Fossil fuel exclusion policies

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Paris alignmentReasoning
Paris alignedAFD is a front-runner in terms of its fossil fuel exclusions as they already phase out coal and upstream oil and gas policies. In terms of downstream oil and gas policies, fossil fuel electricity generation is excluded except for hybrid plants in remote mini-grids.
Alignment and reasoning
Coal policiesExcludes coal & associated infrastructure
Upstream oil and gas policiesExcludes upstream oil & gas finance
Downstream oil and gas policiesExcludes fossil fuel electricity generation. Except for hybrid plants in remote mini grids. It is recommended that AFD implements an incremental ratio increase of renewable energy and gradual phase out of diesel.

Explanation

The AFD (excluding Proparco) did not finance any fossil fuels in the period 2017-2020 according to data from the Public Finance for Energy Database. During the same period Proparco has provided minimal support to fossil fuels and provided none since 2020. 

A mid term review of its energy strategy completed in November 2021 tightened the criteria for fossil fuels as seen below:

Coal 

  • AFD Group has stated that it will not finance any coal fired power plants. It will also not finance any coal exploration or production. This includes any infrastructure associated with a facility for exploring, producing or storing fossil resources (mines, processing units, refineries, storage, etc.). Projects dedicated exclusively to the transport of coal are also banned.

Upstream oil and gas 

  • The AFD will not finance any fossil fuel exploration or production projects. Nor will it finance projects dedicated exclusively to the transport of gas or oil (conventional and unconventional).
  • The AFD will not finance infrastructure associated with a facility for exploring, producing or stoled ring fossil resources (mines, processing units, refineries, storage, etc.).  An infrastructure is said to be associated with such a fossil fuel unit if the two following conditions are met: (i) the infrastructure would not have been built had this fossil fuel facility been absent, and (ii) the fossil fuel facility would not have been economically sustainable without the infrastructure.

Downstream oil and gas 

  • The AFD will not finance the construction, expansion or renovation of plants generating electricity from fossil fuels, including natural gas.
    • There is an exception for mini-grid projects powered by hybrid plants (combining renewable energy and fossil fuels). This corresponds to a minimum of one third renewable to two thirds diesel. Specific emissions have to be less than 500 kg CO2/MWh and the projects are in rural areas off the national grid or in small island states or to meet the needs of industrial facilities on remote sites.
  • Projects for the distribution of domestic cooking or heating gas (LPG or distribution network), consistent with the priorities for access in Africa and Asia, insofar as these projects provide social benefits or energy substitutes that produce lower carbon emissions are allowed.

Supply-side energy efficiency 

  • Projects for “gas-flaring recovery”, provided that they have a limited and controlled local environmental impact and are part of the country’s GHG emissions reduction trajectory.  AFD should provide a clearly definition of what are the parameters implied in a “limited and controlled local environmental impact”.
  • Projects to extend, strengthen or modernise power grids, including those that are fed by a mix including fossil fuels provided they allow for improved availability, efficiency or territorial coverage of the services.

Recommendation
It is recommended that the emission threshold of the exception for mini-grid projects powered by hybrid plants is decreased over time until it is phased out completely over a previously communicated timeline.

Last Update: November 2022