Xi puts China in positive light with coal pledge, but devil could be in the detail
China has pledged to stop building overseas coal-fired power plants to help the world transition to a low-carbon future, a move that won praise from energy experts for its climate benefits but leaves question marks over how it will be fulfilled.
Less than six weeks away from the COP26 climate summit in Glasgow, Scotland, Chinese President Xi Jinping told the United Nations General Assembly that the country will withdraw from building coal-fired projects in other nations.
"China will step up support for other developing countries in developing green and low-carbon energy, and will not build new coal-fired power projects abroad," Xi said in a pre-recorded video address 21 September.
However, crucial details were left out on how and when the country will halt its involvement in such projects. It is not clear whether Xi was referring to all plants that have yet to be built, or those without firm financing or engineering, procurement and construction (EPC) deals with Chinese firms.
Beijing often gradually releases policy details after Xi unveils a rough blueprint. During the annual meeting last year, Xi revealed China's emission targets to help mitigate climate change under the Paris Agreement policy framework. The Chinese government ushered in a series of measures, including a national emissions trading scheme, in the following months.
The president reaffirmed China's decarbonization goals in this year's speech. "China will strive to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. This requires tremendous hard work, and we will make every effort to meet those goals," he said.
Some supporters of the energy transition welcomed Xi's remarks.
"This is a major step forward on the long global march to a healthier, safer, and more prosperous world," said Manish Bapna, CEO of the Natural Resources Defense Council, a US-based environmental group. "This opens the door to bolder climate ambition from China and other key countries, at home and abroad, ahead of the global climate talks in Glasgow."
The International Energy Agency, the Organisation for Economic Co-operation and Development's Paris-based energy watchdog, tweeted: "China's pledge to stop financing coal power overseas is a key step towards curbing CO2 emissions in emerging and developing economies."
"Far greater financial support for clean energy is needed from all countries that have the means to provide it to put emissions into decline," it added.
Earlier this year, China and the US—the world's two largest GHG emitters—agreed to cooperate on maximizing investment and finance in an effort to help developing countries transition from fossil fuel-intensive economies to low-carbon ones.
The G7, which includes Japan and the US, also committed to ending "new direct government support for unabated international thermal coal power generation" by the end of 2021. Separately, South Korea has vowed to stop funding overseas coal power projects.
"Given recent announcements by the Japanese and Korean governments to end all public coal financing, China would have been isolated as the last major public financier of new coal plants. Making this announcement allows Xi to get ahead of the issue," Christine Shearer, program director for coal at Global Energy Monitor (GEM), told Net-Zero Business Daily.
"I am concerned that the announcement will come with loopholes that will allow for building plants that are currently under consideration for financing, but hopefully it will ban the building of any new coal plants overseas," she said.
Aside from being the world's largest coal consumer, China has also been the biggest backer of coal plants across the globe via financing or construction deals, many of which came under Xi's Belt and Road Initiative.
According to a study from Boston University's Global Development Policy Center, China is the largest public financier of overseas coal plants. China Development Bank and the Export-Import Bank of China forked out $15.6 billion for such projects in 2013-2018, or 50% of the global total during the period.
In a research paper published earlier this month, to which Shearer contributed, climate thinktank E3G estimated that China is funding 47 new coal projects with a total capacity of 41.3 GW in 20 countries.
Allen Wang, IHS Markit Director, Southeast Asia Power and Asia Power and Renewables Analytics, warned Xi's latest promise may not mean Chinese financiers will steer away from overseas plants.
"What is exactly in Xi's comment is that China will not build coal plants. It's not China will not fund coal plants overseas," Wang said. "For me, it's a little bit unclear. Because it's a big EPC provider for a lot of coal projects overseas."
An earlier Institute for Energy Economics & Financial Analysis (IEEFA) study concluded that in the 10 countries with the largest project pipelines outside of China, the country supported 56% of planned coal power capacity via direct ownership, lending, or EPC contracts.
Indonesia had the largest pipeline with Chinese backing at more than 10 GW, or 54% of the nation's total. In Bangladesh, Chinese support was present in 88% of the remaining coal power pipeline after the government scrapped proposals to build 10 plants in June.
The study, which was published in July, did not take into account India—another major coal consuming nation where projects are funded domestically.
"China is the most likely source as the world's coal financier and engineer of last resort, if those proposals have any chance of proceeding," IEEFA's energy finance analyst Simon Nicholas said.
Wang said Chinese firms, such as Power Construction Corporation of China, were awarded many EPC contracts to build coal plants in Indonesia, Vietnam, and Pakistan in the past few years. "For most of these countries, they are going to slowly stop building new plants," he added.
Therefore, Wang believes Xi's promise is in line with the general decarbonization trend and expects Chinese EPC providers could soon make their own pledges to avoid overseas coal projects.
Regardless of the interpretation, coal power proposals are expected to have a much smaller chance of being realized without Chinese support.
"If you remove all the Chinese players…There are not too many options left," said Wang, adding that coal project developers will face higher costs, increased risks, and longer project durations under such a scenario.
"Chinese EPC is the cheapest and best right now," he said. "If Chinese players leave the market, I don't believe there will be new players…Because the market, everyone knows, is reducing in size. It's not an emerging market."
Shearer expects coal plant sponsors to have more difficulty in securing finance following Xi's announcement. "Their options were already extremely limited, given the number of countries, banks, and companies that have already restricted or ended their coal financing. I think we'll find many countries turning to alternative sources of power generation," he said.
Chinese-backed overseas coal power capacity remains dwarfed by domestic capacity though. GEM data show 163 GW was in China's project pipeline as of July, or 55% of the world's total. China has only committed to reducing coal consumption after 2026.
"The announcement does put added pressure on China to stop constructing coal plants domestically," Shearer said. "Because why would it pursue greener projects abroad but not at home?"
--Original reporting by Max Lin, Net-Zero Business Daily.
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