The Asian Development Bank (ADB) has ruled out future financing of oil and coal extraction projects and will restrict natural gas funding, as it focuses on greener initiatives.

“[The] ADB will not finance any coal mining, oil and natural gas field exploration, drilling or extraction activities. ADB will not finance any new coal-fired capacity for power and heat generation, or any facilities associated with new coal generation,” stated the bank.

However, liquefied natural gas projects, gas transmission infrastructure, gas distribution pipelines and gas-fired power generation plants will be financed, but only if they fulfil strict criteria.

These include being able to demonstrate “that no other technology can provide the same energy service at an equivalent economic cost that considers the social cost of carbon” and being able to demonstrate “alignment with targets to achieve carbon neutrality by mid-century”, said the ADB.

The ADB approved $42.5 billion in financial support for energy sectors between 2009 and 2019, but a chart in its August 2020 energy policy document shows 18% went to conventional energy generation and gas infrastructure and none went to oil exploration.

The Manila-headquartered bank stated its future funding intentions in its draft paper for consultation ‘Energy Policy Supporting Low Carbon Transition in Asia and the Pacific’ that was unveiled after last week’s ADB meeting.

The objective of the 2021 Energy Policy is to guide ADB’s energy sector operations to help developing member countries (DMCs) to develop sustainable and resilient energy systems to achieve, and even increase, their Paris Agreement commitments.

The ADB gas pledged at least 75% of its committed operations, including sovereign and non-sovereign operations, will be designed to support climate change mitigation and adaptation by 2030.

Under the policy, climate finance from ADB’s own resources will reach $80 billion cumulatively from 2019 to 2030.

NGOs less than impressed

Non-governmental organisations were not impressed with the draft policy, with some saying that financing should be scrapped for all gas projects.

"By leaving the door open for gas, the ADB is ignoring 96% of their fossil fuel finance and painting it as climate leadership. As a public bank dedicated to achieving a ‘prosperous, inclusive, resilient, and sustainable Asia and the Pacific', the ADB must rule out gas and focus on helping countries leapfrog to clean energy," said Susanne Wong, senior campaigner of Oil Change International.

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Greenpeace, while welcoming the announcement of the new draft energy policy, also said: "it falls short and completely misses the mark in responding to this decade’s realities".

Cutting out coal

Global carbon dioxide emissions in 2019 from the combustion of fossil fuels – oil, natural gas and coal - amounted to 36.4 gigatonnes, representing 80% of total anthropogenic carbon emissions and 68% of total of greenhouse gas emissions, which also includes methane, nitrous oxide and fluorinated gases stemming from all types of human activity, said the ADB.

“Consequently, a vigorous intervention in the energy sector represents a direct and effective response to tackling climate change and building climate and disaster resilience, one of the key operational priorities of Strategy 2030,” read the policy draft.

Coal consumption accounted for 43% of final energy use in Asia Pacific in 2019 and reducing its use is seen as key to reducing GHG emissions.

The ADB will therefore support DMCs to prepare long-term energy plans, roadmaps, strategies and policies that include the rapid phase-out of coal from power generation.

Such plans should include three key quantitative and timebound targets: Decreasing CO2 emission intensities, peaking of CO2 emissions and achieving carbon neutrality.

The ADB will not participate in investments to modernise, upgrade or renovate coal facilities that will extend the life of existing coal-fired power and heating capacity unless it is to re-engineer such plants to use cleaner fuels, such as natural gas or renewable energy as feedstock.

“For re-engineering to natural gas, the project must demonstrate how it will contribute to a country achieving net neutrality by mid-century, such as through retirement or adoption of carbon capture, utilisation and storage by that time,” ADB said in the draft.

“ADB will support DMCs in planning for early retirement of coal power plants and will support decommissioning of coal power plants and site redevelopment for new economic activity, including cleaning of hazardous materials, restoring soil and water, redevelopment of the buildings, and upgrading existing infrastructure.”

Rayyan Hassan, executive director of NGO Forum on ADB commented: “The new draft Energy Policy announcing an end to coal finance is much-delayed justice for all the affected communities across Asia impacted by ADB coal projects. We urge the ADB to move towards a full transition to renewable energy finance through solar and wind as soon as possible.”

Growing threat for Asia Pacific

The ADB said it would also increase its focus on adaptation and resilience to climate change in response to the growing threat facing Asia and the Pacific.

ADB president Masatsugu Asakawa noted the region was experiencing "a sharp increase in climate shocks and stresses" that were impacting livelihoods, food and water security, and the health of millions of people.

“More than 60% of the people in the region work in sectors highly susceptible to changing weather patterns," he said.

"We must invest more in climate adaptation. We are now dangerously close to the point where action could come too little, too late."

A final draft of the Energy Policy 2021 will be submitted for consideration to ADB’s board of directors by October.

Ahead of last week's ADB meeting, non-governmental organsations had protested at the bank's Manila headquarters, urging it to stop financing fossil fuels projects.

UN Secretary General Antonio Guterres last Thursday called on international financial institutions such as the ADB to stop funding such projects, saying: “We can no longer afford big fossil fuel infrastructure anywhere.”