Finally scaling back subsidies that harm our environment

The OECD took a bold step this week to rein in export subsidies for coal power stations, writes Pilita Clark in the Financial Times. This is a welcome move before the global climate summit starting in only a few days.

 

Export subsidies for coal power stations reined in by OECD

A group of the world’s richest countries has agreed to rein in export subsidies for coal power stations in a move likely to make it harder to build many of the plants that help fuel global warming.

The deal, struck by members of the Organisation for Economic Co-operation and Development, would have been stronger if it were not for resistance from Australia and South Korea, people close to talks on the agreement said.

But the step is still likely to put a dent in the billions of dollars of support that OECD countries’ export credit agencies deliver to help companies sell coal power plant technology around the world each year.

“This is the first time financing rules have been changed for climate change reasons,” said an official from the OECD, a group of 34 wealthy countries including the US, Japan and Germany.

The agreement, finalised late on Tuesday, comes two weeks before delegates from nearly 200 countries start meeting to negotiate a new global climate change accord in Paris.

The US, the UK and several other countries have already limited export credit agency support for coal plants.

But the Paris-based OECD secretariat has been quietly hosting talks for the past year in an effort to produce common rules for curbing such backing for its members with export credit agencies.

The new agreement will remove support for large, inefficient coal-fired power plants from 2017 but will still allow backing for the most efficient “ultra-supercritical” power stations as well as smaller plants in poorer developing countries.

Countries where at least 10 per cent of the population lacks access to electricity will also still receive backing for some new plants, OECD officials said.

The chief executive of the World Coal Association, Benjamin Sporton, said he welcomed the OECD’s recognition of the need to continue supporting the most efficient ultra-supercritical plants.

“This is the first time financing rules have been changed for climate change reasons”

But scaling back support for larger, less efficient plants “might risk driving countries toward lower cost but higher-emission coal plants”, he said.

“The WCA is concerned over the impact these restrictions will have on supporting economic development and improving energy access in many developing and emerging economies,” Mr Sporton added.

Environmental groups said the agreement could put a stop to as many as 850 planned coal plants. It is difficult to know precisely how many projects will not go ahead because developers can still seek alternative sources of funding from the private sector and elsewhere.

However, the move is likely to make a big difference to many proposed coal plants that had been banking on export credit agency backing.

Agencies from OECD countries channelled an estimated $34bn to coal power plants between 2007 and 2014, according to a June report by environmental advocacy groups.

The final agreement is a compromise between countries with differing views on the extent to which export subsidies should be curbed.

The US and Japan had been proposing measures that would have cut support more than rival plans from Australia and South Korea, according to people familiar with the talks.

But the final agreement includes a plan to review the deal from 2019 and strengthen it further to help address climate change, a move the US and Japan had wanted.

Jake Schmidt of the US-based Natural Resources Defense Council said it was unfortunate that some countries had slightly weakened the agreement.

“But this puts clear restrictions for the first time on South Korea, Japan and Germany,” he said.

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