* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
As China pledges to build no new coal energy plants, will it now switch that investment might to clean power?
Cecilia Han Springer is a senior researcher with the Boston University Global Development Policy Center, working on the environmental impacts of China’s overseas investment, energy policy in China, and industrial decarbonization.
Xi Jinping’s recent announcement at the United Nations General Assembly that China would “build no new coal-fired power plants abroad” is a major step forward for a global clean energy transition.
As the last major public financier of coal projects, and the first developing country to make such an announcement, China seems poised to finally join the G7 countries, including Japan and the United States, and a wide range of other countries and multilateral institutions that have already indicated they will not provide public finance for overseas coal-fired power plants.
This high-profile announcement from China’s top leader deserves great attention and praise. Chinese institutions, most notably the Bank of China, have already announced their own no-overseas-coal policies, hopefully heralding a race to the top for Chinese companies and banks to demonstrate adherence to Xi’s policy.
However, the climate impact of this announcement will depend on the devil in the details and whether China’s energy finance shifts towards cleaner sources, rather than disappears.
First, what does “build” mean?
China is involved in overseas coal power plant development through several channels – as a provider of loans from public and commercial banks, as a provider of equity through foreign direct investment by Chinese companies, and as a provider of equipment and construction services.
It remains to be seen exactly what the scope of Xi’s announcement will cover, and when and how it will be implemented.
Second, what does “new” mean?
China’s overseas coal pipeline has been shrinking, and no coal projects have received Chinese finance in 2021 thus far. Xi’s emphasis on “new” clearly rules out the initiation of any projects on the future; but the elephant in the room is the deals that have already been signed.
Data from the Boston University Global Development Policy Center’s database on China’s global power plants shows a number of deals have been sealed with Memorandums of Understanding, and some projects have already broken ground.
Given that coal-fired power plants typically have a lifetime of 30-40 years, these pipeline projects could harm the global climate for decades to come – not to mention the carbon dioxide emissions associated with the nearly 41 GW of operating coal power that China has already financed and invested in since 2000.
China will need to define which planned and under construction plants may be covered by the announcement – and address the possibility of early retirements, given the gigatons of carbon dioxide emissions associated with already-operational coal plants that China has supported overseas.
Additionally, rather than cut off energy development to countries in need, the announcement should herald a major shift in Chinese support for cleaner sources of energy.
Xi’s announcement also explicitly stated China would “step up support” for “green and low carbon energy” in developing countries and emphasized principles of a people-centered approach with benefits for all. Such inclusive development will be necessary to enable an equitable transition away from coal.
And if Xi’s announcement spurs both a shift and a scale-up of China’s support for global renewable energy, the international community will stand a better chance of meeting its collective climate and development goals.
China is well-poised to deliver renewable wind and solar energy to developing countries with rapidly growing demand for electricity. China has the technical know-how and manufacturing expertise to support not only the development of wind and solar electricity generation projects overseas, but also the associated grid and transmission infrastructure necessary to absorb and deliver that electricity to everyday users.
And China is already channeling support to renewable energy overseas – China’s financing for renewable power generation rose more than fourfold between 2015 and mid-2019.
In fact, recent research identified a $1 trillion opportunity for renewable energy investment in developing countries, based on those countries’ first Nationally Determined Contributions to the Paris Climate Agreement. Together, these investments represent 494 GW in installed renewable energy capacity outside of China, which is nearly five times the total energy capacity China currently supports overseas.
Additionally, the lion’s share of China’s finance for overseas renewable energy thus far has come as investment from private Chinese companies. Chinese policy banks and commercial banks should scale up their lending, seizing an opportunity to align with Xi’s announcement while also stepping into a promising global market.
Finally, while this announcement has generated optimism for the upcoming UN Climate Change Conference known as COP26, it is not a death knell for global coal development by any means. Attention must now shift to institutional investors and commercial banks outside of China.
A recent policy brief by the Boston University Global Development Policy Center shows that even including China’s public and commercial finance, China accounted for just 13% of the coal power capacity outside China operating or under development in recent years.
That means 87% of total coal financing has been coming from entities outside of China, with US investment companies taking the lead in total value of shares and bonds in global coal assets.
For advocates and policymakers, the next focus for shifting overseas finance towards cleaner energy must be the private sector.
