The science is clear, and the challenge is massive: to achieve a 1.5˚C future, we need to reduce coal energy production by 80 percent. The Climate Investment Funds (CIF) is partnering with developing countries, where three-quarters of global coal is consumed, to pioneer a transition from coal to clean energy. “Markets are starting to trend in the right direction, but the transition is not happening fast enough to respond to the urgency of the climate crisis. This is especially true in developing countries, where critical political, social and economic barriers require support to be tackled,” explains CIF CEO Mafalda Duarte.
The transition will not come cheap or easy, and concessional finance will not be enough to fund this massive and vital shift. But it is an important tool to pilot first-mover models and technologies, developing the business case, and supporting affected communities. CIF contributing countries recognized this early and initiated the launch of the first-of-its-kind Accelerating Coal Transition investment program (ACT), in early 2021. In June of that same year, the G7 announced up to USD 2 billion in support for ACT and other complementary CIF programs aimed at increasing the scaling-up of renewable energy investments.
Clean energy can offer a better quality of life for communities and is increasingly becoming more competitive. But coal is embedded in the social fabric, with a large existing stock of coal plants and associated mines continuing to be primary sources of energy and jobs. We need to prove this transition can work to initiate a virtuous circle of change. The ACT program has been designed to support communities as they transition away from coal and works across three pillars: governance, people and communities, and infrastructure. The funding can be directed at national strategies, just transition activities, as well as retirement and repurposing of existing coal assets. It builds support at the local level to reconsider the development of new coal plants and facilitate the retirement of existing coal assets. Finally, ACT fosters new economic activities fueled by new sources of energy by working with public sector utilities and private sector operators to define paths to advance clean energy transitions. A critical component of ACT is gender integration, and ACT also features a Women-Led Coal Transitions (WOLCOT) mechanism that was set up to test bold and innovative ‘business unusual’ models to directly support communities and organizations working on the rights of women and other excluded groups. WOLCOT aims to foster women’s climate leadership and effective participation in the design and implementation of coal to clean transition strategies and plans.
This gender component is particularly important for ACT’s supporters, including Canada. Together with Denmark, Germany, the United Kingdom, and the United States, Canada has contributed to ACT to “support a green economic recovery in developing countries that creates jobs, reduces GHG emissions, and supports the transition to clean energy and the phasing out of coal,” explained Cam Do, Director General of the Innovative and Climate Finance Bureau at Global Affairs Canada. “ACT is very well placed to support this transition for three reasons: CIF has a long track record of supporting transformational impact in developing countries. Second, the CIF is a multi-MDB [multilateral development banks] business model delivering concessional finance at scale. Its approach has been shown to be an effective and critical tool in the climate finance architecture. And third, the ACT program has a holistic approach for tackling the key pillars of the coal transition, which includes helping to reform key governance policies around energy transition, addressing the needs of the people and communities in implementing a just transition and decommissioning and repurposing coal power plants while building new renewable energy facilities.”
The United States is another key ACT contributor, and announced nearly USD1 billion in support in October 2022. Alexia Latortue, Assistant Secretary for International Trade and Development at the US Treasury said that “the CIFs play a critical role in supporting just energy transitions through programs like Accelerating Coal Transition. (…) Coal power plants account for one-fifth of global greenhouse gas emissions. Without innovative programs like the Accelerating Coal Transition program focused on helping countries transition away from unabated coal, we will not meet our climate goals.”
“When we talk about energy transitioning and decommissioning of coal, there we talk about transformational change,” continues Germany’s Juergen Zettler, Director General for International Development Policy at the Federal Ministry for Economic Cooperation and Development (BMZ). “We are not talking any longer about one investment project there and a little bit of capacity support there. (…) We are talking about the investment program and the quality of the investment program. We are talking about policy reforms, and I think that's really very promising,” concluded Juergen.
At COP26 in Glasgow, CIF announced that the initial phase of ACT investment would focus on South Africa, Indonesia, India, and the Philippines, which together represent over 15% of global coal-related emissions. In October 2022, Indonesia and South Africa presented investment plans to decommission several coal-fired power plants, preventing approximately 71 million tons of CO2 in potential emissions, equivalent to taking nearly 14 million cars off the road for a year. The USD1 billion in concessional, risk-bearing capital from ACT is aimed at boosting ambitious global climate, energy, and development goals in these countries.
South Africa’s investment plan, designed in partnership with the World Bank, the African Development Bank and the International Finance Corporation, was presented to the CIF governance board by then CEO of energy utility Eskom André de Ruyter. “The Accelerated Coal Transition funds are going to be used to assist us in decommissioning three coal-fired power stations, but very importantly, to enable us to ensure that there is a just energy transition, that we pay particular attention to the communities who are intimately involved with these coal-fired power stations,” he explained.
On top of supporting communities affected by the energy transition, South Africa plans to leverage the ACT contribution to show what can be done and attract additional support and investors. Zaheer Fakir, former Chief Policy Advisor of International Relations and Governance at South Africa’s Department of Environmental Affairs, was a member of the CIF governance group and said: “The purpose of the ACT is not going to be that it's going to finance everything, but it creates the catalyst for that movement. It creates that situation where things start moving, you start attracting more attention. (…) You start leveraging more interest, but also creating the evidence base because it's a very controversial issue. You're dealing with people's livelihoods (…). So, you need to create [this positive momentum] for demonstrating to people that a change is not only good for their sustainability and for the planet, but also for their lives and for (…) future generations.”
In Indonesia, CIF ACT plans to support the state utility Perusahaan Listrik Negara and the private sector to accelerate the retirement of up to 2 gigawatts of coal-fired power. CIF is set to support just transition activities, with capacity building, retraining, upskilling, and other economic regeneration programs for people and communities affected by the transition. Sri Mulyani Indrawati, Minister of Finance of the Republic of Indonesia, commented: "As a country, we are strongly committed to transition away from coal to cleaner forms of energy. Any potential solution must reflect our country-specific considerations like electricity over-supply, a young fleet of coal plants, and just transition of our people. The Climate Investment Funds’ ACT Investment Program allows us that flexibility to deploy a financial toolkit to tackle these critical challenges holistically."