China’s promise to stop building coal plants overseas is full of caveats and loopholes – Grid News
China’s promise to stop building coal plants overseas is full of caveats and loopholes

China, the world’s largest coal producer and consumer, has doubled down in recent years on plans to burn the polluting fuel — despite government pledges to fight climate change. New research shows more than half the coal plants under development today are in China. That trajectory clashes directly with warnings from the world’s top climate scientists, who say that coal consumption needs to be cut by more than three-quarters by 2030.

A silver lining emerged last year when Chinese President Xi Jinping told the United Nations General Assembly that China would no longer back foreign coal projects. “China will step up support for other developing countries in developing green and low-carbon energy and will not build new coal-fired power projects abroad,” Xi said.

The new policy was welcomed by environmental groups and made headlines around the world — and for good reason. China has provided more financing for global coal power plants than any other country. Chinese state-owned development banks alone have lent $31 billion to coal plants in 18 countries over the last two decades. Currently, Chinese banks and companies are involved in 86 coal power projects abroad, according to a recent analysis. Once completed, those power stations would emit the equivalent of Australia’s annual carbon pollution. If China wasn’t ready to cut its domestic coal burning, preventing those emissions would still represent a meaningful step.

But in practice, China’s much-publicized policy shift has fallen short of what climate advocates had hoped for. The power of the pledge hinges on what Xi meant when he said China wouldn’t build “new” power plants abroad. It turns out, based on a subsequent Chinese policy document, that Chinese companies can continue pushing ahead with any projects currently under construction.

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“I think the pledge is quite limited because it addresses the ‘new’ aspect only,” said Wawa Wang, program director of Just Finance International, adding that the government’s definition of “new” allows China to continue building dozens of plants.

On top of that large caveat, Chinese companies have also exploited gray areas to continue to pursue coal projects overseas, even if they weren’t already under construction when Xi made his announcement.

Seven months later, those who cheered Xi’s pledge are asking: How much impact will it actually have?

The upside: Where China’s ban will make a difference

The good news: There is evidence that the ban is having some effect. The Bank of China and the Export-Import Bank of China, two of China’s biggest international coal lenders, both announced they are no longer funding any new overseas coal projects. And a new briefing from the Centre for Research on Energy and Clean Air (CREA) found that 15 China-funded coal projects, from Vietnam to Turkey to the Ivory Coast, have been canceled or shelved since Xi’s announcement.

The new Chinese policy has accelerated a trend of countries reconsidering coal power development due to its costs and environmental impacts, said Isabella Suarez, a Southeast Asia analyst for CREA. Decisions to scale back coal plant plans in Bangladesh and Vietnam were likely influenced by China’s ban, she added, because Chinese financing had played such a large role in those countries’ coal development.

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Climate advocates are also hopeful that the Chinese ban will lead to the cancellation of many more projects. Researchers Grid spoke to interpreted the new policy to mean that China will likely back out of all projects that are still in the planning phase. According to estimates from CREA, that could lead to China’s withdrawal from 32 coal power projects that have yet to break ground.

Preventing those emissions is significant; so is the signal China’s decision sends to poorer countries — that it’s no longer promoting its coal-fueled development model. “It gives host countries a good indication that, OK, the top historical financier of coal is now closing the door on new coal projects,” Suarez said. “So what does that mean for our future energy plans?”

Where the ban is not a ban

The headlines and comments that followed Xi’s September 2021 announcement were positive, even effusive: “Xi’s coal pledge is a big deal”; “Huge step forward.” But China’s actual policy falls short in many ways.

For starters, 36 of the 86 plants under development abroad are already under construction; the Chinese government now says those are not covered by the new measure. That’s 36 new plants that will likely be built as planned, with Chinese support.

The caveats don’t end there. CREA found 19 other Chinese overseas coal projects that hadn’t yet begun construction but may survive because they fall into various gray zones. For one, developers could push through projects that are on the verge of construction. And in some cases, CREA found indications that brand new projects may be allowed if they have received high-level signoffs from the Chinese government or are located inside industrial parks. In other words, support for coal plants built to power large industrial zones seems to fall into a loophole.

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Four months after Xi’s announcement, for instance, a Chinese company won a bid to help an Indonesian industrial park expand its coal power station. Cut into the jungle, the Chinese-Indonesian joint venture received backing from both countries’ leaders in 2013, and is now expanding to meet demand for nickel for electric vehicles. To smelt nickel, the plant needs more coal power, and it appears that Chinese companies will be allowed to continue supporting that development. CREA also found that a Chinese company had signed a contract to build a new coal plant at another Indonesian industrial park in February.

“They should follow the stop sign,” said Saurez, referring to Chinese and foreign developers. “But when we looked at it, project by project, it seems that stakeholders involved are still trying to push them forward.”

Meanwhile, another research organization, Just Finance International, reported that Chinese state-owned companies racked up nearly $19 billion in new coal power contracts abroad in 2021. The data is annual, so it’s unclear how many of these deals were made after the September announcement, but it shows just how lucrative the coal business still is for Chinese firms, and why they might push to exploit loopholes in the policy.

And of course, even if the Chinese banks or companies do withdraw from a project, there is still a chance that the projects will find alternative backers. “Let’s not forget, many of China’s partners in undertaking overseas coal projects — the host countries — they have had a history of coal-heavy or coal-dependent economies,” said Wang. “So we are talking about basically how difficult it is to get the ruling elites of those countries off of coal.” Big banks and companies beyond China are also still enabling the coal industry in several parts of the world; the largest private-sector investors in coal are U.S. investment giants BlackRock and Vanguard.

Ultimately, China’s overseas coal industry will retreat in the long term, but significant emissions may remain locked in by the current wave of construction. “There are a lot of cancellations,” said Suarez. “But there will be a lot of elbowing to get the final few coal plants through.”


China’s other pledge

When Xi announced China’s new coal policy in September, he made that other pledge: China would “step up support for other developing countries in developing green and low-carbon energy.” In other words, as it pulled back its funding for coal, it would help catalyze renewable energy growth in those same markets.

“Given that energy demand in a lot of developing countries is going to continue increasing over the next two decades, it’s really important that any foregone support for coal is instead channeled to renewable energy,” said Cecilia Han Springer, assistant director of the Global China Initiative at Boston University.

Renewable energy investment by Chinese companies in other countries has been growing over the past decade. In 2021, Christoph Nedopil Wang, an associate professor of economics at Fudan University, estimated that wind and solar projects accounted for 30 percent of China’s “energy engagement” — financing and construction contracts — in the 144 countries involved in its Belt and Road Initiative. However, Chinese interest in overseas renewable energy still hasn’t reached what it was for coal at the height of China’s overseas coal industry in 2015.

Part of the issue is that Chinese companies have been consumed by the boom in domestic renewables. “Over the past decade, Chinese companies and policymakers were focusing on developing China’s domestic wind and solar market and only a few companies were interested in testing the waters overseas,” Shen Wei, a research fellow at the Institute of Development Studies told Panda Paw Dragon Claw, an independent site that analyzes the Belt and Road Initiative.

Another limiting factor is that China’s behemoth state-owned banks are accustomed to lending to huge dam and coal plant projects, whereas renewable energy developments tend to be small and scattered by comparison. So private Chinese companies have led the way with renewable energy investments, and the larger banks have yet to fully throw their weight behind the new sector.

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“We’re seeing more and more investments in renewables — solar and wind; every year more record-high installations,” said Suarez. “But the scale at which we need to transition demands a lot more.”

In the coming years, eyes will be on China — and both ends of Xi’s September 2021 pledge: the extent to which it helps poorer countries make the switch to renewable energy and the extent to which it really divests from overseas coal. The ban is unlikely to live up to climate advocates’ hopes — and perhaps will result in only one-third of the potential emissions cuts. Not the Australia-sized impact. More like Argentina.

Thanks to Alicia Benjamin for copy editing this article.

  • Lili Pike
    Lili Pike

    China Reporter

    Lili Pike is a China reporter at Grid focused on climate change, technology and U.S.-China relations.