An orderly phaseout of coal-fired power plants in the Asia-Pacific region could slash nearly three-quarters of the region’s combined coal power generation-related carbon emissions and minimize economic disruption from the energy transition.
That’s according to an analysis by Manish Shakdwipee, Elchin Mammadov and Guido Giese of MSCI Research published in the Winter 2024 issue of the Journal of Impact and ESG Investing.
Fifteen markets in the APAC region could potentially reduce their carbon emissions from coal-fired power by 39% to 95% in an orderly managed phaseout (MPO) between now and 2050 compared with business as usual, the analysis finds.
Avoided emissions in the most orderly MPO scenario for the APAC region
Source: MSCI ESG Research
China, Indonesia and India may face fewer trade-offs between the conflicting environmental and socioeconomic objectives that an MPO can entail, compared with Hong Kong and Laos, where even the most orderly phaseout scenario would be relatively abrupt and present more such trade-offs.
The paper brings forward an analysis by Shakdwipee and Mammadov – both Institute fellows for the energy transition– developed at the request of the Asia-Pacific Network of the Glasgow Financial Alliance for Net Zero (GFANZ).
Its publication in the journal arrives a week after COP29, where 25 countries and the European Union announced their intention to put forward national climate plans that reflect no new unabated coal in their energy systems. The announcement was joined by the Asia Investor Group on Climate Change, which called for the early winding down of coal plants as part of overall efforts by countries in APAC to reduce their emissions.
The analysis “show the important contribution that MPOs can have as part of a broader energy-sector transition plan,” write the authors, adding that “financing of companies based on their plans for phasing out their carbon-intensive assets may offer an opportunity for investors who want to promote an orderly transition by investing in whole-economy decarbonization.”
Case studies in coal phaseouts
The paper draws on examples from Drax Group PLC (UK), Vattenfall AB (Sweden), RWE AG (Germany), Uniper SE (Germany), and Engie SA (France) to illustrate varied outcomes of coal phaseouts.
An MPO enabled Drax to maintain profitability and meet a government phaseout target as the economics of coal power in the UK deteriorated, the authors explain, while a more abrupt phaseout by Vattenfall illustrates how leaving coal too abruptly can impair assets.
At the same time, a protracted exit from coal can increase regulatory risks, they note, detailing impairment charges booked by RWE, Uniper and Engie amid a deadline for winding down plants imposed by the Dutch government.
“Companies that own or operate coal-fired power plants may reduce their exposure to policy shifts and improve their access to capital by aligning their strategy with an orderly MPO pathway,” the authors write.
You can read more about the findings of the paper here, and get the GFANZ report on financing the managed phaseout of coal-fired power in APAC here.
