Briefing Paper

Closing Coal Loopholes: Securing a Clean Energy Sector Strategy for the AIIB

By ,

Coal plant

The new Asian Infrastructure Investment Bank (AIIB) was created by China in 2015 as a new multilateral institution designed to drive investment into infrastructure projects across Asia. The mandate of the AIIB, as expressed by the bank’s President Jin Liqun, is to be ‘lean, clean and green’. Over the past 18 months the AIIB has been developing its internal priorities and processes to deliver on this.

The AIIB has a great opportunity to catalyse investment in clean energy infrastructure across Asia. Doing so would advance China’s international influence and growing leadership on climate change. Asia is home to 92% of the world’s proposed coal-fired power plants. World Bank President Jim Yong Kim has warned of the dangerous climate impacts that would follow if these plants were to be built.

The AIIB board will shortly agree on its first Energy Sector Strategy (ESS). This will set the direction of travel for the Bank’s lending decisions. The aims of the draft strategy are broadly positive but the details are poor, allowing for loopholes in respect to the financing of coal. Contrary to the aims of the ESS, the proposed approach to coal power plant projects has been pushed by coal exporters seeking to lock in demand and thus includes several loopholes for coal finance.

Any AIIB funding for new coal-fired power generation would be a bad use of public money and bad for the AIIB’s aim to be a ‘lean, clean and green’ bank. Coal projects are poor investment options compared to increasingly competitive renewables, especially when the full costs of pollution control and lifetime CO2 emissions are considered.

There is still an opportunity for the AIIB board to provide clearer and more robust restrictions on coal power generation projects, thus closing existing loopholes. Countries in favour of climate action must step up their support for clear rules on coal. The AIIB should seek to match or surpass current best practice approaches implemented by the European Investment Bank and OECD.

The five G7 countries of Canada, France, Germany, Italy and the UK are all members of the AIIB. They must take the lead in advocating in favour of tighter constraints on coal. Doing so will help position the AIIB as an International Financial Institution that can deliver a transformative infrastructure agenda.