On 31 October 2021, the Group of 20 largest economies (G20) made a historic announcement by committing to end finance for coal-fired power plants overseas.
The G20 pledge caps a year of major sustainable finance pledges from national governments and their development finance institutions (DFIs) since the inaugural 2020 Finance in Common Summit, where DFIs pledged to align their financing with the goals of the Paris Agreement. In that time, the landscape of development finance has shifted dramatically in favor of developing countries with green energy transition goals.
As a result, a new policy brief by the Boston University Global Development Policy Center finds that, as of November 2021, every major DFI that lends internationally has committed to ramping up support for green energy, with 99 percent of internationally available development finance now committed to reducing or ending coal finance support and increasing support for renewable energy.
The policy brief charts the commitments made across DFIs up to 1 November 2021, analyzing how they affect the scope of available development finance and outlining policy recommendations for borrowers and lenders alike.
- As of November 2021, every major DFI that lends internationally has committed to ramping up support for green energy.
- Of internationally available development finance, 99 percent is now committed to reducing or ending coal finance support and increasing support for renewable energy.
- The momentum in green energy transitions has shifted to DFIs based in middle-income countries, as the Brazilian Development Bank, African and Asian Development Banks, and China and South Africa have made or participated in major recent announcements.
- As the China Development Bank and the Export-Import Bank of China combined are the largest international public financier of coal power generation, China’s announcement that it would no longer build coal power abroad has dramatically reduced the available international development finance for coal power.
- About one-fifth of available development finance is associated with DFIs that have active programs for assisting countries in reducing their reliance on coal power, including technical and financial assistance.
- About one-third of available development finance is associated with DFIs that have active programs to provide concessional financial or technical assistance for renewable and low-carbon energy development.
- The remaining DFIs without commitments to end coal finance include the Development Bank of Latin America (CAF), the Islamic Development Bank (IsDB) and the New Development Bank (NDB). However, major shareholders of these banks, including Brazil, China, India, Russia, Saudi Arabia and South Africa, joined the October 2021 G20 commitment, which may signal future reforms at these DFIs.
The reforms highlighted in this policy brief show a qualitative shift in the availability of development finance for energy generation in developing countries. Countries with plans for continued development of coal-fired power plants will find that just 3 major DFIs continue to offer this support.
In addition, the authors argue more can and needs to be done to encourage DFIs to adopt and meet clean energy targets and there is ample space for DFIs to strengthen their commitments and expand investments into renewable energy.
“This past year has seen a major wave of reforms by multilateral and national development banks to green their lending practices, especially those based in developing countries. As a result, every major public development bank that lends internationally has now committed to increasing support for renewable energy. If these institutions live up to their commitments, it will be easier for developing countries to find official finance for renewable energy and coal power phase-out than for building new coal-fired power plants. This momentous shift in support for renewable energy marks a watershed moment in development finance.”
—Rebecca Ray, Senior Researcher, Boston University Global Development Policy Center
Rebecca Ray, PhD
Global Development Policy Center
53 Bay State Rd, Room 504
Boston, MA 02215
Photo on front page: The Group of 20 countries had been looking for common ground and solid commitments on how to reduce emissions while helping poor countries deal with the impact of rising temperatures. Source: Business Today. Figure on this page: Timeline of Selected DFI Statements and Policies on Ending Support for Coal Power. Source: Boston University Global Development Policy Center, 2021.
DFIs shown in red are headquartered in low and middle-income countries, although these location choices do not necessarily indicate majority capital or voter shares for developing countries (Ray 2021). *AIIB’s president Jin Liqun first stated in 2017 that there were no coal projects in AIIB’s pipeline in 2017, and this statement was re-iterated in 2020. ** In 2016, BNDES committed to ending coal finance and in 2021 confirmed that coal had been added to their “exclusion list.”