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The World Bank cuts off funding for coal. How big an impact will that have?

Last month, the Obama administration announced that it would cut off most funding for coal plants overseas. Now, in a major shift, the World Bank is doing the same.

On Tuesday, the World Bank Group announced that it would restrict funding for new coal plants in developing countries except "in rare circumstances" — say, in poorer nations that have no good alternatives.

Instead, the bank, which financed some $52.6 billion worth of infrastructure projects last year, will focus on scaling up cleaner natural gas and hydroelectric dams in order to deliver electricity to hundreds of millions of people around the world who still don't have it.

The shift comes as the World Bank and other international financial institutions have debated how to balance the needs of poor countries with efforts to slow global warming. The new World Bank president, Jim Yong Kim, has said that the "world’s top priority must be to get finance flowing and get prices right on all aspects of energy costs to support low-carbon growth."

In the short term, the World Bank's move may not have a huge practical impact. The bank hasn't funded a major coal project since providing South Africa with a $3 billion loan in 2010 to build a massive power plant near Johannesburg. Instead, the lender has turned to cleaner energy sources like hydropower in order to square development with its climate goals.

The one major test of the new policy will come in Kosovo, which wants to build a new 600-megawatt plant fired by lignite coal, a particularly carbon-intensive fuel. The bank needs to decide whether to offer loan guarantees, and Kim has signaled before that Kosovo may be an exception to the coal ban. “Climate change and the coal issue is one thing,” he said in April, “but the humanitarian issue is another, and we cannot turn our backs on the people of Kosovo who face freezing to death if we don’t move in.”

That said, some environmentalists see the World Bank's move as a sign that major lenders are moving away from coal and toward cleaner sources of energy. "The importance is the precedent it sets across the [international financial institutions] responsible for $37 billion in coal finance [since 1994]," noted Justin Guay international climate and energy representative of the Sierra Club.

This table (pdf) from the World Resources Institute shows which public institutions have offered financing for coal plants since 1994*:

Of those public lenders, the World Bank Group and the U.S. Export-Import Bank have now restricted their support for coal. The European Bank for Reconstruction and Development (EBRD) and European Investment Bank could also soon take steps to scale down their financing.

That's a significant shift. But in the broader scheme of things, these moves won't be enough on their own to tilt the world's energy supply away from coal. Those four lenders have financed 64 coal projects over the past two decades. But there are as many as 1,199 new coal-fired plants being planned globally, with three-quarters of them in India and China — and China doesn't need Western financial institutions for help.

Correction: The table shows public coal financing since 1994, not in the past five years as originally stated.

Further reading:

-- The big climate question: Will the world build 1,200 new coal plants? Note that Germany alone is planning 11 gigawatts worth of coal plants in the coming years.

-- For those who want to get deep in the weeds, the Center on Global Development's Scott Morris has an interesting post (and policy paper) thinking through when the World Bank should and shouldn't fund coal. His bottom line: "The bank should be ambitious in working toward clean energy approaches in its development strategies, but it would be a mistake to definitively rule out coal in all circumstances."