SINGAPORE (BLOOMBERG) - BlackRock 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, HSBC Holdings and the Asian Development Bank (ADB) 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 sources said.
Proposals being led by ADB and Prudential 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," Mr 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 did not immediately respond to e-mailed requests for comment.
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 next year, 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 closure 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 Mr Ahmed M. Saeed, the ADB's vice-president for East Asia, South-east 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, Mr 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 Mr 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 Mr Kanak, who initially devised plans for the mechanism.
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.