“The Asian Development Bank’s Energy Transition Mechanism: Emerging Social, Environmental and Rights-Based Considerations”

26 January 2023

Fair Finance Asia (FFA) and NGO Forum on ADB (the Forum) have released a new report, “The Asian Development Bank’s Energy Transition Mechanism: Emerging Social, Environmental and Rights-Based Considerations.”

The report raises critical questions and concerns about the Energy Transition Mechanism (ETM), which is being advanced by the Asian Development Bank (ADB) as a market-oriented solution to accelerate the process of taking coal power off national energy grids in specific Southeast, South and Central Asian countries and replacing it with other sources of power.

As explained by Mr. Rayyan Hassan, Executive Director, NGO Forum on ADB, “By keeping a close watch on the development of the ADB’s ETM since it was announced in 2021, civil society groups in the region are becoming increasingly concerned that the ETM is flawed by design. It seems to leave communities and workers - at the very sites where the ETM will be proposed to be piloted - in the dark, as the terms and conditions of early power plant retirement are negotiated under non-disclosure agreements, while also turning a blind eye to the demands by broad social movements across the region for publicly accountable processes to phase out coal and other fossil fuel industries without delay.”

In particular, FFA and the Forum’s new report highlights that, to date, the ETM:

  • Does not require participating governments or companies to suspend the development of planned or under construction coal power projects and commit to phasing out coal power by 2040, as per the Paris Climate Agreement. The sheer number of coal power projects still expected to be added to national grids in the future (those that are now in the planning, pre-permitting, permitting, and construction phases) may overshadow the number slated for retirement. For example, while the ETM will be piloted in Indonesia at the 660MW Cirebon 1 site, an expansion unit of 1000MW (Cirebon 2) that is being developed by the same parent company, Cirebon Power, is set to begin commercial operations in the near future.
  • Lacks clarity on the extent to which ADB’s social and environmental safeguards will apply at pilot coal power project sites over the course of retirement (estimated by the ADB to take between 10-15 years), and whether surrounding communities will have access to filing grievances under the ADB’s accountability mechanism. The ADB’s ETM also lacks provisions to require pilot coal power project operators to adhere to internationally accepted human rights standards, such as binding United Nations treaties or the UN Guiding Principles on Business and Human Rights (UNGPs).
  • Lacks channels for community groups, labor rights groups/local union bargaining units or other concerned civil society groups to meaningfully shape the terms of coal power project retirement (and hence their future), as negotiations for site specific retirements take place behind closed doors. In Indonesia, for example, plans to pilot the ETM are moving forward at the Cirebon 1 Coal Power Project, but are being discussed without the involvement of community groups and workers, who have not been fully informed or given the opportunity to provide their perspectives.
  • Lacks clarity on the definition of clean energy options to be developed and parameters for repurposing projects. Loosely defining support for low carbon/clean energy options risks incentivizing the development of unsustainable resource-intensive options that have no place in a just energy transition, including waste-to-energy incinerators, facilities to burn woody biomass, projects that replace coal or are co-fired with hydrogen sourced from fossil gas, large hydropower dams, or carbon capture and storage infrastructure.
  • Lacks transparency in relation to the actual terms and conditions for coal power project retirement. The ETM model does not rely on any payment caps to coal power project operators to accelerate retirement, nor does it require the terms of retirement to be disclosed. Compensation to coal operating companies therefore risks being paid at a highly inflated rate.

“Just energy transition is not as simple as shifting from fossil fuels to less carbon-intensive sources of energy,” said Ms. Bernadette Victorio, Program Lead, Fair Finance Asia.“The ‘just’ element must be reflected in the quality and pace at which the transition happens. Are the rights of communities, workers, and indigenous peoples respected and safeguarded? Are there broad, inclusive, democratic, and transparent consultative processes happening between key stakeholders? Are we ensuring that this whole process is not lopsidedly benefitting fossil fuel companies and their investors? These are only some of the very basic elements that need to be considered in the ADB’s ETM rollout process. Our latest study details other key recommendations, and we share them during this critical juncture as the ETM’s pilot project is being discussed.”

The report also provides a set of initial recommendations in cases where the ADB and ETM implementing partners, such as the WBG, have been involved in supporting the coal sector and industries. Accordingly, Mr. Hassan added, “Finally, after decades of bankrolling coal power projects in the region, the ADB committed to stop financing new coal power projects in 2021. Yet, the ADB consistently fails to meaningfully address the demands for justice and accountability raised by communities whose health and livelihoods have been ravaged by the ADB’s investments in coal-related infrastructure, including in the Philippines, Pakistan and Mongolia. How many more years must they wait?”

“There’s a real opportunity for the ADB’s ETM to support Asia’s transition away from fossil fuels, but until the critical questions and gaps around socio-environmental safeguards are appropriately addressed, then this seems like another business-as-usual deal for fossil fuel companies and their investors,” said Ms. Victorio.

To access the full report, click here.

For more information, contact:

Kyle Cruz Communications Coordinator, Fair Finance Asia kylejuliene.cruz@oxfam.org 

Tanya Lee-Roberts Davis Energy Policy and Campaigns Strategist, NGO Forum on ADB tanya@forum-adb.org


About FFA

Fair Finance Asia (FFA) is a regional network of Asian CSOs committed to ensuring that financial institutions’ funding decisions in the region respect the social and environmental well-being of local communities. For more information about FFA, visit https://fairfinanceasia.org/

About NGO Forum on ADB

The NGO Forum on ADB (the Forum) is a network of civil society organizations (CSOs) that has been monitoring the projects, programs, and policies of the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB). For more information about the Forum, visit https://www.forum-adb.org/