How China Can Become a True Climate Leader

Source: By Adam Minter, Bloomberg • Posted: Tuesday, April 4, 2017

One of the world’s largest reserves of low-grade, dirty coal is located roughly 250 miles west of Karachi, Pakistan in the Thar Desert. Discovered in the 1990s, it remained largely untapped until last year, when Chinese financing underwrote a $3.5 billion project to exploit it. The investment is part of a larger Chinese energy plan for Pakistan that includes seven new coal plants. By 2020, if everything goes as planned, Pakistan will derive 24 percent of its power from coal, up from 0.1 percent today.

And Pakistan is hardly alone. In fact, China is the world’s single largest exporter of coal-related financing and equipment, especially to developing countries. Between 2001 and 2016, Chinese financial institutions backed more than 50 coal-fired power plants abroad; as of last September, Chinese companies were involved in at least 79additional coal-fired generation projects. Collectively, those projects will generate more power than all the coal plants that the U.S. plans to take offline by 2020.

The subject is unlikely to come up when Chinese President Xi Jinping meets President Donald Trump in Florida later this week. Yet as the U.S. retreats from its climate commitments, the world is looking to China to lead the fight against global warming. The country deserves cautious praise for cleaning up and slowing the production and use of coal at home. It should strive to be equally responsible abroad.

Coal Power

China has good reason to export coal technologies and equipment. Developing countries in which China has varied interests, ranging from raw materials to manufacturing, are in search of cheap power, and coal usually fits the bill. Meanwhile, a slowing economy and anti-pollution measures have reduced demand for new coal projects at home. So China’s energy giants have to look abroad for growth.

China’s state-run lending institutions — in particular, China Development Bank Corp. and the Export-Import Bank of China — are happy to help. According to one recent study, two out of three overseas power projects supported by Chinese development banks between 2007 and 2014 were coal-related. By contrast, 96 percent of the World Bank’s power-sector financing over the same period supported renewable-energy projects, not including hydropower.

The impact is significant. Chinese-built coal plants constructed overseas between 2001 and 2015 were responsible for the equivalent of around 11 percent of total U.S. emissions in 2015 — a sizeable amount, considering the U.S.’s status as the world’s second largest CO2 emitter after China.

This puts an added burden of responsibility on China to minimize the environmental impact of its projects. Unfortunately, of the plants it built between 2001 and 2016, nearly 60 percent used “sub-critical” technologies that are inefficient and highly polluting. While the rest were modern “super-critical” plants that operate more efficiently, even those only manage to emit 10 to 20 percent fewer greenhouse gases than their older counterparts. Newer technologies can reduce emissions by as much as 30 percent.

Of course, China isn’t solely to blame for the promotion of coal. Between 2007 and 2015, G20 nations financed $76 billion worth of overseas coal projects — two-thirds sponsored by other countries. And the fact remains that developing nations need power. Given cost pressures, coal will have to fill a good chunk of that demand for the foreseeable future.

But in 2015, OECD nations at least agreed to restrict overseas coal financing to the cleanest technologies, except in the most impoverished nations. Chinese leaders made a vague pledge to support low-carbon technologies internationally as part of a landmark 2015 climate change agreement with the U.S. Yet they may be wondering what obligation they have to keep that promise now — especially since the OECD has largely abandoned the international coal financing market to them.

If China wants to be taken seriously as a leader in the battle against climate change, it’ll resist the urge to renege. Indeed, it should follow the OECD’s lead and commit to supporting only the most advanced and environmentally responsible coal projects abroad as well as at home. At the same time, it should devote more resources to financing renewable-energy facilities in the developing world. In Pakistan, for example, it’s supporting modest solar and wind farm projects alongside its coal investments. Chinese money and expertise is much-needed in these countries. It should be spent wisely.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.