Japan to end financing of key coal projects under climate pledge

Hirono thermal power plant. Credit: Wikimedia Commons

Japan will withdraw financing for key coal-fired power plant projects in Bangladesh and Indonesia under efforts aimed at accelerating a global phase-out of the dirtiest fossil fuel.

Asia’s second-largest economy will stop providing government-backed yen loans to the Matarbari 2 coal expansion project in Bangladesh and the Indramayu plant in Indonesia, the country’s Foreign Ministry said in a statement.

The move comes days ahead of a meeting of Group of Seven nations, which agreed last year to stop international financing of coal projects. Japan initially opposed that move, and while it subsequently tightened conditions for overseas coal projects, it has faced sharp criticism over its support for new developments under certain condition.

Japan accounted for more than half of the $6.6 billion of coal support from G-7 countries in 2019, according to Bloomberg NEF.

Bangladesh said it won’t go forward with the coal-based plan for Matarbari 2, instead building a liquefied natural gas-based plant as the country shifts to alternative energy sources. The country “is moving away from coal power,” Nasrul Hamid, state minister for power and energy, said in a phone interview. “In 2021, the government canceled plans to build 10 coal power plants that were expected to pull in about $10 billion in investments.”

The Indramayu project is already on hold and could be halted completely in line with Indonesia’s net zero target, according to Wanhar, director of electricity program supervision at the country’s energy and mineral resources ministry.

Japanese companies are also withdrawing from the coal sector amid scrutiny from activist investors. Sumitomo Corp. and Toshiba Corp. have both indicated they won’t take new orders for coal-fired projects, while commercial banks have also made similar pledges.

Climate activists are wary of plans to simply replace coal-sector projects with LNG-fired plants, which risks locking in the use of fossil fuels for decades. “This would be a lunge towards runaway global warming in the same vein as new coal power,” said Julien Vincent, executive director of Market Forces, an Australia-based campaign group.

(By Shoko Oda and Ryotaro Nakamaru, with assistance from Isabel Reynolds, Heesu Lee, Arun Devnath and Eko Listiyorini)

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