bneGREEN: China’s promise of no overseas coal financing could free up $130bn for green investment

bneGREEN: China’s promise of no overseas coal financing could free up $130bn for green investment
South Africa's Medupi power plant, partially financed by a loan from China / Moneyweb
By By Richard Lockhart in Edinburgh October 1, 2021

China’s promise to abandon financing coal projects overseas could affect a total of 44 coal plants across Asia and Africa, with a combined 42,220 MW of capacity.

This could free up $130bn over the coming decades that would be available to invest in renewables, and would reduce growth in global coal demand by 30mn tonnes, adding up to 1.1bn tonnes over the lifetime of the plants, said Global Energy Monitor as it updated its Global Coal Public Finance Tracker.

Beijing has not yet published precise details of how it will withdraw from coal funding abroad, after Chinese President Xi Jinping made the announcement at the UN on September 21.

Meanwhile, the Bank of China on September 24 that it would no longer provide financing for new coal plants and coal-mining projects outside China, starting from October 1, 2021.


At risk

GEM said that 44 coal plants with 42,220 MW of capacity were currently under consideration for public financing from state-owned Chinese institutions, and could therefore be affected by China’s announcement. The proposals are spread across 20 countries in Asia, Africa, South America and Eastern Europe.

If China’s announcement excludes any future public financing, all 44 coal plants are at risk of being cancelled, given the lack of other financing options for new coal plants.

Japan and South Korea pledged to stop public lending for overseas coal power earlier this year, and they have now joined the G7 nations in committing to end international funding for coal.

Five of the projects are being considered for funding from the Bank of China, and are therefore at risk of having their financing from the bank cancelled as soon as next week.

The 44 coal plants represent over 40% of the 103,000-MW pipeline for new coal plants in the twenty countries. If the coal plants are cancelled, it would result in savings of over $130bn – $50bn in construction costs and over $80bn in fuel and operational costs over the lifetime of the plants.


Africa, Asia

In Africa, cancellation of the plants would cut the amount of proposed coal power by half, as China has been a major financial supporter of new coal plants on the continent.

Cancellation of the projects would also completely eliminate the pipeline for new coal plants in Kenya, Madagascar and Cote d’Ivoire.

The reduction would make the three countries eligible for entry into the recent “No New Coal” alliance, a UN pledge for countries to stop building new coal plants.

Among the affected countries in Asia, cancellation of plants with proposed Chinese financing would reduce their coal plant proposals by over 40%.

The biggest effects would be in Bangladesh and Mongolia, as the amount of proposed coal plants in each country would decrease by over 90%, making them nearly eligible for the “No New Coal” pledge. Currently Bangladesh and Mongolia have the sixth and eighth-highest pipeline of proposed coal plants in the world respectively.


Global coal

China’s announcement will also have a major impact on the global coal market, as many of the 20 countries import the majority of their coal. Together the 20 countries were home to over 10% of thermal coal imports in 2019, totalling 130mn tonnes.

If the 44 coal plants are cancelled, it will reduce future coal demand in the countries by about 30mn tonnes per year (tpy), dealing a major blow to the future prospects of coal exporters. In all, future global coal demand growth would shrink by 1,100mn tonnes over the 44 plants’ lifetimes, preventing an estimated 8,000mn tonnes of carbon dioxide (CO2) from being emitted.

“China’s announcement is the death knell for overseas public financing for coal, and many proposed coal plants will be cancelled, given the lack of alternative financing options,” said Christine Shearer, GEM’s Coal Programme director.

“The good news is China’s move will save several countries from pouring billions of dollars into coal plants that will quickly become stranded assets, given the declining costs of renewables and public momentum for carbon restrictions.”

“Before last week, the world’s coal producers were still planning over 390 new coal mines. But China’s announcement just threw a wrench in the works,” said Ryan Driskell Tate, researcher and analyst for GEM’s coal mine tracker. “The coal industry is going to feel this cold splash of reality from head to toe.”

“China’s announcement is a step in the right direction. It is also acknowledging the reality on the ground, since investing in new coal plants no longer makes financial sense as other forms of energy are much cheaper,” said Russell Gray, GEM’s coal finance researcher. “To really have a climate impact, China needs to begin phasing out coal from its [own] power fleet as soon as possible, and focus on renewable energy generation.”

China is still home to by far the largest amount of proposed coal capacity on the globe, with nearly 97,000 MW under construction and another 163,000 MW in planning, according to GEM’s Global Coal Plant Tracker.

These domestic proposals are not covered by China’s coal finance pledge and will be the main focus ahead of COP26 in Glasgow.

According to the UN’s Intergovernmental Panel on Climate Change, pathways for limiting global warming to 1.5C require a virtual phase-out of coal power by 2040.

The IPCC said in August that only immediate, rapid and large-scale reductions in CO2 and other greenhouse emissions would be able to limit global warming to 1.5°C this century.