- Chinese President Xi Jinping recently announced at the UN General Assembly that China “will not build new coal-fired power projects abroad”.
- Shortly after this, the Bank of China said it would no longer finance new coal mining and power projects abroad for the last quarter of 2021.
- However, this means that the countries whose coal power sector was funded by China will urgently need new energy infrastructure.
- Experts say it would be beneficial for China to redirect its coal investments into the renewable energy sector of these countries, rather than just removing the funding.
Chinese President Xi Jinping recently announced at the UN General Assembly that China “will not build new coal-fired power projects abroad”.
Chinese banks have already swung into gear. Three days after Xi’s speech, the Bank of China declared it would no longer provide financing for new coal mining and power projects outside China from the last quarter of 2021.
Xi’s statement is expected to affect at least 54 gigawatts of proposed China-backed coal plants that are not yet under construction. Shelving these would save CO₂ emissions equivalent to three months of global emissions.
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This pledge from the world’s largest public financier of overseas coal plants could usher in a new era of low-carbon development. But that depends on what happens in the countries where China had funnelled money into coal power. Many of these places urgently need new energy infrastructure. Will China’s investments here be redirected to renewable energy – or simply disappear?
Chinese support for renewables abroad
One positive sign came in the same speech to the UN, when Xi indicated that “China will step up support for other developing countries in developing green and low-carbon energy”.
China’s overseas energy investments grew as part of the belt and road initiative. Launched in 2013, Xi’s signature foreign-policy effort increased China’s cooperation with the rest of the world through infrastructure development, unimpeded trade, financial integration and policy coordination. China has continued to provide finance for the belt and road initiative during the pandemic, and investment in renewables made up most (57%) of the country’s financial support for overseas energy projects in 2020 – up from 38% in 2019.
Beijing has supported wind and solar projects in more than 20 developing countries since 2013, including Ethiopia and Kenya. And Chinese banks and companies have also expanded their overseas investments in renewable energy over the last decade.
While the trends are positive, challenges remain. China’s overseas investment policy remains guided by the non-interference principle. This means that Beijing is supposed to let host countries determine the type of energy projects, and only requires Chinese firms to comply with host-country regulations.
Research shows that China’s finance for coal in Asia was largely driven by demand in recipient countries. This is because the domestic policies of these countries prioritised improving energy access over reducing emissions, and coal was a cheap and proven source. Inadequate grid infrastructure and politicians sceptical of renewable energy in countries receiving Chinese investment have also hampered development. In Indonesia, business leaders and politicians formed pro-coal lobby groups to influence the design of China-backed projects.
China’s new pledge tells prospective recipient countries that coal finance is no longer an option. China must now promote its offer of investment in renewables. Drawing on its domestic experiences, Beijing should provide subsidies or tax cuts to companies willing to build renewable energy projects outside China.
What's the World Economic Forum doing about the transition to clean energy?
Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.
Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.
Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.
Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.
To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.
Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.
Is your organisation interested in working with the World Economic Forum? Find out more here.
Chinese energy developers are often wary of investment risks in developing countries due to their unfamiliarity with local politics. The Chinese government can help by increasing coordination between Chinese companies and local governments, businesses, and communities in host countries.
Over the past decade, China has supported many developing countries to increase their energy generating capacity with financing, affordable technology and quick project delivery. China has taken the first step to stop funding coal. It’s now time to adopt policies that support the overseas activities of its renewable energy developers.