responded to Asia’s lack of access to energy. According to ADB’s own assessment, energy poverty in Asia is at “unacceptably high levels”.
ADB’s 2030 strategy aligns itself with the UN’s Sustainable Development Goals (SDG). Goal 7 aims to achieve universal access to affordable, reliable, sustainable, and modern energy. This goal specifically includes efforts to step up access to renewable energy.
The recent draft energy policy does not offer much clarity on this particular SDG, experts said. “The draft talks about supporting energy access but it’s really unclear how much money they will be investing in these efforts,” Tucker said.
Additionally, the draft signals only a limited transition away from coal, not all fossil fuels. “Communities of oil and gas workers also need to be supported,” Tucker pointed out.
As of now, organisations and climate activists are pushing ADB to adopt an energy policy which is more closely aligned with the Paris Agreement and which recognises the gravity of the climate crisis. Whether such push will come to fruition will be clear only later this year when the draft will likely be finalised.