The Asian Development Bank’s Green Future

In May, to little fanfare, the Asian Development Bank (ADB) released a draft energy policy called “Supporting Low Carbon Transition in Asia and the Pacific,” which prohibits the bank from financing any coal mining, new oil, and natural gas field exploration as well as drilling or extraction activities.

The bank also said it will loan no money for new coal-fired power or heat plants or any facilities associated with new coal generation; it will not participate in investments to modernize, upgrade, or renovate coal facilities to extend their operational lives unless it is to reengineer such plants for use of cleaner fuels; and it will support member countries trying to mitigate the health and environmental impacts of existing coal-fired power plants. Finally, it will support member countries in planning for the early retirement of coal power plants.

This is a significant change, considering the ADB has channeled $42.5 billion into the energy sector across the region between 2009 and 2019. And now, funding that would otherwise go toward operations deemed unsustainable by the ADB could be directed toward renewable energy or even enable a just transition to renewable energy across Asian countries. In fact, the draft makes clear the ADB will support member countries “to undertake transparent and inclusive planning and policies for a just transition that involves all relevant stakeholders and affected groups at all stages of the energy transition.”

That’s a step in the right direction, but the new policy might not go far enough. The draft reveals the ADB’s inclinations to continue some conditional funding of natural gas projects. And it doesn’t rule out other indirect financing for fossil fuels. The ADB may, it said, “finance natural gas projects (including gas transmission and distribution pipelines, [liquified natural gas] terminals, storage facilities, gas-fired power plants, [and] natural gas for heating and cooking)” based on certain conditions. For example, if the new infrastructure would provide energy to those who don’t currently have it and in cases where no other technology exists, that can supply power at similar costs.

The draft policy also draws distinctions between various stages of the natural gas supply chain in determining what qualifies for funding and what does not. So, although the ADB will not directly finance projects concerning exploration, drilling, and gas extraction, it remains open to funding natural gas terminals and storage facilities. In other words, ADB funding will still flow to fossil fuels.

This is troubling given how the ADB is “second only to EIB [European Investment Bank] when it comes to global gas lending,” said Rayyan Hassan, executive director of NGO Forum on ADB. The NGO Forum on ADB is a network of civil society organizations that monitors ADB projects, programs, and policies.

“The draft falls short of what’s needed in terms of climate leadership from development banks, which are funded by public money,” said Bronwen Tucker, an analyst at Oil Change International, a research and advocacy organization focused on facilitating a clean energy transition.

“The biggest puzzle in the draft policy is that is allows for continued direct support for gas by laying out conditions, but the details of these conditions are not clear [in the draft itself],” Tucker explained. And, indeed, the draft states the ADB will “define sound screening criteria for other fossil fuel-generation projects, notably natural gas. A detailed guidance note will be issued to staff.” If that note is not made public, it will be “really hard to evaluate how much gas they are planning to continue to fund,” Tucker added.

A request for an interview with Yongping Zhai, chief of ADB’s Energy Sector Group, Sustainable Development, and Climate Change Department, was not answered.

It might be tempting to assume getting rid of coal investments will be good enough. “There is this assertion that natural gas is cleaner than coal,” said Lidy Nacpil, coordinator of the Asian Peoples’ Movement on Debt and Development. That’s because its use emits less carbon dioxide. “But it’s not just carbon dioxide that matters. … Fossil gas emits a lot of methane,” Nacpil added.

And methane has a much higher warming potential than carbon dioxide. A May study found that burning natural gas, alongside biomass, is the leading cause of air pollution-related deaths in the United States across 19 states and the District of Columbia.

“Coal mines and plants have much more dramatic and immediate polluting impacts on local communities [than gas power projects],” Nacpil said. She added coal pollution is “more visible in some ways,” but the overall ecological impacts of all fossil fuels are “almost the same.” Some studies point to methane emissions causing up to 15 percent annual yield crop losses of soy, wheat, rice, and maize.

Meanwhile, the ADB has spent more than $4.7 billion on gas development since the 2015 adoption of the Paris Agreement, according to Oil Change International’s Shift the Subsidies database. Overall, the bank’s financing of gas accounts for more than 96 percent of the bank’s total financing of fossil fuels from 2016 to 2020. It is worth nothing, according to an International Energy Agency May report, “no new oil and natural gas fields are needed in the net zero pathway.” That means for net zero carbon emissions, we shouldn’t be investing in natural gas at all—except to safely transition away from it.

In some ways, the ADB’s priorities aren’t surprising. The bank is funded largely by Japan and the United States, which contribute 15.6 of total funding each. Both countries are deeply invested in natural gas—the United States is the world’s biggest producer and Japan is the largest buyer of liquefied natural gas—and it makes sense the same would be reflected in ADB’s policies. Japan also holds significant clout in terms of leadership positions at the ADB. After Japan and the United States, the next biggest shareholder is Australia. “Australia has been pushing for gas to stay in and apparently even for coal to have stayed in,” Tucker noted.

So, whereas some other funds that finance energy in Asia have made deeper cuts to fossil fuels—in November 2019, the EIB announced it would stop funding oil, gas, and coal projects by the end of 2021—the ADB has moved slower. To be sure, even if it did make radical adjustments, there is “a lot of private and commercial financing for fossil fuels in this region and other sources like bilateral financing from China and Japan,” Nacpil said.

Future growth in natural gas consumption is “concentrated in developing nations,” according to the U.S. Energy Information Administration. And many of those are in Asia. So, for the ADB—the world’s second biggest gas financer—to move away from an emerging gas market would no doubt have multiple ripple effects around the world, including in terms of setting the tone for other lenders, be they public or private. It would aid the fight against climate change too.

But it remains to be seen what shape the ADB draft finally takes. It is up for finalization sometime later this year.

Correction, June 9, 2021: An earlier version of this article listed Japan as the world’s largest buyer of gas. It is the world’s largest buyer of liquefied natural gas.