As the world says no to coal, China is poised to lead on green energy finance
- China’s deep pockets, experience in financing clean energy and dominance in the solar and wind sectors make it a natural leader in the global energy transition
Western-backed multilateral development banks and national development banks operating overseas played a big role in financing overseas coal plants for decades.
But beginning with the World Bank in 2011, due to growing awareness and public pressure about the negative environmental and social impact of coal-fired power, many of these entities began phasing out overseas coal plants.
Until Xi’s announcement, that left China as the last big public financier of overseas coal plants, having financed upwards of 41 gigawatts of operating coal power overseas since 2000 and accounting for 13 per cent of all overseas coal power capacity.
The largest remaining lenders to the global coal industry include major Japanese and American firms such as Mizuho Financial, SMBC Group, Citigroup, Bank of America and JP Morgan.
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But the world needs more energy finance, not less. Close to 1 billion people in the world have no access to electricity and upwards of 3 billion people have no access to clean fuel for cooking. In all, the world faces an annual gap in energy and sustainable infrastructure of roughly 2 per cent of gross domestic product from now to 2030.
China and other large economies should match their recent pledges against coal finance with commitments to support green energy transformations around the world.
China is already moving in that direction, with its financing for clean power generation increasing more than fourfold between 2015 and mid-2019.
Indeed, Chinese development finance institutions have financed the largest solar power project in South America, the Cauchari Solar Park in Argentina, as well as solar projects in Kenya, Chile and even Italy – and wind farms in Brazil, Pakistan and Ethiopia.
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China could lead by example with a pledge to commit a high proportion of its overseas finance portfolio to financing developing country NDCs.
Some development finance institutions have made hard pledges in this direction, and China should follow suit. Notably, the New Development Bank, of which China is a member, pledged that 60 per cent of its funding would be for renewables back in 2016.
China’s quick and portfolio-based approach to development finance, where fleets of projects are part of an overall strategy, is superior to the slow, project-by-project-based approach of Western-backed multilateral development banks.
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What is more, given China’s dominance in the solar and wind sectors, it is in Beijing’s economic interest to advance these technologies. Its companies around the world stand to gain handsomely.
All this, combined with the deep pockets of China’s policy banks (which provide the equivalent of 42 per cent of the power-generation capacity financed by the world’s 10 largest multilateral development banks), means that China’s overseas development finance institutions are poised to lead on green energy finance.
