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China’s international coal-exit has a transparency problem

By Wawa Wang and Dr. Vanessa Buth

China’s pledge to stop building new coal-fired power plants abroad, announced during the UN General Assembly in September 2021 – and reiterated during an EU-China dialogue on climate in October 2021 – was met with enthusiasm. Yet, half a year later, little is known about the extent of China’s rollback of its overseas coal projects. Analysis by Just Finance International’s found that Chinese state-owned enterprises (SOEs) seem to have scored over $18 billion (in contracted value) for 67 unidentified overseas coal-fired power projects in 2021 alone. As the EU prepares for high-level climate talks with China, it should request that China discloses its plans for overseas coal projects.

Big promises must be followed by real action if they are to be more than window-dressing. As the largest public financer of overseas coal-fired power plants, China’s promise to end construction has immense potential for reducing global emissions – if the exit is immediate and includes all plants not yet built. Coal power plants, once connected to the grid, will pump out emissions for decades.

If China’s pledge is really aimed at having a positive climate impact, it should make public a transparent account of overseas coal projects, including construction contracts, along with financing, insurance and equipment supply. It should provide information about the status of each project – including which projects have been ceased, which plants are proposed, under negotiation, or under construction, along with the source of project financing.

In May 2021, the International Energy Agency stressed that “no further final investment decisions for new unabated coal plants” could be made if we are to reach net-zero by 2050. Yet NGOs’ analyses from late 2021 show if left undefined, the broad and vague terms of China’s “international coal exit” means that it is potentially implicated in the undertaking of 30-40 GW of active coal projects in Bosnia-Herzegovina, Indonesia, South Africa, and several other countries.

China’s leading lender, the Export-Import Bank of China (China Eximbank), which has financed many of China’s overseas coal projects, recently confirmed that the bank no longer provides loans for overseas coal projects. However, not all financial institutions, such as investors and insurers, have followed suit.

Achieving global climate goals demands the leaders of every country to shoulder responsibility. Climate diplomacy will be on the agenda during the EU-China summit; Germany, as a large and influential EU country, could demonstrate leadership by persuading China, through informal and diplomatic means to clarify its pledge, and to adapt standards aligned with the OECD coal-fired sector understanding from October 2021.

EU enlargement candidate countries in the Western Balkans are home to China’s major overseas coal hotspots. As new Western Balkan coal projects no longer qualify for financing from multilateral development banks or OECD export credit agencies, whose policies prohibit the financing of new coal projects, China is now their only source of financing. In February, an EU delegation visiting Bosnia and Herzegovina reaffirmed the EU’s position that “the construction of a new coal plant in Tuzla is not economically and environmentally sustainable”.

The 2017 loan agreement from China Eximbank for the Tuzla 7 coal-fired power project has caused serious repercussions due to state aid disputes, according to the Energy Community, the EU energy watchdog. Five years later, although construction has not begun, the leading Chinese SOE contractor China Gezhouba Group has not signaled any willingness to leave the project. What appears to be a decision by Chinese banks to no longer provide financing for Bosnia’s newly proposed Ugljevik III coal project may be a sign of China’s regional rethinking of coal. However, its Chinese construction contractor has yet to officially announce an exit.

All Western Balkan countries have committed “to move faster [towards] sustainable and climate-friendly societies in line with the Paris Agreement” and “to accelerate the implementation of the EU Acquis under the Energy Community and Transport Community Treaties” by signing the 2018 Sofia Declaration. Yet failing to end China’s financing and construction of new coal power plants not only stands in stark contrast to this, it is in direct conflict with EU interests.

According to our analysis, Chinese large-scale infrastructure projects, including existing Chinese-built coal power plants, have a history of pollution and legal irregularities. The subversion of, and violation of the rule of law by Chinese investments in the countries of the Western Balkans, as well as the non-compliance with international standards in the implementation of Belt and Road projects, is common practice. Several Chinese coal projects in the Balkans were approved and have qualified for Chinese financing without carrying out legally required environmental impact assessments, often against the backdrop of deceptive feasibility studies. According to a study by the Balkan Investigative Reporting Network, out of 130 such projects, most are “accompanied by allegations of corruption, exploitation and environmental harm”.

What the EU must do: If China’s pledge to stop financing new overseas coal is genuinely aimed at having a positive and critical impact on countering the climate crisis, then Germany and other EU governments, led by Chancellor Olaf Scholz, must initiate the discussion for a definition of the pledge, its effective date and whether its standards meet minimum OECD standards. The upcoming EU-China summit, the EU-China dialogue on climate, the G7 and G20, provide crucial political moments to advance any such debate.

Wawa Wang, Director Just Finance International, has worked as a policy advisor and investigative researcher for international and European NGOs and trade organizations, and has been a trade and foreign policy advisor. She works with civil society actors to improve access to information and decision-making in development finance.

Vanessa Buth, campaigner at Just Finance International, holds a Ph.D. in political science from UEA in the UK. She has worked as a Senior Research Associate on Brexit and in European Commission research projects. She has extensive experience in non-profit environmental and community engagement initiatives.

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