IFC to stop funding new coal-powered electricity projects

Source: The post is based on the article “IFC to stop funding new coal-powered electricity projects” published in The Hindu on 6th April 2023

What is the News?

The International Finance Corporation (IFC) has announced that it will not support investments in new coal projects.

What is International Finance Corporation(IFC)?

IFC was established in 1956 as a member of the World Bank Group.

Purpose: To advance economic development and improve the lives of people by encouraging the growth of the private sector in developing countries.

Functions: It provides financing of private-enterprise investment in developing countries around the world, through both loans and direct investments.

– It also provides advisory services to encourage the development of private enterprise in nations that might be lacking the necessary infrastructure or liquidity for businesses to secure financing.

Significance: IFC is the largest global development institution focused on the private sector in developing countries.

Headquarters: Washington DC, USA

What has been announced by IFC related to coal projects?

The IFC funds banks and other financial institutions that in turn lend to infrastructure and energy projects.

In 2020, the IFC unveiled a policy requiring clients to reduce their exposure to coal projects by half by 2025, and to zero by 2030. But this did not prevent new investments.

Hence, from 2023, IFC is taking the next step toward alignment with the Paris Agreement ambitions under which IFC will start requiring a commitment from financial institution clients to not originate and finance any new coal projects.

How will this impact India’s coal projects?

India which sources about three-fourths of its electricity from coal has 28.5 GW of coal power capacity planned, about a third of which is already approved and 32 GW of coal power capacity under construction. 

Tamil Nadu, Odisha, and Uttar Pradesh are the States with the highest capacities of coal power under development. 

The bulk of investments in India’s prospective coal plants are by State utilities. Hence, the impact of IFC’s decision to not invest in coal projects is not known.

However, this step by IFC should ideally prompt Indian State utilities to move away from new coal-fired plants and only fund those that are in the advanced stages of construction.