China’s global coal machine won’t be stopped so easily

China has pledged to stop funding coal plants around the world but loopholes mean new ones are still being built.

When the president of China, Xi Jinping, said ahead of the Cop26 climate conference that “China will not build new coal-fired power projects abroad,” environmentalists cheered. Was China finally beginning to turn its back on the biggest single contributor to climate change?

For months after Xi’s statement, there was scant detail as to what this would mean in practice. Then in March 2021, four leading state agencies confirmed that no new coal plants would be built abroad under the Belt and Road Initiative, which is one of the most significant investments in coal worldwide. The effects of this directive have been tangible: some 15 coal plants around the world, with a combined capacity of 12.8GW, have been cancelled and the think tank E3G expects that another 55GW of new coal projects which are still in a pre-construction stage will not be completed.

However, projects that were already under construction continue uninterrupted. E3G believes that this represents 30GW of new capacity, equivalent to the total electricity capacity of the Philippines, a country of more than 100 million people. Cancelling these projects would have been a gross breach of contract, but they nonetheless run counter to the International Energy Agency’s insistence that no new fossil fuel plants must be built if extreme climate change is to be avoided.

Some suggest that weak transparency requirements in China for public investments will allow the country to continue investing in projects that go against climate action goals. “If you look at the annual reports of state-owned enterprises, there are no geo-locations of projects, no indication of where money is specifically being spent and no clear evaluation criteria,” says Wawa Wang, from the NGO Just Finance International. Without absolute transparency, developers will “push forward projects through grey areas in the policy with some logical gymnastics,” says Isabella Suarez from the Helsinki-based Centre for Research on Energy and Clean Air (CREA).

The CREA b e lieves there are 19.2GW of planned projects that fall into such “grey areas”. The most significant of these relate to projects that might still be able to proceed if provisional contracts and permits are in place, even if physical construction has not yet begun. China has also still been able to build or expand coal-fired power plants if their purpose is to support industrial clusters run by Chinese firms. At least two major plants in Indonesia are being built as a result of this: a 1,520 megawatt project to support nickel-cobalt processing, and the 1,140MW expansion of an existing project to power steel and nickel processing. Both projects have been years in the making and China does not consider them “new”, even though their contracts have been negotiated after the overseas finance pledge.

Ironically, much of the global demand for nickel and cobalt, which is driving the expansion of coal power plants in Indonesia, is increased demand for lithium-ion batteries, required for renewable electricity storage and electric vehicles.

Analysis by Just Finance International found that Chinese state-owned enterprises entered into overseas coal power contracts worth more than $18bn in 2021. These projects were signed before Xi’s pledge and it is unclear how many of the contracts will be fulfilled, but clearly China is finding it challenging to end its relationship with coal so quickly. Internationally, it is about soft power. “Coal diplomacy as opposed to climate diplomacy has been a leading strategy for well over a decade,” says Wang. And domestically, it is about ensuring a steady energy supply is always available to power China's booming economy.

China’s domestic coal consumption rose 4.6 per cent in 2021, the strongest growth recorded in a decade. In April, official plans predicted that consumption would grow by a further 2.2 per cent. Huge numbers of coal power projects remain in development. Data from GlobalData shows 39 facilities are under construction, while 18 more have been announced or are awaiting permits. Some 82 facilities have been fully or partially activated in the country over the past five years.

China is a world leader in developing solar, wind and electric vehicles, but these can only go so far in decarbonising the economy if fossil fuels are not wound down in parallel. As Bernice Lee, a research director at Chatham House, argued in the New Statesman earlier this week, China is slowly transitioning to a clean energy economy, and the EU and the US should acknowledge the country's efforts. However, as the Intergovernmental Panel on Climate Change has made clear, time is of the essence and developed countries must phase out coal by 2030, and the rest of the world by 2040, to combat global warming and avoid untold devastation.