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President Obama’s Climate Action Plan: Can it Shift the World Away from Coal?

While reactions to President Obama’s newly announced climate plan have focused on domestic action, the plan actually has potentially significant repercussions for the rest of the world. These repercussions will come in part through his commitment to limit U.S. investments in new coal-fired power plants overseas. If fully implemented, the plan will help ensure that the U.S. government channels its international investments away from fossil fuels and toward clean energy. The move sends a powerful signal—and hopefully, will inspire similar action by other global lenders.

Coal Is the Dominant Energy Source Globally

Coal continues to make up a large share of global power generation, despite the negative health and environmental effects of coal-powered power plants. According to the International Energy Agency (IEA), the world used more than 9 trillion pounds of coal to produce electricity in 2010, more than three-and-a-half times the amount used in 1973. Coal is poised for even greater growth, too. According to recent WRI analysis, 1,196 new coal power plants are planned globally, of which 36 are proposed for construction in the United States.

What’s the Impact of the President’s Coal Investment Ban?

President Obama’s plan would end public investments in coal-fired power plants outside of the United States unless the facility is located in a very poor country and no other economically feasible alternatives exist. The rule does not apply to power plants outfitted with advanced technology to capture and sequester carbon dioxide emissions. This policy could help shift U.S. investments away from coal and toward cleaner energies like wind and solar. It supports earlier government-issued guidelines for financing coal through multilateral development banks.

In recent years, the U.S. government has ramped up its overseas investments in renewable energy. For example, the Overseas Private Investment Corporation (OPIC) has a robust greenhouse gas policy aimed at reducing its portfolio emissions by 30 percent by 2018 and 50 percent by 2023, compared to 2008 levels. The Export-Import Bank of the United States (US Ex-Im), in turn, recently allocated more financial resources for renewable energy exports and established stricter review requirements for large fossil fuel projects.

Despite these efforts and signs of progress, though, U.S. government agencies— including U.S. Ex-Im—currently have several coal-fired power plants in their pipelines in countries like South Africa and Vietnam. Such investments should be reconsidered after President Obama’s announcement.

Shifting the United States—and the World—Away from Coal

The significance of the new plan, though, is not limited to a shift in financial support. The president’s commitment could inspire similar action from other international investors, such as the multilateral development banks, which are important long-time financiers of the global coal industry.

The World Bank, for example, is currently developing a new strategy for its energy sector investments. The most recent draft of the strategy lays out an approach to new coal power generation projects that, similar to President Obama’s plan, limits investment to “rare circumstances” where no feasible alternatives to meet basic energy needs are available. Such a step would significantly advance prevailing policy at the Bank, where investments in coal have long been a contentious topic.

World Bank member states have disagreed in the past on the degree to which the Bank, an institution focused on poverty eradication and economic development, should factor the environmental and social costs of coal into its decision-making. Today, though, developing countries are increasingly turning to clean energy sources to meet energy needs, and the World Bank is helping to fund this shift. Restrictions on investments in coal would further support the move toward cleaner technologies and demonstrate growing recognition by World Bank member states that the long-term costs of coal outweigh the benefits. World Bank and U.S. commitments to limit new coal investments would send a powerful signal to the world’s major economies and investors that global energy needs can be met without further investments in fossil fuels.

The precise effects of President Obama’s plan on investments in coal-fired power plants remain to be seen. Several questions still need answering, including how the exceptions to the ban will be defined and implemented. Nevertheless, the commitment is a bold step forward. The president’s emphasis on international collaboration—combined with limits on coal investments—can help move the world away from coal and toward a future of clean energy for all.

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