Japan Bank for International Cooperation (JBIC) will henceforth reject requests for loans for new coal projects, the bank’s head, Tadashi Maeda, was reported saying on Wednesday, making it the third Japanese financial institution to signal a shift away from the world’s dirtiest fossil fuel this month.
The government-run firm, which has lent billions to coal developers over the years, will no longer accept loan applications for new coal-fired power stations, said the governor in an interview with Japanese business magazine Diamond Online, explaining that assessments of coal investments took too long, which could lock countries into energy technology that could be outdated by the time a decision was reached.
He cited Vung Ang 2, a controversial 1,200-megawatt coal power plant in Vietnam, for which JBIC received a loan application more than a decade ago. Until today, however, the company has not made up its mind whether it will support the project.
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For now, JBIC’s coal exit remains a mere statement, as it yet needs to be enshrined in a formal policy, said Julien Vincent, executive director of Australian non-governmental organisation Market Forces, which has been campaigning for Asian banks to ditch coal. It is still unclear when such a policy will be released.
Shin Furuno, project manager at Asia Investor Group on Climate Change, said: “If this is confirmed as an official policy, this would be a major step in the right direction for Japan, which has been falling behind in the transition to zero carbon energy needed to meet the goals of the Paris Agreement.”
If JBIC wants to be taken seriously about not funding new coal power stations, it will immediately reject the Vung Ang 2 coal power station that has gone nowhere for over a decade and is a relic from an era of polluting, expensive power.
Julien Vincent, executive director, Market Forces
However, the flip side of the coin is that JBIC will still consider financing new power plants already in the pipeline, such as Vung Ang 2, despite having come under fire for its involvement in such projects amid rising concerns about air pollution and climate impacts, noted Eri Watanabe, 350.org’s Japan campaigner.
Vincent said: “If JBIC wants to be taken seriously about not funding new coal power stations, it will immediately reject the Vung Ang 2 coal power station that has gone nowhere for over a decade and is a relic from an era of polluting, expensive power.”
Capital flight from coal accelerating
One of the world’s top providers of subsidised government capital for coal power development, JBIC has handed out US$14 billion in loans for nearly 30 new coal power plants, helping add at least another 37.7 gigawatts of new polluting coal power capacity from Mexico to Indonesia, data by Market Forces shows.
But it is not alone. Major lenders in Japan, including Mizuho, Mitsubishi UFJ and Sumitomo Mitsui, have been the biggest coal financiers globally. In the five years since the Paris climate accord was signed, they have poured US$282 billion into fossil fuels, revealed a report released last month.
However, this also puts Japan in a unique position to drive Asia’s shift away from dirty coal. Earlier this year, the nation’s environment ministry said it would review its export policy on coal-fired power stations in response to global criticism over the government’s backing of coal projects in countries like Indonesia and Vietnam.
“If Japan puts an end to exporting coal power and focuses exclusively on catalysing renewable technology, South Korea and China may be under tremendous pressure to change due to stresses on their balance sheets,” said Sara Ahmed, an energy finance analyst for the US-based Institute for Energy Economics and Financial Analysis.
Early signs are that volatility in the fossil fuel sector is further driving the case for Asia to embrace the security of domestic renewable energy, and if anything, hasten the clean energy transition.
Sara Ahmed, energy finance analyst, Institute for Energy Economics and Financial Analysis
JBIC’s statement comes on the heels of an announcement by the Philippines’ oldest conglomerate, Ayala Corporation, that it would fully divest from coal by 2030, as well as pledges by Japanese banks Sumitomo Mitsui Financial Group and Mizuho that they would quit new coal.
Ahmed said: “These exits are a signal for governments and corporates to realise who among them will be left holding the bag once markets adjust to reflect the reality of stranded risk and coal’s unprofitable future, and consumers pushing back on high prices and paying for unused electricity. Government and corporate players that realise this risk sooner will be next to exit.”
Further spurring the capital flight from thermal coal could be the havoc the ongoing coronavirus pandemic is wreaking on the energy sector, Ahmed observed. Earlier this week, American oil prices entered negative territory for the first time in history amid evaporating demand and scarce storage, while coal prices in China are witnessing a downward trend as a slow rebound in demand causes stockpiles at ports and power generation companies.
“Early signs are that volatility in the fossil fuel sector is further driving the case for Asia to embrace the security of domestic renewable energy, and if anything, hasten the clean energy transition,” Ahmed said.