Fossil fuel exclusion policies

Coal  

The current AfDB Energy Sector Policy (last updated in 2013) commits the AfDB to supporting member countries achieving universal access to energy in an “environmentally sustainable manner”. According to the policy, “for many African countries, coal-fired power generation is likely to form part of such an approach to help the continent increase its access to modern energy at an affordable cost”. 

The Bank uses a broad five-component framework to guide coal financing, in line with this broad approach:

1. Development impact: a proposed greenfield or retrofit coal-fired power plant needs to contribute to both poverty reduction and addressing national and or regional energy security needs.
2. Transitioning towards green growth: the Bank will collaborate with its client countries to ensure that any coal power plant to be financed will form part of a “technologically and commercially feasible low-carbon and cost-effective strategy for energy resources”, in view of the stated objective for Africa to “transition to a cleaner energy path”.
3. Environmental responsibility: when supporting coal, technology should mitigate environmental impacts through diversifying the energy mix, ensuring high efficiency, and minimising GHG emissions.
4. Technology: the Bank will strive to ensure the consideration and implementation of appropriate technology for reducing GHG emissions, such as carbon capture and storage (CCS).[1]
5. Offsetting measures: the Bank will support countries that express interest in offsetting measures related to agreements agreed under climate negotiations, or on a voluntary basis.   

While these five aspects provide a framework for assessing coal investments, the AfDB’s energy policy does not indicate that these investments would happen under “rare” or “exceptional circumstances”. This is indicative of the fact that, on paper, it remains one of the least restrictive policies among the MDBs.

However, in September 2019 at the UN Climate Action Summit, AfDB President Akinwumi Adesina made a pledge that “coal is the past, and renewable energy is the future. For us at the African Development Bank, we’re getting out of coal”. However, as yet there is no evidence that this verbal pledge has been formally adopted in any AfDB policy documents, potentially undermining its fulfilment. In part, this is because the energy sector policy has yet to be formally updated since 2013, despite the Bank’s long-standing intention to do so.

Despite this, discussions with the AfDB have confirmed that coal projects are no longer being actively considered, and that in practice, the AfDB will not finance any more coal projects. The last coal investment the bank made, in 2015, was a supplementary loan of about USD 4 million for a small, 125 MW coal-fired power plant in Senegal that it originally financed in 2009. 

Oil and gas 

The AfDB energy policy states that the AfDB “will not support oil and gas exploration activities”. Discussions with the AfDB have indicated that in practice, upstream oil and gas is excluded entirely. However, without formally replicating this full exclusion in the energy policy document, the Bank leaves scope for exceptions to be justified, including through investment in other upstream activities such as extraction of reserves.

Noting that demand for oil and gas remains strong in Africa, the energy policy states the AfDB will support boosting supplies to enhance energy security and reduce the region’s dependency on energy imports. This policy outlines the Bank’s continued support for mid- and downstream oil and gas, confirming the Bank will:

1. Support “environmentally and socially sound” production, processing, and distribution of African oil and gas resources.[2]
2. Support power generation from oil and gas.
3. Promote principles and practices that enhance transparency around revenue derived from oil and gas.
4. Support optimal use of oil and gas resources to ensure equitable and lasting benefits. 

Specifically regarding gas power, the AfDB’s Ten-Year Strategy 2024–2033 confirms that the Bank will continue to finance natural gas as part of the net zero transition. This will only be permissible if determined to be in line with the 1.5 °C goal of the Paris Agreement, countries’ NDCs, and LTSs “where these are available”. Rigorous LTSs should guard against transition risks and ensure that any gas financing is explicitly tied to a plan for emissions peaking, and subsequent decline. Moreover, analysis of prospective gas projects will be required to consider lock-in and path dependency risks, as part of the Joint MDB Paris alignment methodology.

Supply side energy efficiency 

Energy efficiency (both demand and supply side) is noted in the AfDB’s energy policy as a priority cross-cutting area, including with respect to power generation from fossil fuels. In this regard, the Bank commits to “promoting, as much as possible, the best affordable clean and efficient technologies available so as to increase efficiency and reduce GHG emissions in coal-, gas- and oil-based energy projects.”

However, critically, this commitment is not explicitly accompanied by any safeguards or exclusions against contributing to lock-in and stranded asset risk, or any explicit emissions performance standards relating to fossil fuels.

Recommendations:

• The AfDB’s energy sector policy should be updated as soon as possible to reflect the public commitment made by its President in 2019 with respect to coal. It should reflect a complete exclusion on coal financing, alongside reference to supporting phase-out of existing coal plants through a just transition approach.
• Beyond this, the AfDB should continue to consider how it can contribute (in an appropriate manner) to the global phasing out of fossil fuels. This should include explicit commitment to a complete upstream oil and gas exclusion. This would go beyond the existing exclusion on exploration, to also include an exclusion on continued extraction of reserves.
• In view of the extensive build-out of energy infrastructure and access improvements required across Africa, the AfDB is positioned to play a transformative role in demonstrating how to support development while simultaneously meeting climate goals. To fulfil this potential, the AfDB should commit to undertaking an analysis of alternatives for all prospective mid- and down-stream oil and gas investments, covering risk of lock-in and stranded assets.[3] This approach should also include scope for identifying climate transition gaps (i.e. barriers preventing cleaner and more resilient options being deployed in any given context) and a forward-looking consideration of the potential risks posed by the energy transition (including future economic return and international competitiveness).

[1] Any utilisation of CCS for abatement of coal plant emissions should be compatible with the temperature and emissions goals of the Paris Agreement. According to the IPCC’s 1.5 °C aligned abatement standards, this requires capturing more than 90% of CO₂ emissions from coal power plants. While abatement standards over time should be sensitive to country economic development status, a clear timeline for operational CCS to be deployed should be a minimum requirement in all cases.

[2] The definition and verification process for “environmentally and socially sound” production is not detailed.

[3] In doing so, the Bank could draw on the leading practice identified by E3G’s Matrix at the Dutch Entrepreneurial Development Bank (FMO), which has developed a dedicated set of comprehensive “transition criteria” that all prospective fossil fuel investments are screened against.