China pledges to stop building coal-fired plants abroad, but will it make a difference?

Chinese street vendors sell vegetables at a local market outside a state owned Coal fired power plant – Kevin Frayer/Getty Images

China has pledged to stop building coal-fired power plants abroad, an important boost in tackling climate change if fully realised.

The country has been under heavy diplomatic pressure to put an end to its coal financing overseas because it could make it easier for the world to meet the goals of the Paris climate agreement to reduce carbon emissions.

Roughly 70 per cent of coal plants being built around the world are financed by China, according to the International Institute of Green Finance, a Beijing-based organisation. Withdrawing support could essentially mean a lasting moratorium on coal, the single biggest source of emissions.

“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,” said Xi Jinping, the Chinese president, in his pre-recorded video address at the annual UN General Assembly, in which he stressed China's peaceful intentions in international relations.

John Kerry, the US climate envoy, welcomed Mr Xi's announcement, calling it a “great contribution” and a good beginning to efforts needed to achieve success at the Cop26 climate change conference in Glasgow in November.

But the announcement so far seems more form than substance. Mr Xi didn’t provide a timeframe or a roadmap for how to accomplish this in his remarks.

He also didn’t say anything about what China – the world’s biggest emitter – would do about its continued coal investments at home.

New plant construction surged last year to boost the economy after Covid lockdowns. More approvals in the first half of this year puts total planned capacity at more than 100GW, according to Greenpeace, which is enough to power all of the UK.

Mr Xi’s decision to move away from coal abroad isn’t sudden or unique. Major coal financers South Korea and Japan made similar announcements earlier this year.

Even before Mr Xi’s announcement, Chinese interest in coal abroad was waning. China didn’t fund any overseas coal power plant projects in the first half of this year.

More than half of 52 Chinese-backed coal projects announced in the last six years have been put on hold or cancelled, according to the Beijing green finance research institute.

Investing in coal abroad no longer seems an appealing business case for China. Chinese coal projects have faced growing resistance from local communities, and also internationally, from Bangladesh to Kenya.

Calls, including from the UK and US, have intensified for these projects to be cancelled, as the global trend has been to move away from coal and to less polluting energy sources. Last year, more than 20 NGOs pressed Chinese banks to halt financing for a coal plant in Turkey.

And Chinese-backed projects under Belt and Road, an ambitious $1 trillion infrastructure investment plan that forms the cornerstone of Beijing’s foreign policy, have come under scrutiny in some nations given polarising pandemic politics.

Xi Jinping virtually addresses the 76th Session of the UN General Assembly – AFP

Getting coal projects through has become an uphill battle especially as greener sources, such as solar energy, become more affordable. Such projects could turn out poorly in the long run, with plants unable to recoup investment, which risks damaging the world’s second-largest economy.

China’s GDP has remained resilient throughout the pandemic but Mr Xi still faces challenges in maintaining growth, including an aging population, a volatile property market.

Keeping the economy on the up and up is crucial in ensuring the ruling Communist Party stays in power. For decades, the bet has been that China’s 1.4 billion people would forgo individual freedoms for economic prosperity – an implicit guarantee that could go bust if growth sours.

It’s unclear what happens now to overseas Chinese coal projects already under way, and whether the halt Mr Xi pledged applies only to projects yet to break ground.

What is clear, however, is that China is making a smart move from a business perspective that can also be dressed up as progressive and used to bolster its climate credentials.

The announcement indeed puts Mr Xi on better footing as the Glasgow summit draws closer.

Many countries, led by the US, are hoping to secure from Beijing additional commitments to – a key reason why both Mr Kerry and Cop 26 president Alok Sharma visited China recently. But Beijing has already indicated it won’t budge on targets.

Still, ditching coal abroad now means China can point to the pledge as an example of how it is taking big steps to reduce emissions for the greater global good.

A man tends to vegetables growing in a field as emissions rise from cooling towers at a coal-fired power station in Tongling, Anhui province, China – Qilai Shen/Bloomberg

It also gives China two major climate-related announcements in as many years to tout. Last September, Mr Xi boldly said China would reach peak emissions by 2030 and be carbon neutral by 2060, a goal he reiterated this week.

China knows it needs to respond now, and quickly, to stave off the effects of climate change. This year’s extreme weather served as a chilling reminder, after huge swaths of cities and villages flooded after heavy rains, killing people and rendering others homeless.

But China seems set on doing so its own way and on its preferred timeline – a way to fashion itself as a climate leader, especially while the US continues to deal with its botched pullout of Afghanistan – by not caving to other nations’ demands, least of all ones coming from the West.

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