Asian Development Bank

Fossil fuel exclusion policies

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Paris AlignmentReasoning
Some progressOil and gas exploration is excluded; there is no official coal exclusion policy.
 Alignment and Reasoning
Coal policiesNo official coal exclusion policy, but staff have stated in the media that ‘coal-based power plants no longer viable option to meet demand of developing countries’ and ‘no intention to finance coal in future’. Last coal project 2013.
Upstream oil and gas policiesOil and gas exploration is excluded. Gas field development financing permitted however.
Downstream oil and gas policies No evidence can be found for any downstream oil and gas exclusion policies.
Supply-side energy efficiency Rehabilitation must achieve significant improvements in efficiency.

Explanation

Coal  

The ADB does not have an official coal exclusion policy. The ADB’s 2009 Energy Policy, states that the ADB “will selectively support coal-based power projects if cleaner technologies are adopted and adequate mitigation equipment and measures are incorporated into the project design”. Coal mining for captive use within a power station is also supported, subject to criteria, as well as coal mine safety measures, carbon capture and storage, coal bed methane extraction and use, coal gasification and scrubbers, waste coal utilisation and “efficient” coal transportation. This policy is set to be reviewed in 2021.  

In practice however, the Asian Development Bank has not directly financed a coal project since 2013. Furthermore, the Director of the ADB Energy Sector Group, Yongping Zhai, wrote in 2018 that “given the increasingly competitive cost of renewable energy technologies, the growing risk of stranded fossil fuel assets, and the rising shadow carbon price, coal-based power plants will no longer be a viable option to meet the electricity demand of developing countries”. Yuichiro Yoi, Principal Investment Specialist in ADB’s Private Sector Operations Department, also indicated that the ADB, like the rest of the world, is “moving away from coal”. 

This is also corroborated by a recent internal review of ADB’s Safeguards policy, where the ADB’s internal watchdog stated that “the 120-day disclosure rule for category A environment projects is a deterrent for [Private Sector Operations Department] projects. In particular, projects involving coal power plants or large-scale hydropower projects tend to be avoided”. 

It should be noted that the ADB appears to have at some point between 2012 and 2017 financed new coal boilers as part of district heating improvement projects in China. The “Shanxi Energy Efficiency and Environment Improvement Project” in China financed the replacement of 232 old small coal boilers with five large new coal-fired boilers in four counties in China. The project completion report, which has just been published, states that “because locally produced coal is abundant, district heating in Shanxi relies primarily on coal”. Further research is required to understand why alternative technologies were not used in the five new coal-fired boilers mentioned above, especially as the “heat source for Zhonyang district heating supply subproject was changed from a coal-fired boiler to a gas-fired boiler” during the project. The loan for this project was agreed in 2012 and the project was completed in 2017. 

It should be noted that the ADB Independent Evaluation Department Sector-wide Evaluation of the ADB Energy Policy and Program 2009–2019 published in August 2020 ahead of the forthcoming ADB Energy Policy Review includes the following recommendation:   

“Revisit and update the Energy Policy by emphasizing climate change mitigation and adaptation as a core priority; formally withdrawing from financing new added capacity of coal-fired power and heat generation plants, while helping DMCs to phase out coal-based energy and mitigate the environmental and health impacts of the existing coal fleet; introducing sound screening criteria for other fossil-fuels, and aligning the policy with Strategy 2030 and the ongoing sector transformation, complemented with a detailed Implementation Guidance document”  

Recommendation: The ADB should officially exclude all direct and indirect coal investments in the ADB Energy Policy Review due for 2021. 

Oil and gas 

As regards oil and gas, the ADB has excluded investments in oil exploration and development and gas exploration. ADB’s 2009 Energy Policy states the bank “will continue its policy of not financing any oil and gas field exploration projects because of the associated risks”. The Energy Policy also states that the ADB “will continue to provide assistance for gas field development, and transportation and distribution of gas”. It is interesting to note therefore that their exclusion policies on oil and gas are somewhat more extensive than their official policy on coal. 

The Evaluation Approach Paper for the ADB’s Energy Policy also suggests that the oil sector in general does not need MDB finance, although a separate document states that refining, transportation and distribution of petroleum products, as well as small oil-based power plants for island or remote communities are supported. 

The ADB cites the lack of ‘additionality’ as a key reason why coal mining and oil field development are ruled out, as established commercial investors are already active in this area. However, there is a risk that the additionality justification for not funding these projects could be undermined if there is a shift away from exploration and development in private capital markets. There is therefore a need for ADB to strengthen its policies in this area. 

The ADB Safeguards Policy Statement includes the ADB’s environmental safeguards and is in turn based on the World Bank Group Environment, Health and Safety Guidelines. These safeguards apply to projects that are directly financed by ADB and “risky” projects done by financial intermediaries, which are either Category A or Category B. The World Bank Group guidelines used do not reflect the best available technologies in this area. The section on thermal power plants was due to be revised during the 2019 calendar year, clarification would be welcome as to whether this is still the intention. The Safeguards Policy Statement is also therefore due an update. This review is another opportunity for a policy statement to exclude fossil fuels.  

With regards to financial intermediary lending, the ADB Safeguards Operational Review states that the “ADB conducts due diligence to assess all projects to be supported and the financial intermediary conducts due diligence to assess subprojects. Any subprojects categorised as A will also need to be appraised and monitored by ADB” 

In the “Review of the ADB Clean Energy Program”, the ADB defines clean energy projects as “loan investments and activities that result in reduced GHG emissions”. Greenfield power generation projects that use fossil fuels (including gas) are not considered clean energy projects as these are net positive emitters and will lock in emission impacts throughout the life of a plant. Retrofitting fossil fuel-based projects, however, fall within the scope of clean energy projects. 

The document appears to suggest that the reason for the total drop in renewable energy investments in 2018 was because renewable prices dropped significantly in 2017. It posits that this may be because solar PV and onshore wind have become competitive with conventional energy generation, private investors and commercial banks have become the main sources of funding, while the ADB has increased its financing in electricity transmission and distribution systems that can help to integrate more renewable energy. 

Recommendation: The Asian Development Bank should use the forthcoming 2020 energy policy review to set a target date for 100% of its energy lending to be to zero-emissions projects, phasing out lending to unabated fossil-related projects. 

Supply-side energy efficiency 

The ADB does not require a certain emission performance standard for its lending. The ADB follows the IFC Environment, Health and Safety Guidelines.  For power generation, funded facilities should be in the top quartile of energy efficiency for the region. Rehabilitation must achieve significant improvements in efficiency. This does not seem to consider the extension of the lifetime of fossil fuel assets and their associated emissions through efficiency improvements.  

Recommendation: For the ADB power generation energy efficiency must include robust lifecycle emission performance standards.  

Last Update: November 2020

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