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28 Jul 2022

Danqing Li, Siman Li, Mark Bo - Global China Pulse

China’s overseas energy investments after the ‘No Coal’ pledge: An assessment

"China’s Overseas Energy Investments after the ‘No Coal’ Pledge: An Assessment" 6 July 2022

On 21 September 2021, Chinese President Xi Jinping announced to the United Nations General Assembly (UNGA) 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’ (Xi 2021). This pledge potentially has huge impacts, as in recent years China has become the most important—and, in many cases, the last—resort for public coal finance. [...]

The Impacts of the Pledge So Far

The pledge to end building overseas coal plants sparked significant discussion but, given the lack of specificity in President Xi’s UNGA speech, much of this focused on what it would mean in real terms. [...]

One of the first actors to respond publicly was the Bank of China (BOC), a commercial bank majority owned by the Chinese state. BOC announced in the days following the UNGA speech that, from the fourth quarter of 2021, it would no longer provide financing for new overseas coalmining and coal power projects, ‘except for the projects that have signed loan agreements’ (BOC 2021). [...]

On the corporate side, there has been less visible movement, although the first actor to respond to the UNGA statement was Tsingshan Holding Group, a privately owned Chinese conglomerate and major steel industry player, which announced shortly after the pledge that it would not build any new coal power plants overseas (Tsingshan Industry 2021). [...]

Impacts have also been observed at the project level. In January 2022, Hong Kong–registered Sunningwell International Limited confirmed that Chinese financing was no longer available for the 700-megawatt Ugljevik III power plant in Bosnia and Herzegovina. In June 2021, the company had signed an engineering, procurement, and construction (EPC) contract for the project with state-owned China National Electric Engineering Company (CNEEC). [...]

While most observers believe that projects yet to reach financial close will struggle to secure financing, there is wiggle room. The NDRC guidance uses the language in the UNGA pledge that China will not pursue ‘new’ overseas coal power plants, but this leaves a grey area for projects that have not yet reached financial close but were already under discussion before the pledge. [...]

While China should be commended for taking this crucial step in moving away from new-build coal power plants, a next step is to provide further binding policy guidance on the implementation of the UNGA pledge, closing the loopholes, while also making concerted efforts to honour the commitment to support global green energy development, decrease carbon emissions by accelerating the phase-out of existing coal power projects, and avoid the carbon lock-in by simply replacing coal capacity with gas.