Asian Development Bank

Integration of climate mitigation and resilience in key sectoral strategies

This page is part of the E3G Public Bank Climate Tracker Matrix, our tool to help you assess the Paris alignment of public banks, MDBs and DFIs.

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Paris alignmentReasoning
Some progressA majority of sectoral policies are Paris aligned and ADB has integrated the climate strategy into sectoral frameworks. However, key policies such as energy and resilient transport are not aligned yet.
MitigationResilience
EnergyThe ADB Energy Policy formulates five principles for energy lending. It does link climate mitigation to its other energy lending priorities, such as access and just transition. ADB has excluded coal and upstream oil- and gas finance. Mid- and downstream gas investments will be subject to Paris alignment tests.Climate adaptation is part of the decision-making process. The guidelines for climate proofing are a tool for climate risk assessment in the energy sector.
TransportThe avoid-shift-improve approach supports low-carbon transport lending. The Operational Plan for Transport is linked to the Climate Change Operational Framework.ADB only acknowledges the challenge of resilience in the transport sector.
WaterThe water-food-energy-climate nexus is acknowledged. The Climate Change Operational Framework acknowledges the role of water consumption in fossil-fuel fired power generation.Climate resilience in the water sector is considered extensively in the strategy. The water sector strategy is linked to the Climate Change Operational Framework.
CitiesThe role of cities in mitigating climate change is part of the Making cities more liveable strategy and ADB refers specifically to the Paris Agreement in the context.Climate resilience is well integrated into the city strategy and is referred to in the Climate Change Operational Framework.

Explanation

 

Energy

The ADB Energy Policy, updated in 2021, marks a significant step forward in comparison to its predecessor from 2009. The policy is centred around the low-carbon transition in Asia and the respective challenges and opportunities.  The heart of the policy are five principles, covering energy transition aspects such as energy access, energy governance  and support for developing member countries to “climate change, enhance environmental sustainability and build climate and disaster resilience.” The Bank will do so by

  1. accelerating the deployment of renewable energy, 
  2. pursuing strategic decarbonization and the phase-out of coal, 
  3. increasing the climate resilience of energy infrastructure, and 
  4. ensuring a just transition.

In particular, ADB has excluded all coal investments, as well mid- and upstream oil investments. Limited support may be given to downstream investments. While upstream gas investments are excluded, mid- and downstream investments are eligible under certain conditions. To that end, the ADB has formulated three cumulative conditions that need to be fulfilled:

  1. No low-carbon or zero-carbon technology is capable of providing the same service at equivalent or lower costs and scale.
  2. The project’s lifetime is consistent with a goal to achieve global carbon neutrality by 2050 and aligned with individual national targets (e.g. in NDCs). Associated lock-in effects and risks to create stranded assets are avoided.
  3. The project is economically viable, under consideration of a social cost of carbon.

Recommendation: The ADB should confirm that all projects will be assessed against a science-based 1.5° scenario (e.g. IEA Net-Zero scenario).

ADB will support the deployment of various kinds of energy storage to enhance system flexibility for greater renewable energy contributions. Thanks to declining costs, storage technologies, especially Battery Energy Storage Systems (BESS), can now be more readily deployed, and their use can smooth the load curve of renewable energy generation, provide peaking and reserve capacity, and help maintain frequency in the grid. BESS may also serve as a viable alternative to diesel-powered generation units for backup services.

Energy Transition Mechanism

The Asian Development Bank is developing an Energy Transition Mechanism (ETM). This is designed to use public and private investments to finance country-specific ETM funds to retire coal power assets on an earlier schedule than if they remained with their current owners. This has the potential to be transformational but the level of initial financing is important and dialogue with civil society will be important for such a mechanism to ensure a Just Transition.

The pilot phase will look to retire 5-7 coal-fired power plants, with repurposed plants being converted to renewable energy generation. The first three pilot countries will be Indonesia, the Philippines, and Viet Nam. The pilot scheme should be completed by the end of 2022. It is hard to assess the success of the scheme until the pilot scheme has been completed. 

The mechanism would work by swapping the owners capital in the coal asset for ‘low cost’ finance to create value which used for early decommissioning.  There are a number of models for achieving this, depending on whether the focus is on utilities with a portfolio of plants or focussing on specific plants.

ETM will seek commitments from current project investors to not develop any new coal and host country commitment to energy transition as a pre-condition for any deal

 

Transport

ADB’s 2010 transport operational plan, the Sustainable Transport Initiative Operational Plan (STIOP) outlines how it aims to address climate change through the “avoid-shift-improve” (ASI), in order to limit greenhouse gas emissions.

The Climate Change Operational Framework 2030 refers to the Sustainable Transport Initiative Operational Plan and its importance, as well as the alignment of ADB’s transport sector lending with the strategic framework.

According to the Plan: “avoid means reducing the need to travel, for example by integrating land use and transport planning to create local clusters of economic activity that require less mobility; […] Shift means changing to more energy efficient modes or routes, such as shifting from road to rail or waterways […] Improve means using technologies that are more energy efficient, including through improving vehicle standards, inspection, and enforcement;”.

Resilience also features in the plan, as ADB has committed to developing analytical tools that ensure resilience is integrated into its transport operations. ADB acknowledges that transport investment can be vulnerable to climate change, and that the development of transport infrastructure “can inadvertently increase vulnerability to climate change effects”. 

The plan does not appear to explicitly mention the electrification of transport. However, E3G has been informed that the electrification of transport has been included in the activities under the Sustainable Transport Initiative Operational Plan through loans and technical assistance. Electric buses have been a part of many transport loan projects in China, for example. Technical assistance activities have included publications, workshops and EV scoping studies for 23 cities in the region have been completed. ADB has also launched pilot projects for e-logistics for urban delivery and e-boats in 2020.

ADB’s Independent Evaluation Department identified climate risk and resilience as a particular challenge for ADB’s transport strategy in its Approach Paper published in January 2019. In its final paper evaluating the ADB’s support to transport, it called for the ADB to strive for greater climate impact in its transport lending and makes several references to the need for electric buses. During the period it assessed, it should be noted that 33% of the investments in the non-urban road sector were in aviation.

In November 2020, the ADB announced an Asian Transport Outlook (ATO) which will support the planning and delivery of transport sector assistance by ADB, as well as transport policy and initiatives by Asian governments, in line with the Sustainable Development Goals (SDGs), Paris Agreement, and other international agreements.

 

Water

ADB’s 2011 Water Operational Plan recognises that there are interlinkages between water, food and energy needs, which have to be considered in the context of climate change. The plan states that ADB “has developed a range of operational interventions… in line with emerging best practice measures to respond to the potential adverse impacts of climate change and associated uncertainty”. This emphasises resilience and reducing the impact of climate change on water management but acknowledges that there is room for improvement in terms of the carbon footprint associated with water losses. ADB has been supporting the introduction of integrated water resources management as an adaptive management process in river basins. 

The ADB further detailed its strategy in the water sector in the flagship report  Asian Water Development Outlook. The outlook does not refer to the Paris Agreement, but extensively acknowledges the challenges for climate resilience in the water sector. Clarification would be welcome in how far this has redirected the water sector lending of ADB. 

The Climate Change Operational Framework 2030 links the water sector to ADB’s overall strategy to tackle climate change. It also provides further details on how integration of climate change into the water sector will look like. The CCOF does also acknowledge the risk of technologies that require water for cooling, such as fossil fuel plants.

 

Cities

ADB has an urban operational plan which runs to 2020 which integrates both climate risk and resilience effectively. This plan is also referred to in the Climate Change Operational Framework 2030, emphasising cities dual role in resilience and mitigation of climate change.

ADB has since updated its urban strategy under the Strategy 2030: Operational priority 4. The strategy Making Cities More Liveable, 2019-2024 emphasises the need for building cities that are green, inclusive, competitive and resilient. This new operational plan emphasises the integration of climate resilience as well as natural capital into the urban planning and design. It also focuses on energy demand via energy efficiency and increase on heating and cooling access based on renewable energy. The strategy references the Paris Agreement and explicitly mentions the role of cities in implementing article 6 of the Agreement (Carbon markets).

 

Last Update: March 2022