In many countries, Chinese banks and investors are financing the construction of coal-fired power plants. President Xi Jinping’s announcement to abandon this practice is a turning point, the scope of which is widely underestimated.
Without the global exit from coal-fired power generation, it is no longer conceivable to achieve the international climate protection goals. But the world’s available coal capacity continues to grow. In addition to China, fast-growing developing and emerging countries in Asia and Africa are relying on coal to satisfy their hunger for energy.
If all the planned power plants were actually implemented, they would emit 300 billion tons of CO2 together with the existing power plants – that would almost use up the global carbon budget still available to limit global warming to 1.5 degrees. Even the two-degree target would be in jeopardy.
China is currently building coal-fired power plants with a total output of 15 gigawatts outside the People’s Republic. Additional coal-fired power plants of a similar size are planned for the coming years. Most of the projects depend on Chinese technology, such as turbines and generators. For comparison: In Germany, coal-fired power plants with a capacity of 42 gigawatts are connected to the grid.
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China also plays an important role in financing. Chinese banks are providing loans for 20 gigawatts of overseas coal capacity that is currently being built. In addition, there are loans for a planned 46 gigawatts. Two state banks account for around 60 percent of Chinese financing: the China Development Bank and the Export-Import Bank of China. In addition to loans, there are also guarantees for coal-fired power plants abroad.
The world was spared twelve billion tons of CO2
You have to be clear about the scale: Germany currently emits a good 710 million tons of CO2 annually across all sectors. Should China actually withdraw completely from the business with coal-fired power plants abroad, this would save the world an estimated twelve billion tons of CO2. This amount would be emitted if the power plants under construction and planned by China actually went online and ran until the end of their economic life.
It is not yet entirely clear whether Xi’s announcement in the UN General Assembly only refers to construction projects abroad or also to their financing. But with a view to historical experiences, China’s political economy and the current dynamics of climate policy, there is much to be said for the comprehensive reading. Internationally, the president is now measured in any case by the fact that the country is withdrawing from coal.
Xi has also set an example for the national audience that no one can ignore. Immediately after the announcement in September, the Bank of China withdrew from corresponding new construction projects – a commercial Chinese bank with a rather small market share in international projects, but an encouraging signal.
The signal effect for other countries that are currently still investing in coal-fired power plants or at least thinking about it should not be underestimated. Our current interviews with experts and government representatives in the region show that there is now a tendency in many countries to abandon coal plans and instead rely more on natural gas and renewable energies.
Is there really a global turnaround?
Pakistan and Bangladesh, for example, which are heavily dependent on Chinese financing and technology, are publicly discussing a withdrawal from planned coal projects. In both countries, more than 80 percent of the loans for the construction of coal-fired power plants come from China. There are similar debates in Vietnam, and the Turkish coal plans are also likely to be shelved without Chinese support.
At the international level, there are now hardly any alternatives to China for state funding. South Korea and the G7 countries announced months ago that they would end public financing of coal-fired power plants abroad. Without the support of the major donor countries, it is unlikely that countries that have not yet built coal-fired power plants will jump on the coal bandwagon. This includes a number of African countries that had major plans to build new coal-fired power plants before the outbreak of the Covid-19 pandemic.
Even if a global turnaround is indeed on the horizon – the danger that the use of coal will fail the fight against global warming has not yet been averted. In China itself, by far the world’s largest coal user, 88 gigawatts of power plant capacity are currently under construction and another 158 gigawatts are planned. In India, millions of jobs depend on coal, especially in the structurally weak eastern states.
Indonesia, on the other hand, is dependent on income from coal sales to finance its national budget. Falling demand on the international markets is putting pressure on the political leadership in Jakarta to use the resource more at home. Jakarta and New Delhi are comparatively little dependent on Chinese funding. Rather, the Indian financial sector is so deeply involved in the financing of coal-fired power plants that a possible coal exit could even trigger a banking crisis.
The global north must seize the momentum
The overall picture also includes: In China, the debate is currently dominated by the high price of coal and the resulting cost-related power cuts in several provinces. Coal – for a long time a guarantee of economic growth and energy policy stability – is increasingly becoming the Achilles’ heel of the upswing in China.
In any case, Xi’s intervention has brought about a great deal of movement in the international coal question – whether the momentum is used now also depends on the rich countries of the global north. Here, also in Germany, there are still private banks and investors who, despite the expiry of state funding, continue to provide money for new coal-fired power plants. The G7 could make this an issue – and at the same time financially support the end of coal use in developing and emerging countries.
We Germans in particular know how explosive a coal phase-out can be: coal workers, affected regions and the industry hoping for low energy prices must be involved, the phase-out must be politically organized and socially cushioned. In addition, there are massive investments in coal alternatives such as wind and solar, in networks and storage.
It must therefore be an important goal for the Glasgow Climate Change Conference in November that the western countries keep their promises and, as promised, provide at least 100 billion dollars per year for green investments in poor countries. From the point of view of rich countries, this is not a waste of money. After all, climate protection is much cheaper than removing the damage caused by a climate catastrophe.
The authors: Dr. Jan Steckel heads the working group “Climate Protection and Development“ at the Berlin climate research institute Mercator Research on Global Commons and Climate Change (MCC).
Niccolò Manych is working at the MCC on a dissertation on the political economy of the international coal phase-out and the financing of coal-fired power plants.
More: Xi no longer wants to build coal-fired power plants abroad – but he does in China