Borrower nations participating in China’s Belt and Road Initiative will have a big say in whether its net effect helps the world meet the Paris Agreement’s carbon objectives or puts them forever out of reach.
Climate experts who track China’s massive infrastructure and trade scheme say that in its first five years the initiative has overwhelmingly supported fossil fuels infrastructure while giving short shrift to renewables and low-carbon technology.
The early track record, experts say, may be due in part to China using coal-fired power in its own development or may be linked to China’s domestic shift away from conventional fossil fuels that has forced its domestic industries to seek new markets.
But it’s not all China can offer to the 125 countries that state-run news outlet Xinhua has reported have signed cooperative agreements under Belt and Road.
“If you ask the Chinese for coal, they’re saying, ’We are ready,’ because they’ve got overcapacity and excess demand and environmental regulations at home,” said Kevin Gallagher, director of Boston University’s Global Development Policy Center.
“If you ask for coal, you’re getting coal, but if you ask for energy, they’ve got it all,” Gallagher said. “They’ve got the whole menu.”
The Belt and Road Initiative is President Xi Jinping’s signature program, and this week he’s hosting a forum in Beijing attended by nearly 40 heads of state, U.N. Secretary-General António Guterres and International Monetary Fund Managing Director Christine Lagarde. Since its inception in 2013, the initiative has funded projects in 152 countries, to the tune of $200 billion.
The initiative refers generally to investments by China’s public lending institutions like the China Development Bank and the Import-Export Bank of China, or China Eximbank, and its commercial banks. The China Export and Credit Insurance Corp. and the Silk Road Fund, an equity fund established in 2014, are also involved.
Some countries are apparently ordering off the renewable energy menu in their dealings with those institutions.
China’s state-owned conglomerate Sinomatch joined with General Electric Co. to launch a 102-megawatt wind power demonstration project in Kenya in 2015. China National Electric Engineering Co. opened Ethiopia’s first waste-to-energy facility last year in Addis Ababa. And China Eximbank has provided nearly $400 million in financing for the Cauchari solar plant in Argentina, which will be the largest solar facility in South America when it is completed and will use mostly Chinese materials.
But green finance is still a small share of the initiative’s overall portfolio, which is set to grow to $6 trillion in expenditures by 2030.
“Today, the vast share of the energy investment is brown, a substantial share of the infrastructure broadly is brown, and while it’s moving, it’s moving pretty slowly,” said Jonathan Pershing, environment program director at the William and Flora Hewlett Foundation. He noted that the roads, energy projects and ports that China funds today could be in use for half a century.
A World Resources Institute and Boston University analysis spearheaded by WRI’s Lihuan Zhou released earlier this year showed that China Eximbank and CDB, which did most of the lending for power capacity and transmission, only directed about 5.3% of its energy loans to wind and solar projects between 2014 and 2017—a combined $2.4 billion. By contrast, non-hydropower renewables make up at least a quarter of the World Bank’s energy loans.
Han Chen, energy policy manager in the Natural Resources Defense Council’s International Program, wrote in a blog post Monday with colleagues that there had been “significant growth” in commercial bank loans and insurance support for renewable energy in 2018.
“This growth is encouraging, but it remains to be seen if investment will persist in the coming years or if it will flag once more,” she wrote.
‘Brown growth path’?
Belt and Road’s early preference for fossil fuels lending is not good news in light of last year’s report by the Intergovernmental Panel on Climate Change, which warned that without a sharp pivot toward greener technologies, the world will lose its chance to keep post-industrial warming to safe levels by 2030. The Paris Agreement sets a long-term goal of stabilizing warming at “well below" 2 degrees Celsius, with 1.5 C as an aspirational target, although IPCC said 1.5 C was by far the safer threshold.
But the initiative’s projects could be decisive, Pershing said, “if that’s a brown growth path, we can’t meet Paris."
That’s because the countries China is lending the most money to build infrastructure and cement trade relationships are in developing regions like Southeast Asia, Africa and Latin America. Their combined populations equal that of China’s, Pershing notes.
And while China is currently the world’s largest greenhouse gas emitter and is putting more distance between itself and most developed nations by the year, it has pledged under Paris to stop growing emissions by 2030. It will likely do that earlier, but in Belt and Road developing countries—with their modernizing economies and booming populations—greenhouse gas emissions may just be starting.
But observers hope that trajectory will end soon. Groups like WRI and NRDC contributed to a new green Belt and Road alliance that the Chinese government launched at this week’s forum, possibly in response to mounting criticism of the environmental and climate toll of its early projects.
“In the last few months, there’s been a lot more attention to looking at the climate impact of Belt and Road, looking at the environmental impact,” said Chen, who attended the Beijing forum. The Chinese government has responded by trying to find ways to incorporate more views and input on reducing environmental impacts, including by setting up a new alliance with foreign advice and participation.
Boston University’s Gallagher noted that environmental damage by some of the initiative’s projects had caused Belt and Road to lose prestige abroad, and led to costly delays and unwillingness by governments to do business with Chinese investors.
“Whether it be hydropower in Myanmar or a coal plant in Bangladesh, there’s lots of social and environmental conflict in and around all the projects,” he said.
China has generally followed the regulations of the countries in which it operates. For Bangladesh, which has few laws on its books requiring community engagement or protection of air or water quality, Chinese-backed projects have generally not bothered with those things. But they’ve been blamed when things went wrong, said Gallagher.
“There are protests, and some of the folks out on the street have Twitter accounts that are linked with transnational [nongovernmental organizations] ..., which have turned it into a global campaign,” he said. “No businessperson wants that. And that’s a mistake."
Gallagher said China could regain some of the international goodwill it has lost and limit risk to its balance sheet by taking a more proactive stance in aligning its BRI investments with the United Nations’ Sustainable Development Goals and to the Paris Agreement.
The WRI-BU paper notes that the Paris Agreement itself offers $1 trillion in energy infrastructure spending projects to help countries meet their nationally determined contributions, or NDCs. Roughly half of those NDC projects would be in Belt and Road participant countries. And a new round of NDCs will be submitted next year, which could offer more specific project requests.
‘Why are they not asking?’
In a paper released Monday ahead of the Beijing forum, the Chinese government office responsible for promoting BRI touted China’s past efforts on green finance, including Xi’s move to make it a priority during his 2016 presidency of the Group of 20 countries.
“Upholding the Paris Agreement, China actively advocates and encourages the integration of green development into the joint efforts to build the Belt and Road,” it states.
But Pershing, a former diplomat who was the second-ranking member of the U.S. negotiating team at the 2015 summit that delivered the Paris pact, said the developing world didn’t seem to be asking China for projects like the ones laid out in the NDCs.
“I think we’re seeing that when asked, China does offer some of those alternatives, but they’re actually mostly not asked,” he said.
“All these recipient countries have signed the Paris Agreement. Why are they not asking?” he said. “China signed the Paris Agreement. Why is it not offering? So to me I think there’s some need on both sides for both parties to come to the table and say, ’We would like to make some changes in how we are offering and how we are asking.’”
Pershing said China’s government has signaled it sees its long-term interests in clean growth. He noted that Su Wei, who was deputy head of the Chinese delegation to the U.N. climate process when Pershing was second-in-command on the American team, was put in charge of a green BRI strategy.
But Belt and Road isn’t about climate, he said. It’s about trade and economic development.
“In as much as the greening will help, they’ll probably do it,” he said. “In as much as it gets in the way, it will be a bit player.”
The economic case to borrower nations is that fossil fuels development chains countries without minerals resources to perpetual import costs. The health case, he said, was to focus on asthma and other local health impacts, not climate change.
Pershing said the World Bank and Western government institutions could help provide poorer nations technical assistance in formulating their requests for project finance.
Leonardo Martinez-Diaz, global director of sustainable finance of WRI, said the goal should be to provide countries with the support they need to offer a proposal for a sustainable project every time they sit down across the table from an investor.
“Then governments can have a serious conversation with their financiers, including Chinese ones, on how to fund the sustainable project,” he said. “This can’t happen if only ‘Plan A’ is on the table.”
Reprinted from Climatewire with permission from E&E News. E&E provides daily coverage of essential energy and environmental news at www.eenews.net.