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At the UN General Assembly last month, Chinese President Xi Jinping promised in front of world leaders that China “will not build new coal-fired power generation projects abroad.” This decision is an important step towards aligning global finance with our collective climate and development goals, and it also helps to provide the impetus for the private sector to eliminate coal energy production.
Since the 2008 global financial crisis, the China Development Bank and the Export-Import Bank of China, two global policy banks, have gradually increased public finances in the energy and infrastructure sectors, filled major financial gaps, and promoted economic growth. In emerging markets and developing countries.
At the Global Development Policy Center of Boston University, we have compiled a database that tracks China’s overseas development finance, especially energy. According to our research, these two banks provided more than US$460 billion in funds to foreign governments between 2008 and 2019, roughly equivalent to the World Bank’s allocation over the same period.
We also estimate that between 2007 and 2016, Chinese policy banks provided foreign governments with approximately US$197 billion in energy financing—almost matching the total financing of all major Western-backed multilateral development banks. In collaboration with colleagues at Princeton University, we found that Chinese financing is equivalent to 42% of the power generation capacity of the 10 largest multilateral development banks.
Although China must fill the infrastructure financing gap in a way that promotes growth, the composition of this financing, especially in the energy sector, is mainly concentrated in the carbon-intensive sectors. Coal, oil, natural gas, and hydropower in tropical forests dominate China’s energy financing. Such financing poses risks to global climate, public health and biodiversity.
Around the time of the 2015 Paris climate agreement, most multilateral development banks began to phase out overseas coal financing. In May 2021, the G7 pledged to “take concrete steps to absolutely end new direct government support by the end of 2021”.
Then China announced the news in September this year. Initially, some people worried that the language of the promise was not as clear as G7. Some people wonder whether the promise not to “build” new coal-fired power plants really means financing for coal.
However, shortly after Xi Jinping’s speech at the United Nations, the Bank of China announced that it would stop financing overseas coal mines and power plants this year. In one fell swoop, China fulfilled the G7’s promise and upgraded the game to where the real action is—in the commercial and private sectors.
Between 2013 and 2019, more than 80% of all new coal power generation capacity outside of China was funded by non-Chinese entities. The largest lenders in the global coal industry include Japanese companies such as Mizuho Financial and SMBC Group, and US financial giants such as Citigroup, Bank of America and JPMorgan Chase. Before the recent commitment, the Bank of China was also one of the largest lending institutions in the coal industry.
Now that the world’s major governments have set an example and banned overseas coal-fired power plants, and the Bank of China has also joined in, it is time for the private sector to follow suit. Without private financial institutions to purchase funds for coal energy production, we will not be able to achieve our global climate and development goals.
To move forward, two things are imperative. First, the West must also pressure the private sector to also phase out coal. Second, global financial participants need to shift the composition of energy financing to cleaner energy sources such as wind and solar energy, rather than shutting down the leader.
China and the West should not cut off energy financing to countries in need. Instead, they should replace coal finance by supporting wind and solar, the two dominant industries in China.
In a recent paper, we found that there are US$1 trillion worth of renewable energy opportunities in developing countries based on the plans developed by these countries through their Paris Agreement Nationally Determined Contributions. Given China’s dominant position in these fields and its policy banks, if its huge capital, technology, and expertise are used in these programs, it can significantly expand the use of green energy throughout the developing world.
Such a move is not only a good climate policy, but also a good banking industry. The West should follow suit.
The views expressed in this article are those of the author and do not necessarily reflect Al Jazeera’s editorial stance.
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