The Climate Investment Funds’ (CIF) governing board has approved Indonesia’s investment plan for how it will spend $500 million in concessional funding designed to unlock public and private investments to rid the economy of coal.

The CIF estimates the money will leverage $2.2 billion in funding from multilateral development banks and over $1.3bn in private co-financing.

The funding package is expected to form part of the CIF’s contribution to an energy transition partnership being negotiated between the Indonesian government and wealthy nations on a similar model to what was agreed in South Africa. An announcement could be made during the G20 leaders’ meeting in Bali, which takes place on the second week of the Cop27 climate talks next month.

Under the plan, the proposed retirement and repurposing of coal plants would help avoid 50 million tons of carbon dioxide (Co2) equivalent from 2029 – equivalent to the annual emissions of 13 coal plants.

“As a country, we are strongly committed to transition away from coal to cleaner forms of energy,” said Indonesia’s finance minister Sri Mulyani Indrawati.

Breakdown: Who is contributing what to South Africa’s clean energy shift

Indonesia is the world’s largest coal exporter. In 2021, the southeast Asian nation exported 441.5 million tonnes of coal, about a third of global coal exports, mostly to Asia’s largest economic powers China, India, Japan, and South Korea.

Unlike in South Africa, Indonesia’s  coal fleet is relatively young –  12 years old on average – and could potentially continue to operate and pollute for decades.

Under the country’s current energy plan, coal would still provide a quarter of the power mix by 2050.  Indonesia has pledged to reach net zero emissions by 2060.

CIF has agreed to partner with state utility Perusahaan Listrik Negara (PLN) to repurpose coal plants with solar energy and battery storage. PLN has pledged not to build new coal plants from next year and to phase them out by 2056.

The plan further aims to reclaim 150 hectares of coal mines, roll out 400MW of installed renewable energy capacity and support policy reforms to decommission further coal assets. The Asian Development Bank and the World Bank will help implement it.

The money would also provide income security to 1,160 workers affected by the plant and mine closures and roll out reskilling support for 2,200 people.

Cop27 host Egypt plans to push gas as ‘the perfect solution’

The money is part of a $2bn pilot scheme funded by G7 countries and split evenly across four coal-dependent emerging economies: South Africa, Indonesia, the Philippines and India. The US has committed $1bn towards the scheme.

The Accelerating Coal Transition programme, which was launched at Cop26 in Glasgow, aims to act as a first investor and de-risk projects for public and private investors to help finance the transition from coal to cleaner industries. Part of the funding is also earmarked to support workers affected by the shift.

The Indonesian government is in the midst of negotiations with the US and Japan over a multi-billion package from wealthy nations to kickstart the country’s transition away from coal. They offered an initial $10bn, according to leaked reports of the EU’s diplomatic service, seen by Politico.

The Jakarta-based Institute for Essential Services Reform (IESR) estimates that replacing all of Indonesia’s coal capacity with renewables will cost around $1.2 trillion by 2050. Its director Fabby Tumiwa previously told Climate Home an energy transition partnership worth $15bn would be “a fair amount”.

But Indonesia’s ongoing coal-buildout is threatening the deal with wealthy nations. As of June, 10.8GW of coal projects were under construction, according to IESR.

The government recently greenlighted a 5GW coal projects in the Northern Kalimantan province despite partner countries warning the deal would be off the table if the projects went ahead, the leaked EU diplomatic documents reportedly say.

The post Climate fund approves plan to speed up coal retirement in Indonesia appeared first on Climate Home News.

The nation is at the heart of a string of announcements in Glasgow, UK to support developing countries in ditching the most polluting fossil fuel.

After months of high-level political negotiations, France, Germany, the UK, the US and the EU announced an $8.5 billion package of grants and concessional finance over 3-5 years to accelerate the retirement of coal plants and the deployment of renewable energy.

Crucially, it also targets economic regeneration in coal mining regions, with electric vehicle manufacturing and green hydrogen among the potential alternative job opportunities.

South African president Cyril Ramaphosa described it as “a watershed moment”.

“South Africa has consistently argued that developed economies must support a just transition in developing economies. [This] represents a first-of-its kind partnership to turn these commitments into reality, and a model for similar forms of collaboration globally,” he said.

“We’re witnessing the end of coal power in real-time,” Leo Roberts, research manager for think tank E3G’s coal transition team told Climate Home News. These announcements “point to a shift towards a world in which finance is available to help developing countries move away from coal”.

Want climate news in your inbox? Sign up for free to get our weekly newsletter and occasional extra bulletins

The partnership could be emulated by others amid a raft of commitments to ditch coal.

Indonesia, Vietnam and Chile are among 18 new countries that committed not to build or invest in new coal power and phase out coal plants in the 2040s .

Earlier this week, Indonesia’s finance minister Sri Mulyani Indrawati said the country could phase out coal power by 2040, with financial support from the international community. That is a major shift from its national climate submission to the UN earlier this year, which sees coal meeting 38% of electricity demand in 2050.

Like South Africa, Indonesia has communities dependent on coal mining, who could suffer from a transition to clean energy in the absence of economic regeneration.

For the first time, financial instruments are being put together to address the issue.

Part of the South African package includes $500 million from a $2bn Accelerating Coal Transition (ACT) initiative launched by the Climate Investment Funds (CIFs) in Glasgow on Wednesday.

It is the first dedicated international fund to help developing countries exit coal, with funding from the US, the UK, Germany, Canada, and Denmark.

Caught between EU pressure and soaring demand, AIIB weighs end to gas finance

Indonesia, India, the Philippines and South Africa are the first beneficiaries of the scheme that aims to leverage private investments to support the transition from coal to clean energy. Together, they represent more than 15% of global coal-related emissions.

Mafalda Duarte CEO of the Climate Investment Funds, told Climate Home News the fund aims to catalyse at least 10 times its core funding by bringing in private financiers and multilateral development banks.

Duarte told Climate Home the fund aimed to address a gap in the financial architecture by providing support to reskill coal workers and social protection measures such as temporary income support to those losing their jobs.

“If we don’t provide this support, this coal phase out is probably not going to happen in time to meet our climate objectives,” she said.

The $8.5bn package is “groundbreaking”  because it was “co-created” by South Africa and donor countries, rather than imposed by wealthy nations, Maesela Kekana, South Africa’s climate change chief negotiator, told Climate Home News.

Kekana said environment minister Barbara Creecy had been lobbying the CIFs for a coal transition programme to be established.

“We were right at the forefront. We fought for that. That’s how important the ACT programme is for us,” he said.

“There’s nothing like this out there. It’s never been done before. And now we’re going to roll it out,” he said. “We are determined to make this work because we believe that this is a good model.”

Thunberg v Carney: tensions flare over net zero and carbon offsets at Cop26

South Africa pitched for the funds after debt-burdened state utility Eskom said it was seeking $10bn in international finance to help it shut most of its coal-fired power plants by 2050.

The country uses coal for 87% of its electricity generation and 20% of its liquid fuels, drawing on significant domestic resources.

UK climate envoy John Murton and a delegation from the US in September helped to seal the deal ahead of Cop26.

“That was a turning point in our view because we started to realise how serious these countries were. Everyone was working non-stop at the technical and political level to make it happen,” Kekana said.

With Eskom accounting for around 41% of the country’s emissions, decarbonising the electricity grid is a priority for South Africa to meet its climate goal. But the deal goes beyond cutting coal emissions to creating alternative, cleaner jobs and livelihoods.

Jesse Burton, an energy policy researcher focusing on the South African coal sector, said the package could help address some of the technical challenges of the transition, which have been impeded by Eskom’s huge debt.

“But how the pot of money is going to be carved out need to be ironed out. It’s can’t just be about rolling out renewables, it has to be about the just transition,” she said.

The post South Africa $8.5bn finance package offers a model for ending reliance on coal appeared first on Climate Home News.

The Climate Investment Funds (CIFs) secured up to $2billion this year from G7 countries to help wean the world off coal as part of efforts to limit global heating to 1.5C – the tougher goal of the Paris Agreement. 

“It is not enough to focus on clean energy investment,” Mafalda Duarte, CEO of the Climate Investment Funds, told Climate Home News in an interview. “Unless we focus on accelerating the pace at which we move away from coal, we are not going to meet the Paris Agreement goals.”

Earlier this year, Cop26 president designate Alok Sharma said the UK wanted to make the November Glasgow summit “the Cop that consigns coal to history”.

Duarte said the G7’s funding pledge was “a powerful signal” to developing nations that rich countries support their energy transition.

Ministers called in to break deadlock after unproductive climate talks

The CIFs is in the process of identifying two or three developing countries to pilot the programme and benefit from the first tranche of investment.

South Africa, India and Indonesia are potential candidates, where coal mining is a significant but precarious source of employment.

Earlier this week, Coal India, one of the world’s largest mining companies, responsible for around 80% of India’s coal output, announced it will cut its workforce by 5% every year for the next 5-10 years to reduce costs as it plans to close unviable mines. There was no mention of a plan to reskill workers.

Duarte urged all coal-dependent nations to get in touch. If successful, subject to support from donor countries, the programme could be extended.

The aim, Duarte said, is to “accelerate the tipping point at which it’s cheaper to build a new renewable energy power plant than maintain an existing fossil fuel plant” – something that still isn’t the case in many developing countries.

According to analysis by the Rocky Mountain Institute, in 2020 the net cost of completing the global coal-to-clean transition would have been $128 billion, dropping to near zero by 2022 before generating net savings of more than $107bn by 2025.

But, while in the US and Europe completing a coal phase out in 2020 already offered estimated annual net savings of around $9bn each, in China and India it would have resulted in annual net costs of $41bn and $21bn respectively, according to the study.

Want more climate news? Sign up to get updates straight to your inbox

Duarte told Climate Home that, although an estimated 42% of global coal capacity is already operating at loss, “pure economics are not going to play in favour of divesting from [relatively new] coal assets in time for meeting the Paris goals”.

Divesting from existing infrastructure is a lot more complex than investing in renewable energy, she added.

To address this, CIFs will use the G7’s $2bn to de-risk private sector capital and lower investment costs to repurpose coal assets, strengthen countries’ institutional capacity to manage the transition and create alternative job opportunities and social protection schemes for communities dependent on coal for their livelihoods.

Duarte said the CIFs would use the funding to demonstrate what sort of investments have the most impact when delivered at scale to accelerate a country’s coal exit.

“And then the market picks up and private capital can scale it to the point where you are moving in the direction of solving the problem. That is the point of acceleration,” she said.

In its statement, the G7 said the $2bn in funding was expected to mobilise $10bn in co-financing from the private sector.

The CIFs mobilises $9.5 for every $1 of concessional funding it spends in middle-income countries, Duarte told Climate Home. Others say it’s not as much. Analysis by Joe Thwaites, of the World Resources Institute, finds the CIFs has so far delivered $4.7 for every $1 spent.

Internship opportunity: Launch your career in climate journalism

Perhaps most importantly, the fund will aim to showcase investments and social protection measures to support communities move away from fossil-fuel jobs.

Duarte told Climate Home there was very little research and evidence on what the transition of fossil fuel-dependent communities looks like in developing countries.

“I would say we desperately need to do work in this area and figure out how to do this. Otherwise, I don’t think we’re going to succeed,” she said.

The story was updated on 01/07/21 to add analysis on the amount of co-financing the CIFs mobilises. 

The post Climate fund considers India, South Africa to pilot $2bn coal transition scheme appeared first on Climate Home News.