China promises to stop backing new coal-power projects overseas

IN A TELEVISED speech on September 21st Xi Jinping, China’s president, told the United Nations that the country would stop supporting new coal-power projects overseas. Taken at face value, this should hobble the construction and operation of coal-power plants in developing countries, where demand for power can often be met only by foreign cash. But Mr Xi’s speech left several important questions unanswered, and said nothing on the more important issue of China’s reliance on coal-fired power generation at home.

Since 2013, 95% of the foreign financing for coal-fired power plants (from outside the countries they are situated in) has come from China, Japan and South Korea. Of the three, China has been by far the most important, and is the last to end its support. By some estimates, more than 70% of all coal plants being built today rely to some degree on Chinese government finance. In April, South Korea vowed to end state-backed financing of coal plants abroad; in June Japan pledged to do the same. Chinese-funded foreign fossil-fuel plants—the vast majority of which burn coal—account for 314m tonnes of carbon dioxide every year. That is nearly as much as the total annual emissions from Poland.

The governments’ promises to end support do not preclude private funding for coal plants, which provides a significant amount of the money available, but they do make it much less likely, as public financing from countries such as China is typically used to guarantee the future of coal projects, making it possible to find other investors. This month Leo Roberts of E3G, an environmental think-tank in Britain, told this newspaper that “China is the public lender of last resort to an increasingly stigmatised industry.”

No longer, it seems. The move will be celebrated in many quarters. Climate campaigners, long concerned about coal’s large contribution to global warming, see it as a win. America will claim it as a triumph for its environmental diplomacy. John Kerry, President Joe Biden’s special envoy for climate change, has been urging China to cease its involvement in foreign coal projects. For Mr Xi, it is a chance to prove China’s climate credentials to the world. (It is notable, however, that, although his speech to the UN spoke loftily of the country’s “commitment to harmony between man and nature”, it did not make any other specific new commitments to curb emissions.)

For both America and China, curbing overseas coal projects allows leaders to signal a sense of progress, without making painful domestic reforms. Until 2019 China’s support for coal-fired energy was a big part of its Belt and Road Initiative (BRI)—a global infrastructure-building scheme. But that has been changing fast. It was already, for its own reasons, moving away from supporting foreign coal. In 2019 and 2020 Chinese-backed coal projects abroad worth about $47bn were suspended or terminated. In the first half of 2021 China financed no new coal plants in countries involved in the BRI. This had little to do with global warming. Shuang Liu of the World Resources Institute, a think-tank in Washington, reckons that coal is no longer competitive in BRI countries because of a plunge in the price of renewable energy.

It is also in China’s interest to distract from its domestic coal activity, which continues apace. The country’s power plants last year produced over half of the world’s coal-generated electricity. Despite China’s professed concerns about the climate, the share is about to get bigger. In 2020 China built more than three times as much new coal-fired power capacity as the rest of the world combined, at a pace of roughly a new coal plant a week. According to a report by the Centre for Research on Energy and Clean Air, a think-tank, taking account of the decommissioning of plants, the country’s capacity rose by a new 30 gigawatts in 2020, compared with a net decline in the rest of the world of 17GW.

China’s latest promise also raises questions of its own. It is not clear yet when the move will be implemented, whether it includes only financing or also construction, or covers projects already being built, and if it applies only to projects involving Chinese state-owned firms. The question remains whether this will galvanise further political commitment at the COP26 summit in Glasgow in November. Britain, the summit’s co-host, has been pushing for coal to be phased-out in developed countries by 2030 and in developing ones by 2040.

Some of this article already appeared on our website, on September 4th, under the headline “America wants China to end support for coal projects abroad

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The Economist

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