The Fuse

China To End Overseas Coal

by Nick Cunningham | September 24, 2021

China announced that it will no longer build coal plants around the world, a major milestone in the fight to cut global greenhouse gas emissions and phaseout coal-fired power generation.

The move also provides a small jolt to flagging international climate negotiations, with weeks to go before the COP26 talks in Glasgow, Scotland. Still, questions remain about the details of China’s announcement, and how significant of a policy shift it will prove to be.

End of international coal financing?

At the UN General Assembly meeting in New York on Tuesday, China’s President Xi Jingping said on that China would stop building coal plants abroad. Because China has been one of the major builders and sources of coal financing, the decision is potentially enormous. China is the largest source of greenhouse gas emissions in the world, the largest consumer of coal, and also the last remaining large source of public financing for new coal projects around the world.

“We need to accelerate a transition to a green and low-carbon economy,” Xi said in a speech at the UN General Assembly. “We will make every effort to meet these goals. 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.”

It was the last remaining shoe to drop for the international effort to cut off public financing for coal. South Korea and Japan announced and end to overseas coal financing earlier this year, leaving China as the last major economy offering coal a lifeline.

“Now all the major public financiers of coal have sent the signal that they are moving away from overseas coal,” Kevin P. Gallagher, a professor of global development policy at Boston University, told the New York Times. “China’s announcement could be a step toward them catalyzing green transformations.”

China’s decision also adds a little bit of momentum to the floundering international climate talks. The international climate talks in Scotland scheduled in a few weeks’ time are intended to build on the Paris Climate agreement, but ambitions from governments have been underwhelming.

The governments of a few major economies have announced some new initiatives ahead of the summit. This past week, the U.S. pledged to double aid for climate change for developing countries, and the U.S. and the European Union announced an agreement to cut methane emissions – an extremely potent greenhouse gas – by 30 percent by 2030.

China’s coal announcement was another positive signal that should boost global climate ambition. COP26 President Alok Sharma has said that one of the objectives for the climate talks is to “consign coal to history.”

There is an array of proposals targeting oil, gas and coal that are under discussion as possible building blocks to phaseout fossil fuels, such as a No New Coal agreement and a Beyond Oil and Gas Alliance. So far, these are still in their early stages.

Questions remain, but positive sign

China’s pledge also should have tangible impacts – ending the construction of new coal plants could scrap 40 gigawatts of coal projects, roughly equivalent to the entire German coal fleet, according to Bloomberg.

Still, plenty of questions remain. China is still building a massive amount of coal plants at home, and Xi offered no update either on its domestic coal operations or its greenhouse gas emissions reduction target. Last year, China said it hopes to reach a peak in emissions by the end of this decade and reach net-zero emissions by 2060. Aside from the overseas coal announcement, Xi didn’t offer much new.

Even the splashy announcement led to some confusion. Was China ending the construction of coal plants abroad, or was it also cutting off financing as well? Would private Chinese companies be allowed to build coal plants abroad?

China’s overseas coal building had already dried up earlier this year, as countries including Bangladesh, Kenya and Vietnam have soured on coal. Many coal plants in India are losing money. And the pipeline of new coal projects has shrunk for years; since 2015, an estimated 1,175 GW of coal power plants have been cancelled.

Coal is simply not the most competitive source of electricity generation, even in many developing countries that were thought to be highly dependent on the black stuff for many years to come. According to the Institute for Energy Economics and Financial Analysis, roughly 94 percent of new electricity capacity in India in the most recent fiscal year came from renewables.

At this point, it is something of a no-brainer. In countries representing 91 percent of the world’s electricity generation, wind and solar are already the cheapest source of new power, according to BloombergNEF. Why build new coal?

Against that backdrop, some argue that China’s announcement to end overseas coal construction as merely recognizing a fait accompli, rather than genuine leadership.

But in another encouraging sign, on September 24, the Bank of China said that it would no longer provide financing for new coal mining and coal power projects outside of China, an announcement that added more detail and backed up the notion that financial lifeline for new coal projects was decisively drying up.

There is a long way to go on global climate efforts, but Xi’s announcement marks something of a turning point.