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Old King Coal

By Barry Spinks - posted Wednesday, 22 April 2015


There has been much international publicity and press coverage recently in relation to the formation of the Asian Infrastructure Investment Bank (AIIB) apparently signaling a significant change in geopolitics, energy security and fossil fuelled development.

Since Dennis Shanahan's article "Australia Joins China's Energy Investment Bank" The Australian, 25 March 2015, there has been little further analysis of this subject, yet these announcements appear to signal a dramatic paradigm shift for both developed and developing nations.

Developing nations have found it increasingly difficult to obtain finance from the World Bank for fossil fuel related development. The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), collectively known as the World Bank, has made it clear that coal fired funding in particular should not be funded and funds for such projects have been virtually choked off.

In 2010, following the inconclusive results from the Copenhagen round of climate talks, the US government stepped up pressure on the World Bank not to fund coal-fired power plants in developing countries. In a letter sent to the World Bank United States Executive Director Whitney Debevoise said, "The Obama Administration believes that the Multilateral Development Banks (MDBs) have a potentially critical role to play in the future international framework for climate finance, and, in particular, to assist developing countries in mitigating greenhouse gas emissions and strengthening their economies' resilience to climate risks".

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Japan recently came in for massive criticism from the environmental movement for using the Green Climate Fund for high-tech coal plants.

The UN's position is aligned with that of the USA with the current UNFCCC head, Christiana Figueres, saying there "is no argument for that," (using the Green Climate Fund for high-tech coal plants), adding that "unabated coal has no room in the future energy system." However, even Yvo de Boer, the former head of the UN Framework Convention on Climate Change, has supported Japan's move and the use of coal.

Since most of the developing nations are unable to finance development without such as the World Bank, their industrial development, fight against poverty and national wealth are restricted by the anti-coal policies of the UN and USA and thus kept impoverished.

Since 2013, the World Bank's energy strategy limits the financing of coal-fired power plants to "rare circumstances", making it part of a push by U.S. President Barack Obama to fight climate change. Reuters, 5 November 2014

One example, as a result of the USA's controversial investment guidelines, the axe has already fallen on Pakistan's Thar Coal and Energy Project on the grounds that "the limited financing available from the Bank should be directed toward investments that address energy supply shortfalls in an environmentally sustainable manner''. -Swati Mather, The Times of India, 24 January 2010

"The Geological survey of Pakistan reveals that 175 billion tons of coal is buried under the Thar Desert. These coal reserves alone are equivalent to total combined oil reserves (375 Billion Barrels) of Saudi Arabia and Iran. The coal deposits in Thar can change the fate of the country if utilized in a proper way. The coal reserves at Thar Desert are estimated around 850 trillion cubic feet (TCF) of gas, and are worth USD 25 trillion. According to experts, if this single resource is used properly, we not only can cater to the electricity requirements of the country for next 300 years but also save almost four billion dollars in staggering oil import bills". -M Rafaqat Hussain, Pakistan Observer, 26 July 2014, and Reuters, 5 November 2014

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Enter the recently announce but long in development concept of the AIIB. The Asia Infrastructure Investment Bank and the New Development Bank, established by the BRICS and sponsored by China.

There are currently 37 PFMs (Prospective Founding Members) in the Asian region, 20 PFMs outside the region, including Australia.

Belgium,Canada,and Ukraine are considering joining the AIIB (Application under consideration). Colombia, Japan, and the United States have no immediate intention to participate.

Mr. Obama's contentious domestic coal policies are for the US to sort out however, the U.S./Chinese climate "agreement" signed late last year – in which the Chinese conceded nothing, is more an indication of Obama's desperation to make climate his legacy issue than it is about helping developing nations.

The AIIB initiative and its boost to coal-fired funding, leaves the U.S. president and the EU/UN looking even more isolated on the geopolitical scene. More importantly, the AIIB has the potential to eliminate the " development funding leverage" exerted on developing nations by the UNFCCC to comply with their de-carbonization policies and appears to set developing nations on a collision course with the UN climate talks in Paris scheduled for December, 2015.

It seems highly unlikely that any members of the AIIB would on the one hand, gain much needed access to coal friendly international finance whilst also signing up for a replacement Kyoto and binding limits to their emissions?

It appears that Pakistan will benefit from the announcement that "Chinese President Xi Jinping is set to unveil a $46 billion infrastructure spending plan in Pakistan that is a centerpiece of Beijing's ambitions to open new trade and transport routes across Asia and challenge the U.S. as the dominant regional power. The largest part of the project would provide electricity to energy-starved Pakistan, based mostly on building new coal-fired power plants". -Jeremy Page, The Wall Street Journal, 19 Aril 2015

"Energy projects with Chinese support would generate a total of 16,500MW electricity, adding the work on 10,400 MW projects would be completed by 2018 in the first phase, while projects of 60,00MW will be completed in the second phase".

In Thar, the coal deposit infrastructure rejected by the World Bank, "10 coal-based power plants alone will be installed on commercial basis which will generate up to 6,600MW electricity from coal". Business Recorder, 18 April 2015

Australia as a coal exporter will increasingly have to compete and find new markets as the AIIB signatories move to power their development with coal. Whilst the EU in general and Germany in particular are busy killing off even their coal and gas power generation fleets and blunting their industrial capacity.

These announcements are of major significance and warrant more and better analysis in Australia. They potentially change the dynamics of our energy policies, export markets, industrial competitiveness, foreign policy and our role in the Asian community.

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About the Author

Barry Spinks worked for corporate multi-national organizations before branching out to consultancies and running his own business, he is now retired.

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