Does China’s policy to end overseas projects signal the end for coal?

The calls for China to halt its support for coal projects overseas received an answer on Tuesday, when Chinese President Xi Jinping announced in a pre-recorded address to the UN General Assembly that China will stop building new coal-fired power plants abroad, while increasing support for green energy in developing countries.

Xi’s pledge now puts to bed any speculation over where Beijing stands on the issue as one of the last remaining public financiers of coal power projects around the world, ahead of the UN climate talks in Glasgow this November.

UN Secretary-General Antonio Guterres welcomed the move. “Accelerating the global phase out of coal is the single most important step to keep the 1.5-degree goal of the Paris Agreement within reach,” he said.

Dr Shawn Zhang, chief economist at the Beijing-based Draworld Environment Research Centre, told TRT World that Xi’s decision can be viewed as an “FDI-related technology regulation change”.

China, which burns half the world’s coal and operates nearly half of the world's coal plants, pledged last year that it would be carbon neutral by 2060.

China’s promise to phase out coal followed similar moves by Japan and South Korea in recent months.

Since 2013, China, Japan and South Korea have contributed 95 percent of global public financing for coal projects. 70 percent of those have relied on Chinese funding, with Beijing supplying $50 billion to account for around 56 Gigawatts (GW) of total installed capacity.

The exact timeline of an exit has not been revealed, nor is it clear how China will approach its overseas projects that are already planned or under construction.

Meanwhile, heated debates on Chinese social media have followed over whether off-grid power plants built by Chinese companies should fall under the pledge. Some industry players have quickly fallen in line like private conglomerate Tsingshan Holding Group, which announced on WeChat that it would stop building new coal plants overseas.

Reasons to pivot

Chinese-supported development of coal-fired power had already slowed down in the past five years, due to the competitiveness of coal compared to renewables and declining appetite from host countries.

So far in 2021, it has not made any new investments overseas.

Dr Zhang said the pandemic accelerated the impact on its overseas operations.

From business opportunities, host country policy changes to project preparation, “the coal project pool in China’s Belt and Road Initiative after several years, had significantly reduced, if not dried up,” he said.

Tuesday’s announcement then, was a “direct policy to say ‘no’ to coal in China’s FDI abroad,” he added.

What was missing in Beijing’s resolution however was any action against domestic coal expansion.

Over the past decade, China has been responsible for 28 percent of the world’s carbon emissions primarily thanks to coal, which accounted for 58 percent of China’s total primary energy consumption as recently as 2019.

Nevertheless, being the first developing country to make the move is a step in the right direction and sends a “strong message to domestic actors” that can limit domestic coal expansion, said Yan Qin, a carbon analyst for Refinitiv.

Dr Zhang believes that, at least in the short term, China will still rely on an old paradigm of energy saving to drive its climate policy.

While China is the single largest public financier of coal outside its borders, the private sector will need to rapidly follow suit for a comprehensive pivot to renewables to be achieved.

According to the Boston University Global Development Policy Center, the lion’s share of total financing – public and commercial – for overseas coal plants is not Chinese, as 87 percent of funds come from non-Chinese public and private entities.

Is global appetite for coal waning?

In addition to China, coal is the biggest source of energy in rapidly developing countries like India and Indonesia.

Overall, consumption has been trending in the right direction. Global coal commissions have plateaued; in South America and Africa, it was barely used. In the US and Europe, it has been declining for decades.

But in Asia, coal is, and remains, king.

Last year, China (3,814 metric tonnes) and India (911 Mt) together burned more than two-thirds of all the coal the world burned, while the rest of Asia burned more (872 Mt) than the rest of the world combined (821 Mt).

China on its own offset a retreat from coal by the rest of the world in 2020, resulting in the first increase in global capacity development since 2015. While there was a record-tying 37.8 GW of coal plants retired, it was eclipsed by China’s 38.4 GW of new coal plants.  

In 2020, China commissioned 76 percent of the world’s new coal plants, up from 64 percent in 2019.

While a number of Asian countries canceled plans to build coal plants last year, those like India still plan to invest $55 billion in “clean coal” over the next decade. For many in the global south, divestment from coal is unlikely to be prioritised until development policy goals are met.

“Coal remains critical to energy supply in 80 countries and will be around for some time to come,” WCA’s director of global communication Antonios Papaspiropoulos told TRT World.  “The IEA maintains that by 2040, coal will still be the single-source of electricity to 22 percent of the world’s population.”

“Additionally, coal is literally a building block to economic and social prosperity. Industry relies on coal for 90 percent of the world’s cement, 70 percent of global steel and more than 60 percent of aluminum,” he added.

But the prosperity that coal brings comes at a damaging price. As one of the three main fossil fuels that contribute to a heating planet along with oil and gas, coal is behind 40 percent of the carbon emissions generated from burning fuels.

There is also the impact on public health, with air pollution caused by fossil fuels resulting in 8.7 million deaths last year. The UN has called to remove coal from the electricity mix in advanced economies by 2030, and by 2040 for the rest of the world.

The industry argues that it can make coal clean by siphoning CO2 out of power plants and storing it in the ground. But the technology that it's banking on is expensive and presently doesn’t exist at scale.

Each year the world can capture about 40 Mt of CO2 from industrial sites – but annual carbon emissions are hundreds of times that figure.

The problem for policymakers is that the transition must be both fair and fast: Governments need to quit coal and move to low-carbon energy alternatives, and protect the livelihoods based around it.

Coal’s loss, renewable’s gain

China bailing on its overseas portfolios in coal is likely to be a massive boon for global investment in renewables, with exports of wind, solar, hydro, and nuclear power primed to rise.

According to data from Bloomberg, if China diverted its overseas financing pegged to fossil fuels into low carbon alternatives, it would have covered combined renewable investment in 2020 of the UAE, Mexico, Portugal, Ireland, Indonesia, Hungary, Greece, Malaysia, Thailand, Singapore, the Philippines, New Zealand, Peru and Hong Kong.

Business-wise, China already has the infrastructure and investment capacity on hand. It is the world’s largest producer of solar panels, wind turbines and hydro-power dams, and state-owned nuclear companies are looking to export their domestically designed power plants.

“It’s clear that the higher level of global ambition offers China opportunities overseas to fund hydro and renewable projects,” said Michal Meidan, director of China research at the Oxford Institute of Energy Studies.