AIIB should strive to decarbonize energy supply system & demonstrate its leadership as a risk transformer

Wawa Wang, Bankwatch

"Shuozhou coal power plant" by Kleineolive licensed under CC BY 3.0.

Will AIIB's new energy sector strategy uphold it's "clean and green" mandate?

The Asian Infrastructure Investment Bank (AIIB) is due to finalise its energy sector strategy before its annual meeting at Jeju, South Korea in June. With vested interests in the coal sector placing continued pressure on the Bank to sustain their failing economic model, it is unclear whether the lender will stand strong on its mandate to deliver “clean and green” infrastructure.

AIIB should strive to decarbonize the energy supply system, and tackle distorted incentives by committing to zero financing of coal power plants and coal mines altogether. 

Recognizing the need for sustainable and reliable system systems in Asia, the AIIB should demonstrate its leadership by assuming the role of a risk transformer. AIIB should strive to decarbonize the energy supply system, and tackle distorted incentives - such as artificially enhanced subsidies for fossil fuel - by committing to zero financing of coal power plants and coal mines altogether. According to the International Energy Agency, mini-grids or off-grid solutions are the best way of bringing modern energy services to the people who currently lack them, and 90% of that electricity must be provided by renewables (World Energy Outlook 2011, IEA). 

As the Bank continues to assure shareholders of its 'green and clean' mandate, the AIIB project portfolio indicates a very different vision. The past year has seen a number of large scale fossil fuel projects in Asia, including a mega transboundary gas pipeline TANAP, to which it fast-tracked lending before adopting an energy strategy last December.

Other International Financial Institutions (IFIs) have retreated from coal power projects. The Asian Development Bank has not financed a coal-fired power plant project since 2013, while the European Investment Bank turned away from financing coal projects by adopting a restrictive emissions performance standard, effectively ruling out the financing of unabated coal and lignite plants altogether in the same year.

Does the world need another IFI utilising public finance to enable coal projects?

Last year the head of the World Bank called Southeast Asia coal plans ‘a disaster for the planet'. The publicly available draft  of AIIB’s energy strategy states that ‘’carbon efficient coal fired-power plants would be considered’’, albeit without defining clearly what efficiency stands for. Does a ‘green’ AIIB intend to fall short of international best practices already put in motion by other IFIs, and undermine the decarbonisation required under the UN Paris Agreement?

The risk of AIIB taking a U-turn on its climate pledges both on policy and in delivery, is that it would cancel out what was meant to set the bank apart from the other IFI players from the start. Does the world need another IFI utilising public finance to enable coal projects? The answer is no.