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Big step towards decarbonization: The OECD agreement to limit the export of coal technology and the Paris Agreement

In late 2015, two important agreements were made which could have a huge impact on the future of coal-related policies worldwide.

The OECD Agreement on limiting Export Credits

On November 17th, OECD’s (Organization for Economic Co-operation and Development) Working Party on Export Credits and Credit Guarantees (ECG) agreed to limit the export of coal-fired electricity generation projects. This agreement restricts the international exports of small- to medium-scale and low efficient coal technologies such as Sub-C (sub critical) and SC (super critical) technology. This is only a small move towards decarbonization because coal technologies exports will not be regulated in their entirety. However, it is a step in the right direction. This decision had been postponed for over a year with several countries such as Japan, South Korea, and Australia failing to back the agreement. The Japanese government had been unwavering in maintaining its opposition against any kind of restriction on the export of coal-fired power generation technologies. However, it has been getting increasingly more difficult for the nation to stand in the way of international agreements as domestic and international criticism against the coal promotion and the momentum gaining to COP21 in Paris. Even with limitation, it is very important that the OECD steps in to restrict coal technology exports. Moving towards a common target for climate change, it was also agreed that the OECD agreement in 2021 needs to be strengthened. It is clear this restriction will be tightened in the future.

An overview of the current regulations, which will come into effect as of January 2017, is in the following table (except in cases where procedures such as the EIA has been completed). These restrictions are covered under provisions in an Article from the Sector Understanding. The maximum repayment term for OECD export credits is set as follows.

Table: Maximum repayment terms as agreed upon by OECD

Plant unit size (gross installed capacity) Unit> 500 MW Unit≥300 to 500 MW Unit< 300 MW
Ultra-supercritical (i.e., with a

steam pressure >240 bar and

≥593°C steam temoerature), OR

Emissions < 750 g CO2/kWh

12 years*1 12 years*1 12 years*1
Supercritical (i.e.. with a steam pressure >221 bar and >550°C

steam temperature), OR

Emissions between 750 and 850 g

CO2/kWh

Ineligible 10 years, and only in

IDA-eligible

countries*1,2,3

10 years, and only in IDA-eligible countries*1,2,3
Subcritical (i.e., with a steam

pressure < 221 bar), OR, Emissions > 850 g CO2/kWh

Ineligible Ineligible 10 years, and only in IDA-eligible countries*1,3

*1. Where eligible for official support, an additional two years repayment term is allowed for project finance transactions.
*2. To help address energy poverty, ten year export credit support may be provided in all countries where the National Electrification Rate (as per the most current IEA World Energy Outlook Electricity Access database) is reported as 90% or below at the time the relevant completed application for export credit is received.*1. Where eligible for official support, an additional two years repayment term is allowed for project finance transactions.
*3. Export credit support may be provided in non-IDA-eligible countries for geographically isolated locations, where, (1) the less carbon-intensive alternatives are not viable and (2) the physical/geographic and existing grid features (including inability to connect to a larger grid) justify the proposed project’s efficiency category as the best available technology.

Translator’s Note: The IDA (International Development Association) is an international financial institution, which offers concessional loans and grants to the world’s poorest development countries by the World Bank. To be an IDA eligible countries, it needs to get through the application process to receive an export credit. There are two types of eligible countries: IDA-only countries which are eligible to access IDA resources, and Blend countries, which have access to IDA but are also able to borrow from IBRD.

Adoption of the Paris Agreement

Another important international agreement aimed at stopping coal-fired power generation projects is the Paris Agreement, which was adopted at COP21 in December 2015.

The take-home message from COP21 is that all countries involved clearly agreed to a long-term goal to prevent further climate change. The agreement set a goal of limiting the increase in global average temperature to well below 2℃ and pursuing efforts to limit rises in temperature to 1.5℃. To achieve this goal, according to the IPCC’s (Intergovernmental Panel on Climate Change) scientific assessment, it requires zero or negative greenhouse gas emissions by 2100. In addition, medium- to long-term target indicates parties aims to “reach global peaking of greenhouse gas emissions as soon as possible and to undertake rapid reductions in accordance with best available science”, so as to “achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gasses” in the second half of this century. This means committing to a goal of almost zero emission from fossil fuels. To level off global greenhouse emissions and move towards a zero emissions world, new development of coal-fired power plants, both domestic and abroad, should be reviewed immediately. At the same time, the necessary policies to promptly shutdown existing power plants should be in place.

The Japanese government joined this international agreement, therefore it will accordingly be required to review its policies which promote, which are not consistent with the direction of Paris Agreement. Japan must shift to alternative power sources, which enable bold greenhouse gas emissions reduction.