China leading the way in funding new coal fired plants

January 22, 2019

Many major banks have scaled back or completely abandoned investments in coal-backed energy projects as much of the world is turning away from fossil fuels in favor or investments in renewable energy. However, China has continued to back some coal-powered projects, but mostly just projects outside of China.

The Institute for Energy Economics and Financial Analysis (IEEFA), a US-based non-profit, reported that in the last year, funding for more than 25 percent of all coal plants outside of country came from China. The report found that Chinese institutions last year provided $36 billion of financing for coal plants outside the country, 26 percent of the 399 GWs of such plants planned or committed last year.

The Financial Times reported that China has emerged as a chief lender for such power plants, putting its international policies at odds with its domestic agenda to cut coal use, reduce carbon emissions and boost consumption of renewable energy.

“We’re at a juncture where the rest of the world has shifted to renewable energy investments, but we’re seeing a whole set of legacy patterns for coal — patterns of the last generation — are being clung to and subsidised by Chinese institutions,” said Melissa Brown, a report co-author.

In the past two years, China has pared capacity in steel production and coal-fired industries by shutting outdated facilities and capping polluting activity. China’s coal consumption has dropped steadily since 2013, with the exception of a short-term jump in late 2018 as the country increased industrial activity to boost economic output. China has also taken a leadership role in global climate talks designed to cut carbon emissions.

But some of the cut capacity has shifted abroad to developing countries, particularly in countries formally partnering with China’s Belt and Road Initiative. In the past four years, the Chinese steel industry, a coal-consuming sector, has funded 32 Mt/a (35 million stpy) in new steel projects in Indonesia and Malaysia, according to a Financial Times analysis last year, equivalent to more than 40 percent of steel consumption in 2016. Chinese bankers and project planners like coal-backed projects because they are cheap. While they are restricted by Chinese pollution and emissions targets at home, they are free to fund coal-backed projects abroad. “They see the long-term financial, environmental and health consequences of these projects as the responsibility of the other side,” said IEEFA’s Brown.

Chinese funding for coal projects is especially evident in south and south-east Asia, where energy demands are growing quickly. Last year, Chinese institutions committed or offered to finance 13.8GW of coal-fired capacity in Bangladesh, for example, equivalent to just under 90 percent of Bangladesh’s power capacity. According to the US Department of Energy, 1GW can power about 9,000 compact electric vehicles.

“Chinese investment has the potential to shape south-east Asia, but in doing so, it must invest in clean renewable energy, not weigh us down with dirty coal,” said Khanh Nguy Thi, director of Vietnamese environmental organisation GreenID.

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