Beijing is keeping its development and commercial banks, construction and engineering firms busy while exporting a lot of dirty technology in the process.
Chinese President Xi Jinping has said this year that the Belt and Road Initiative (BRI) must be green and sustainable, but much of what Beijing is providing to the countries that form part of the BRI is just the opposite. The China Development Bank and China Export-Import Bank have financed power plants in 38 countries since 2013, nearly half of which are fossil fuel-based. Most Chinese-financed, coal-fired power plants built overseas use low-efficiency, subcritical coal technology, which produce some of the highest emissions of any form of power generation, resulting in increased national emission levels. The story is even worse in countries where China has intensified its activities.
In Pakistan, for example, where Beijing has focused massive amounts of BRI spending through the China-Pakistan Economic Corridor, China has financed so many coal-fired plants that the country’s power investments are more than twice as emissions-heavy as Pakistan’s electric grid was in 2012. And not only does much of the BRI pass through ecologically sensitive parts of the world, but nearly all of China’s non-fossil fuel power projects in the BRI were neither wind nor solar, but hydroelectric dams, which come with steep environmental costs to land, animals, and people.
America may not exactly be the best guardian of the world’s environment, but it is also not on a global crusade to build infrastructure that is inconsistent with its own environmental philosophy and standards. What Beijing is doing is keeping its development banks, commercial banks, construction firms, and engineering firms busy while exporting a lot of dirty technology in the process (and spreading “debt trap diplomacy” around the world, with many of the countries it is exporting this dirty technology to being unable to actually pay for it).
Beijing is, in essence, leveraging environmentally and socially harmful infrastructure projects in exchange for diplomatic capital designed to counter America’s Indo-Pacific military presence, while attempting to give itself a competitive advantage over the US in important emerging markets. Beijing-backed coal projects are, for instance, enabling the CCP to broaden its defence cooperation with Islamabad while simultaneously helping to degrade its environment. Pakistan’s leaders—and leaders in other developing countries where Beijing is doing the same thing—either do not see the connection, or are too addicted to Chinese money to object to Beijing’s approach to a crafting a strong bilateral relationship.
The BRI has an Ecological and Environmental Cooperation Plan which states that cooperation on environmental protection is a fundamental requirement for the BRI, and that such cooperation is vital for a green transformation of China’s economy. The plan states that it is crucial that BRI-related projects comply with the environmental standards that China aspires to at home. Clearly, they do not always do so. In 2017, the Chinese government published several additional guiding policies designed to promote BRI sustainability in BRI, such as “Guidance on Promoting Green Belt and Road” and “Vision and Actions on Energy Cooperation in Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road”. These documents specifically state that BRI projects will be used to advance the Paris Accord and the UN’s 2030 Sustainable Development Goals.
At the Second Belt and Road Forum, in 2019, attendees from all over the world issued a joint communique with 283 deliverables, many of which focused on promoting green and socially sustainable development through BRI projects. A variety of initiatives were launched, including two focused on maximising the efficiency of lighting and cooling to reduce energy use, and on building sustainable cities. Are these objectives even close to being reached?
Some 38 BRI countries have a target of installing 644 gigawatts of renewable energy between 2020 and 2030, which could require up to $644 billion in investment. Chinese banks and state lenders have proposed funding up to 120 of those gigawatts with new coal-fired power plants, accounting for up to 26% of global coal capacity under development outside China. From 2014 to 2017, 91% of loans made by six major banks in China to BRI energy projects were used to finance power projects that utilise fossil fuels. A new coal plant has an average economic life of more than 30 years. Constructing such plants commits developing nations to increased emissions and high levels of air pollution for decades into the future. Coal-fired power plants are also at high risk of becoming stranded assets as the price for renewables only continues to drop.
The BRI is not solely a conveyor belt for coal, however. China is also exporting renewables abroad, its commercial banks have become active in the space, and it has provided the financing, engineering, construction, and/or equipment for several of the largest solar projects in the world, including the NOOR CSP complex in Morocco and the Mohammed bin Rashid Al Maktoum Solar Park in the UAE (both BRI projects). Several noteworthy wind farms have been built as part of the initiative as well, including the Dawood Wind Farm in Pakistan.
Apart from increased financing costs because of high perceived risk in many of the countries of the BRI, there is also an absence of policy support to encourage much of the required renewable energy investment. A big part of the reason why wind and solar have taken off in China is the subsidies the government provides to make renewable energy prices competitive with coal. Many of the countries in the BRI do not have the tariffs, carbon credit markets, or other financial mechanisms required to achieve a viable renewable marketplace.
Given the resources and sophistication required to create such a marketplace, that is likely to remain an unachievable goal for many developing countries for a long time to come. If China was smart, it would work with the Multilateral Development Banks to create the enabling environment to support such domestic environments as part of the BRI grand plan. As of now, any such ambition will remain exclusively the domain of Chinese financial and developmental institutions.
Daniel Wagner is CEO of Country Risk Solutions and author of China Vision. His new book—The American-China Divide—will be published in January.