2021-10-13 14:35:42 China’s global climate change challenge to the West | Energy
China’s global climate change challenge to the West | Energy
China’s President Xi Jinping pledged last month in front of the world’s leaders at the United Nations General Assembly that his country “will not build new coal-fired power projects abroad.” This decision is a significant step toward aligning global finance with our collective climate and development goals, and it may also help build momentum for private sector defunding of coal energy production.
Since the 2008 global financial crisis, China’s two global policy banks, the China Development Bank and the Export-Import Bank of China, have gradually increased public finance for energy and infrastructure, filling major financial gaps and promoting economic growth in emerging market and developing countries.
We compile databases at Boston University’s Global Development Policy Center that track China’s overseas development finance in general, and energy in particular. According to our research, between 2008 and 2019, these two banks provided upwards of $460 billion to foreign governments, roughly equivalent to what the World Bank distributed during the same period.
We also estimated that between 2007 and 2016, China’s policy banks provided approximately $197 billion in energy finance to foreign governments, nearly matching the total financing provided by all major Western-backed MDBs combined. In collaboration with Princeton University colleagues, we discovered that Chinese finance accounted for 42 percent of the power generation capacity financed by the ten largest MDBs.
While China must be credited with filling infrastructure finance gaps in a way that promotes growth, the composition of that finance, particularly in the energy sector, is concentrated in heavily carbon-intensive sectors. Coal, oil, gas, and hydroelectric power in tropical forests account for the majority of Chinese energy financing. Such funding endangers the global climate, public health, and biodiversity.
Most MDBs began phasing out overseas coal finance around the time of the 2015 Paris Climate Agreement, and the G7 pledged in May 2021 to “take concrete steps toward an absolute end to new direct government support for unabated international thermal coal power generation by the end of 2021.”
Then, in September of this year, China made its announcement. Initially, there was some concern that the pledge’s language did not appear to be as clear as that of the G7. Some questioned whether pledging not to “build” new coal plants meant actually financing coal.
However, soon after Xi’s UN speech, the Bank of China announced that it would no longer finance overseas coal mining and power plants this year. In one fell swoop, China matched the G7 pledge and raised the stakes to where the real action is – the commercial and private sectors.
Non-Chinese entities financed more than 80% of all newly added coal generation capacity outside of China between 2013 and 2019. Japanese firms such as Mizuho Financial and SMBC Group, as well as American financial behemoths such as Citigroup, Bank of America, and JP Morgan, are among the largest lenders to the global coal industry. Until its recent pledge, the Bank of China was also one of the top lenders to the coal industry.
Now that the world’s major governments have set a good example by prohibiting overseas coal plants, and the Bank of China has joined them, it is time for the private sector to do the same. We will not meet our global climate and development goals unless private financial institutions commit to defunding coal energy production.
Two things must be done going forward. First and foremost, the West must exert pressure on the private sector to phase out coal as well. Second, rather than closing the spigot, global financial actors must shift the composition of energy finance toward cleaner energy sources such as wind and solar power.
China and the West should not cut off energy financing to developing countries. Rather, they should replace coal financing with assistance for wind and solar power, two industries in which China is the dominant player.
In a recent paper, we discovered that renewable energy opportunities worth $1 trillion exist in developing countries, based on these countries’ own plans for the Paris Agreement through their Nationally Determined Contributions. Given China’s dominance in these sectors and the prowess of its policy banks, it can dramatically expand green energy access throughout the developing world if it channels its enormous capital, technology, and know-how into these plans.
This is not only good climate policy, but also good banking. The West should do the same.