China Announces It Will Not Build New Coal Plants Abroad
At the UN General Assembly meeting today, President Xi announced that “China will step up support for other developing countries in developing green and low-carbon energy, and will not build new coal-fired power projects abroad.” (Link to full speech in English and Chinese.) This major new announcement comes at a time when global leaders and citizens have become painfully aware of the impacts that climate change is already having around the world. UN Secretary General António Guterres has emphasized that the window to limit warming to 1.5°C is rapidly closing, and that countries need to commit to building no new coal plants. China’s announcement is an important signal for the shift to green development that we urgently need this year.
As NRDC President and CEO Manish Bapna put it:
This is a major step forward on the long global march to a healthier, safer and more prosperous world. By canceling plans to build dozens of coal-fired power plants in 20 countries, China is making a strong move toward a cleaner future overseas. This opens the door to bolder climate ambition from China and other key countries, at home and abroad, ahead of the global climate talks in Glasgow.
President Xi’s announcement on ending overseas coal plant construction builds on his commitment last September that China would peak its carbon emissions before 2030 and achieve carbon neutrality before 2060, and in April that, domestically, it “will strictly control coal-fired power generation projects, and strictly limit the increase in coal consumption over the 14th Five-Year Plan period and phase it down in the 15th Five-Year Plan period.”
The significance of China’s new commitment
In 2015, NRDC published a report—Under the Rug—which documented that between 2007 and 2014 more than $73 billion of public finance had been approved for overseas coal. At the time, Japan was the largest financer, followed by China, South Korea, Germany, and the United States. But in recent years, China became the largest financer as the U.S. and Germany implemented restrictions on overseas coal financing, and South Korea and Japan also announced this year they would not fund overseas coal projects.
As a result, world leaders have been paying close attention to China as the last remaining public financer of overseas coal power plants, at a time when the air pollution, climate and economic benefits of renewables over coal have become clear and countries are re-orienting their energy development plans away from coal power.
Prior to this announcement China had plans to support over 40 gigawatts (GW) of new coal fired power plants in 20 developing countries. These “pre-construction” coal plants were located primarily in Bangladesh, Indonesia, Vietnam, and a number of countries in Africa and Europe (see figure below).
Yet, the global trends were clearly pushing against new coal plant expansion with major public and private financial institutions signaling they were shifting away from coal to renewable energy. In 2019 and 2020, Chinese-backed coal plants worth $47 billion were cancelled, mothballed or shelved. Through the first part of this year China hadn’t financed any new coal plants overseas as the market and recipient countries moved away from new coal plants. Only three Chinese-financed projects moved forward through pre-construction phases of development in 2021.
These trends in Chinese financing follow larger global trends that are highlighted in a new report by E3G, Global Energy Monitor and Ember on the collapse of the global coal pipeline, which finds that the planned global coal plant pipeline has collapsed by 76% since the Paris Agreement in 2015, equivalent to 1,175 GW of capacity, more than currently operating in China today. Moreover, since the Paris Agreement, forty-four governments have already explicitly committed to no new coal projects and a further 40 countries are without any projects in the pre-construction pipeline.
Among non-OECD countries (excluding China)—in essence, developing countries—the pre-construction pipeline has collapsed by 77% since 2015, and 27 countries have ended the development of new coal power projects through project cancellations or policy commitments since 2015, including in Pakistan, Malaysia, Indonesia, Bangladesh, and Sri Lanka. As the report notes, this group of non-OECD countries (excluding China) “is home to 39% of the remaining global pre-construction pipeline, 80% of which is located in just nine countries. Four of these governments (Bangladesh, Pakistan, Indonesia and Viet Nam) have already indicated some form of restriction on new coal construction.” For example:
- Bangladesh, which has a large coastal population under threat from climate change, in June cancelled 10 proposed coal-fired power projects, constituting 8.7 GW of capacity, including two with Chinese financing, as well as others with investors from Japan, Singapore and Malaysia.
- Pakistan, one of key countries of the Belt and Road Initiative, announced in December that it would no longer build new coal plants.
- Indonesia’s largest utility pledged in May to stop building new coal plants beyond those in its current pipeline, though 40 new coal plants are still expected to be built, while existing plants will not be decommissioned early.
- Vietnam’s proposed Power Development Plan 8 in April included “no new coal-fired power plants except those already under construction or planned for completion by 2025 or sooner,” and 13 coal projects on the books for 2026-2035 are to be canceled if the plan is adopted.
Chinese financial institutions have also mirrored these changes, announcing restrictions to limit coal financing this year. ICBC stated in July that it would not fund a 2.8 GW coal power project in Zimbabwe, building on its statement in May that it would establish a roadmap and timeline to gradually phase out coal financing. The People’s Bank of China, China’s central bank, also announced in April that it would strictly control investment in new coal power projects abroad.
Implementing the new commitment will reduce financial and reputational risks for Chinese institutions
In recent years China has become the largest remaining funder of coal power projects around the world. This announcement will send an important signal on several fronts if China is bold in the implementation of this new commitment. In addition, ending the building of new projects, including reconsidering all existing pre-construction projects in the pipeline, will also reduce Chinese banks and enterprises’ exposure to the financial and reputational risks of financing and building coal power projects abroad. These risks including both physical risks from climate change, such as extreme weather events and water shortages, and “transition risks”, such as those associated with higher carbon pricing and stricter climate policies (as outlined in NRDC’s new report with the Tsinghua Center for Finance and Development and National Center for Climate Change Strategy and International Cooperation on managing climate risks under the BRI).
China's new commitment also provides a valuable opportunity for Chinese banks and enterprises to replace coal projects with solar, wind, storage and smart grid projects that can provide zero-carbon, reliable electricity to help developing countries and their citizens build green and resilient economies. Chinese institutions are already building many of the largest renewables projects abroad; this new commitment makes it clear that low-carbon and green should be the future direction for all Belt and Road Initiative projects.
Announcing this at the highest level also sends a powerful signal that President Xi is committed to aligning the full suite of Chinese financing and investment institutions to re-orient from coal to clean overseas development, including state-owned and commercial banks, SOEs, insurance, investors such as the Silk Road Fund, etc. It will be critical for China to develop detailed guidance to implement this broad restriction on all Chinese support of overseas coal plants, as well as guidance on how to replace these projects with green and low-carbon energy.
Supporting the global shift from coal to clean
Support for coal projects globally has fallen as a growing number of leaders in developing countries have called for a rapid shift away from coal and towards renewable energy. China’s new announcement has the potential to help promote a clean energy revolution around the world by sending an important signal that China will immediately shift its support for overseas coal power plant projects to work with developing countries to build the zero emissions future that we urgently need.