from Asia Unbound

Making Sense of China’s Pledge to Stop Building Coal-Fired Power Plants Abroad

China's decision to stop funding coal plants abroad is an important step, but real progress will require phasing out coal at home.
A coal-burning power plant can be seen behind a factory in the city of Baotou, in China's Inner Mongolia Autonomous Region October 31, 2010. REUTERS/David Gray

Jennifer Hillman and David Sacks are codirectors of the CFR-sponsored Independent Task Force Report on a U.S. Response to China’s Belt and Road Initiative, which is co-chaired by Jacob J. Lew and Gary Roughead.

Speaking to the United Nations General Assembly on September 21, Chinese President Xi Jinping made what could become the most significant change to China’s Belt and Road Initiative (BRI) to date, pledging Beijing “will not build new coal-fired power projects abroad.” This announcement, depending on how it is interpreted and implemented, could mark a watershed moment in China’s overseas investment practices. While this is a welcome step, it is far more important for China to begin to phase out coal-fired power domestically.

As we detailed in our recent Independent Task Force Report on BRI, China has complicated global efforts to reduce greenhouse gas emissions, as it has used BRI to finance and build coal-fired power plants around the world. The ten largest funders of coal-fired power globally are Chinese banks, which have financed nearly seventy percent of the world’s coal power projects over the past five years (to include projects both domestically and internationally). In BRI countries, China has financed nearly $45 billion of coal projects.

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China’s investments in fossil fuel projects along the Belt and Road have the potential to lock countries into decades of carbon-intensive growth. Modern coal-fired plants have an operating lifespan of more than thirty-five years, yet environmental groups suggest that coal needs to be entirely phased out by 2040 if the world is to meet the Paris Accords’ emissions reduction goals. Echoing that sentiment, United Nations Secretary-General Antonio Guterres stated last month that “accelerating the global phase out of coal is the single most important step to keep the 1.5-degree goal of the Paris Agreement within reach.”

Responding to international criticism of its BRI practices, China released a “Guidance on Promoting Green Belt and Road” in 2017. That same year, speaking at the Belt and Road Forum, Xi proposed to establish “an international coalition for green development on the Belt and Road” and “provide support to related countries in adapting to climate change.” Two years later, Xi went further, pledging to pursue an “open, green and clean” BRI. To date, such rhetoric has not been matched by the reality on the ground, and investments in fossil fuels have continued.

Recently, there have been some indications that Beijing may be working to change that reality. China is now taking steps to overcome a major flaw in its past approach to “greening” BRI: its reliance on local environmental standards, no matter how low those standards might be. This past July, China’s ministries of commerce and the environment jointly issued Guidelines for Green Development in Foreign Investment and Cooperation that recognize problems with host countries’ environmental rules and suggest that companies “follow international green rules and standards.” Even on a voluntary basis, the push to bypass local standards in favor of more stringent and transparent international ones could be a big step.

There have also been some signs of a shift in Beijing to move away from funding coal-fired power abroad, at least in some places. In February 2021, China informed Bangladesh that it would no longer fund coal-fired power plants in the country. After China made its Bangladesh announcement, however, it signed new deals to build coal-fired power plants in Vietnam and Indonesia.

With a pledge directly from Xi, China might finally be getting serious about sustainability along the Belt and Road. Billions of dollars of “dirty” projects will now hopefully be shelved and then cancelled. One report estimated that Xi’s statement could lead to the cancellation of forty-four coal plants worth a combined $50 billion, which would reduce future carbon dioxide emissions by two hundred million tonnes per year.

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Still, Xi’s vague wording can be read in a narrow or expansive way, and how China’s ministries interpret his policy directive will ultimately determine its significance. For instance, Xi pledged not to “build” new coal-fired power plants abroad, but it is unclear whether this also includes financing. In addition, do “new” projects include those where financing has closed but construction has not yet begun? What will happen to the seventeen coal-fired power plants currently in the planning phase? Will China offer green alternatives to those countries that had committed to a Chinese-built coal-fired power plant?

Following Xi’s announcement, Bank of China, the world’s largest supporter of coal-fired power over the past five years, stated that beginning in the fourth quarter of this year it would no longer provide financing for new coal mining and coal-fired power projects abroad, but it would continue to support those projects whose contracts it has already signed. This may indicate that Chinese banks will not walk away from deals where financing has already been committed.

It appears that China’s bureaucracy has yet to work out the specifics of Xi’s pledge. When asked to clarify whether China intended to halt financing new coal-powered plants abroad in addition to stopping building them, the spokesperson for China’s ministry of foreign affairs merely repeated Xi’s statement.

While Xi’s pledge is a step in the right direction, the fact that it does not extend to projects within China’s borders will greatly lessen its impact. China, the world’s largest emitter of greenhouse gases, generates one thousand gigawatts of coal power domestically, accounting for over half of the globe’s total and more than four times that of the second- and third-largest users (India and the United States).

China continues to add coal-fired power plants within its borders, bringing forty-one gigawatts of coal power on line in 2020 alone, which accounted for seventy-five percent of the global total. Even if Xi’s announcement reduces future carbon dioxide emissions by two hundred million tonnes per year, that is only half a percent of annual global emissions. Until China moves away from coal-fired power domestically in addition to fulfilling Xi’s pledge to stop backing coal power abroad, it will be much more difficult to address climate change.

The United States and its partners should urge China to move away from coal power at home and abroad. Public efforts to hold China to account may have played a role in Xi’s pledge, but more needs to be done to encourage China to implement this new commitment in a meaningful way, so that it covers not only the building of coal-fired plants but also the financing of them.

If China fails to curtail building coal-fired power plants, the United States should consider imposing import taxes related to the amount of carbon burned to produce goods so that all imports produced by taking advantage of dirty coal-based power would pay a polluter fee. The United States should also join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) while negotiating to include stricter provisions regulating carbon emissions. Given China’s stated interest in joining the  CPTPP, this presents an opportunity to make strong environmental standards a price of admission for Beijing.

In his speech, Xi also pledged to “step up support for other developing countries in developing green and low-carbon energy.” As one of the world’s largest producers of solar, wind, and hydropower, it will be critical for China to share its green energy technology with its BRI partners by increasing its financing for and construction of renewable energy.

The world is watching. Xi made his commitment on the world’s stage and it is world leaders that need to hold China to it while urging that China also begin to phase out coal power domestically and that this specific pledge be combined with previous commitments to move BRI in a more environmentally sustainable direction.