China will no longer build coal-fired power plants abroad

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Chinese banks have already shifted into high gear. Three days after Xi’s speech, the The Bank of China said it would no longer finance new coal and electricity mining projects outside China from the last quarter of 2021.

Xi’s statement is expected to affect at least 54 gigawatts of coal-fired power plants proposed by China that are not yet under construction. Putting them on standby would save CO₂ emissions equivalent to three months of global emissions.

This promise of the largest public financier in the world coal-fired power plants abroad could usher in a new era of low-carbon development. But it depends on what happens in the countries where China has injected the money into coal. Many of these places are in urgent need of new energy infrastructure. Will China’s investments here be redirected to renewables – or will they just disappear?

Chinese support for renewable energies abroad

A positive sign appeared in the same speech at the UN, when Xi said that “China will step up its support to other developing countries in the development of green and low-carbon energy.”

China’s overseas energy investments have increased as part of the belt and road initiative. Launched in 2013, Xi’s signature foreign policy effort has increased China’s cooperation with the rest of the world through infrastructure development, unhindered trade, financial integration, and policy coordination. China has continued fund the Belt and Road Initiative during the pandemic, and investment in renewable energies accounted for the bulk (57%) of the country’s financial support to 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 increased their overseas investment in renewable energy over the past decade.

While the trends are positive, challenges remain. China’s foreign investment policy remains guided by the principle of non-interference. This means Beijing is supposed to let host countries determine the type of energy projects and only requires Chinese companies to comply with host country regulations.

Research shows that China’s funding for coal in Asia has been largely driven by demand in beneficiary countries. This is because the national policies of these countries prioritized improving access to energy rather than reducing emissions, and coal was a cheap and proven source. Inadequate grid infrastructure and politicians skeptical of renewables in countries receiving Chinese investment have also hampered development. In Indonesia, business leaders and politicians formed pro-charcoal lobby groups to influence the design of Chinese-backed projects.

China’s new pledge signals to potential recipient countries that financing coal is no longer an option. China must now promote its investment offer in renewable energies. Based on its national experiences, Beijing should provide subsidies or tax reductions to companies wishing to build renewable energy projects outside of China.

Chinese energy developers are often wary investment risks in developing countries because of their ignorance of 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 helped many developing countries increase their power generation capacity through financing, affordable technology, and rapid project delivery. China has taken the first step to stop funding coal. Now is the time to adopt policies that support the overseas activities of its renewable energy developers.

This article is republished from The conversation under a Creative Commons license. Read it original article.


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