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BlackRock Joins Citi to Study Plan to Shut Coal Plants Early

Smoke rises from a chimney as electricity pylons stand at the Tata Power Co. Trombay Thermal Power Station in Mumbai, India, on Saturday, Aug. 5, 2017. Nearly six months after his turbulent elevation to run India's biggest conglomerate, Tata Chairman Natarajan Chandrasekaran is assembling a team of dealmakers to refocus some of the group’s biggest businesses, expand its financial services and consumer businesses and sell or merge dozens of smaller units, according to interviews with senior executives. Photographer: Dhiraj Singh/Bloomberg

(Bloomberg) —

BlackRock Inc. and other major financial institutions are working on plans to accelerate the closure of coal-fired power plants in Asia in a bid to phase out the use of the worst man-made contributors to climate change.

The world’s biggest asset manager is partnering with Citigroup Inc., HSBC Holdings Plc and the Asian Development Bank to study the proposals, according to people familiar with the matter, who asked not to be named discussing a private matter. BlackRock is assessing the plans through its real assets unit, one of the people said.

Proposals being led by the Asian Development Bank and Prudential Plc would involve buying coal plants in developing economies in Asia and operating them for as long as 15 years before closing the sites ahead of current schedules. The plan was first reported by Reuters.

“The world cannot possibly hit the Paris climate targets unless we accelerate the retirement and replacement of existing coal-fired electricity,” Don Kanak, chairman of Prudential’s insurance growth markets division, said in a statement. “This is especially in Asia where existing coal fleets are big and young and will otherwise operate for decades.”

Representatives for Citi and BlackRock declined to comment. HSBC didn’t immediately respond to emailed requests for comment.

Read more: Unrelenting Coal Demand Poses Challenge to Climate Goals

Even as governments set out goals to reduce greenhouse gas emissions, coal remains a principal source of energy for many countries in Asia, with China and India accounting for two-thirds of global demand. Consumption in key markets is forecast to increase for the next few years and coal-fired electricity generation could hit a record in 2022, according to the International Energy Agency.

By acquiring and running the power plants at a lower cost of capital than is currently available to commercial operators, ADB and partners would be able to generate similar returns over a shorter period, facilitating the early closures of the assets, Reuters reported.

Funding for the planned energy transition mechanism is expected to come from both public and private institutions, although targets have not been set, said Ahmed M Saeed, the ADB’s vice president for East Asia, Southeast Asia and the Pacific.

The lender is currently in discussions with governments in Vietnam, Indonesia and the Philippines on the proposal, and may see a pilot acquisition that is “big enough to matter” next year, Saeed said. ADB plans to start raising funds at the COP26 climate conference in November.

For the plan to be successful, it will need countries to commit to not replace eliminated coal use with other fossil fuels, according to Saeed. The timeframe to shutter the assets will allow for sufficient planning, and help to avoid consequences such as poor regions suddenly losing access to heating.

The proposal would enable developing countries to “make big progress on climate goals in the next 10-15 years, not deferring the heavy lifting until mid-century,” said Prudential’s Kanak, who initially devised plans for the mechanism.

Read more: Citi and Trafigura Are Pitching ‘Coal to Zero’ Mining Vehicle

Earlier this year, Citi met with large institutional investors in London to pitch a vehicle intended to acquire coal mines and shutter them before 2045.(Updates with comments in fourth paragraph)

–With assistance from Nabila Ahmed, David Stringer and Alaric Nightingale.

© 2021 Bloomberg L.P.

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