A Role for the World Bank in Cleaning Up Coal

Editor’s note: In this blog, Nigel Purvis examines the World Bank’s role in cleaning up fossil fuel-based power sectors. For a more detailed look at the future of coal power plants, read the related paper, 
Retrofitting Coal-Fired Power Plants in Middle-Income Countries: What Role for the World Bank?

More and more, donors are saying “no” to coal abroad.  From the United States to the European Bank for Reconstruction and Development, policymakers are deciding to phase-out public finance for new coal-fired power plants in middle-income countries.  This policy decision is driven by a number of reasons—notably the fact that middle-income countries can readily attract affordable private capital to finance coal plants, as I argued in a 2011 Brookings Global View, and don’t need concessional finance to subsidize construction. It is also driven by climate concern, as the energy sector in middle-income countries is the fastest growing source of climate pollution globally.

Yet given that 70 percent of the coal fleet in these nations is nearing the end of its expected lifetime, is there a role for concessional finance—and the World Bank as a first mover and leader in this space—in cleaning up existing coal power plants in middle income countries?

What’s at stake?

In short: human health, agriculture, and political upheaval. Coal-fired power plants produce many air pollutants (such as SO2, PM, and NOx). These pollutants are harmful to human health, causing some 3 million premature deaths annually. They hurt agricultural productivity, farm incomes and food security by reducing the amount of sunlight that reaches the Earth’s surface. And, recently, we’ve seen high levels of local air pollution driving social unrest, prompting new focus within governments to prioritize air quality policies and regulation. In fact, China has recently declared a “war on pollution,” enacting new policies and emphasizing air quality in its Five Year Plan. One avenue of attack is to retrofit existing coal power plants—installing scrubbers and other technologies that capture or eliminate most of these harmful pollutants at their source.

And what about climate change?

Retrofits do not directly cut greenhouse gas emissions that drive climate change. Nevertheless, some air pollution retrofits do have efficiency co-benefits that can help reduce greenhouse gas emissions. Low NOx burners, for example, improve combustion efficiency by conserving heat energy. This means that retrofitted coal plants, besides reducing air pollutants, can produce the same amount of energy with less fuel.

Still, many worry that continued World Bank financing of retrofit projects might extend the productive life of a coal-fired power plant. Once local air pollution from these plants is reduced, nations and local communities will have fewer incentives to shut down those plants in favor of greener alternatives.  Retrofits could also provide political cover for simultaneously increasing the generation capacity (and climate pollution) of existing coal plants. According to the International Energy Agency, large investments in retrofits can be cost-effective because they do in fact extend the life of a coal-fired power plant—and the associated emissions.

A way forward

Clearly, the question of whether to use limited concessional finance in support of retrofit projects in middle-income countries—many of which are now major greenhouse gas emitters—is complicated. On the one hand, retrofitting coal-fired power plants would help minimize toxic air pollutants, including soot and smog, which are dangerous for human health. On the other hand, installed retrofits could prolong the life of a nation’s coal fleet, which globally are the single largest source of carbon dioxide emissions driving climate change.

Together with Climate Advisers colleagues, I suggest a way forward in a new Brookings paper here. We propose that the World Bank consider financing retrofits in middle income countries only as part of an overall policy reform to clean up the fossil fuel-based power sector in those nations.  In addition, any coal retrofit lending should require use of the best available environmental technologies for reducing pollution (to maximize benefits) and should not increase the generation capacity of the existing plants (to avoid creating a loophole in the policy against lending for new coal projects).  This approach would allow nations and local communities to capture health benefits without exacerbating the climate crisis.