Xi Jinping’s announcement that China will stop funding overseas coal projects could buy the world about three more months in the race to keep global heating to a relatively safe level of 1.5C, experts say.
Although the impact will depend on implementation, China’s declaration should also help to kill off coal, which has been humanity’s primary power source for most of the last 200 years.
Ending Chinese coal financing has long been near the top of climate activist’s wishlists. For more than a decade, China has been the lender of last resort for overseas governments seeking finance for thermal power plants. The latter role has accelerated since the 2013 start of the belt and road initiative.
Xi’s declaration is likely to effect at least 54 gigawatts of China-backed coal power projects, which are in active development but not yet under construction, according to the Centre for Research on Energy and Clean Air.
Lauri Myllyvirta, the centre’s lead analyst said this was equivalent to about three months of global emissions. “These plants, if built and operated, would have emitted around 250-280 megatonnes of CO2 a year, which is roughly equal to the total emissions of Spain. Assuming an operating life of 35 years, the cumulative emissions would amount to 10 gigatonnes, or a year of China’s emissions, or three months of global emissions,” he calculated.
These figures are based on several assumptions. China provides scant information about the scale of overseas coal financing. At the very least, there is evidence that 40% of the heavy equipment at new coal plants outside China and India comes from China.
It is also not clear yet whether Chinese banks and power firms will only pull out of projects that are at the planning stage, or also those under negotiation or at an early stage of construction. This year alone, Chinese companies have facilitated an additional 10 new coal-fired power plant projects in Bosnia and Herzegovina, Indonesia, Turkey, Vietnam and the United Arab Emirates, according to Just Finance International which monitors BRI coal projects in Europe and internationally. China does not publicly disclose whether these contracts have reached financial closure.
“While we welcome China’s pledge, we are waiting to see how much weight this announcement will hold”, said Wawa Wang, program director of Just Finance International which monitors BRI coal projects in Europe and internationally. “Whether Beijing will deliver on this exit from building coal-fired power plants depends on whether it introduces a time-bound exit which reins in all forms of support – finance and construction combined – for all its overseas coal and associated projects.”
The immediate impact is likely to be felt in the countries that rely most heavily on Chinese funding for new coal projects: Indonesia, Vietnam, Bangladesh and Pakistan. In Vietnam, for example, the government recently unveiled plans for an additional 20GW of thermal power. “Those countries will need a rethink,” said Myllyvirta. “This announcement leaves several projects up in the air.” The governments in these nations will now have to decide whether to see alternative funding in the private sector, where the borrowing costs can be high as Pakistan has recently found out, or whether to shift to renewables, which Xi has promised to support.
Despite the uncertainties over implementation, Myllyvirta said China’s announcement would accelerate decarbonisation. “Countries now know that going forward, there is no financing on the table for coal. That should clarify things a lot. Chinese delegates are going to visit Indonesia or Vietnam or Pakistan and they will be saying, ‘We don’t do coal any more, but we can help with clean energy’. That will make a difference.”
Depending on implementation, other possible beneficiaries of this announcement could be the rhinos, giraffes, cheetahs and other endangered species at Zimbabwe’s Hwange national park, where two Chinese companies had hoped to extract the fossil fuel.
Another positive knock-on effect would be to push Japan to follow suit. The government in Tokyo has already taken steps in this direction but left a door open for financing by its private-sector institutions. Their geopolitical reason had been that they did not want to leave China as the only option for regional energy projects. With Xi’s announcement, they now have no excuse not to slam the door shut for good. Likewise for South Korea, formerly one of the world’s biggest coal backers, which has recently moved towards decarbonisation.
UN secretary-general, António Guterres, said China’s promise was not just welcome, but essential. “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,” he said. But he stressed this was not enough. At the upcoming Cop26 climate summit in Glasgow, he said all nations, especially the rich, need to be more ambitious in cutting carbon pollution. “Let us be reminded that based on the present emissions reduction commitments of member states the world is on a catastrophic pathway to 2.7C of heating. We need decisive action by all countries, especially the G20, to go the extra mile and effectively contribute to emission reductions.”
Pressure will now increase on other countries and financial institutions to accelerate the shift. At the OECD, the US, the EU and a few other countries including Korea now support a proposal to end official export financing support for unabated coal power and associated facilities by 2021. However, several major institutions, including Vanguard, Blackrock, Capital Group and Barclays, remain substantial funders of this fossil fuel.
With coal now seemingly in terminal decline, climate activists are turning their sights towards oil, gas, and domestic coal power in China and India. Since 2010, China overtook the US as the biggest consumer of energy in the world.
Close to 58% of its power comes from the country’s 1,058 coal plants, almost half the total in the entire the world. This makes China far the biggest carbon emitter, pumping more than one out of every four gigatonnes that enter into the atmosphere. Many regions of China have staked their future on coal, but roughly half the country’s plants will have to close if the government 2060 net zero target is to be achieved.