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Coal phase-out outside China – what will change?

By Nora Sausmikat
Sinologist Nora Sausmikat, expert on China’s climate policy at urgewald e.V.

At the recent UN General Assembly on September 21, China’s President Xi Jinping announced that he would stop building new coal projects overseas. “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.” (English and Chinese versions of the speech)

This announcement did not come as a complete surprise. But on the same day, the storm of questions started: What exactly did the president mean by that? Does that include financing and insurance? What about the coal industry? Which companies and banks are affected?

For the time being, official China did not provide any answers. However, the announcement was certainly coordinated internally and externally. Bilateral talks were held behind the scenes. China’s coal industry and coal financiers had come under pressure in the last two years, and not only from the global climate protection movement. The lighthouse BRI project appeared to be entering serious reputational straits. Especially in the run-up to the World Climate Summit, there was now a need for an official response. Alok Sharma, the president of the 26th World Climate Summit, met with the head of one of China’s largest banks, the central bank (People’s Bank of China), as well as the National Planning Commission and the National Energy Administration (NEA). At issue was the financing of coal worldwide. A few months earlier, Japan and South Korea announced plans to phase out public financing of coal projects. Since 2013, these two countries, along with China, have spent 95 percent of public money on coal projects outside their own borders – though China has spent the most, a total of $50 billion and about 56 GW of installed capacity.

What will change now that President Xi Jinping has announced the coal phase-out outside China with media attention?

There are 60 gigawatts of coal-fired power generation planned in 20 countries, financed by Chinese public banks. It is not yet clear how many of the planned new coal mines (for example, in Russia and Pakistan) will actually be canceled.

People’s Republic builds the most coal-fired power plants worldwide

Expansionists – these are the absolute climate killers, from urgewald’s point of view. According to the Global Coal Exit List (GCEL) 2021, just published in October 2021 by urgewald and NGO partners, Chinese companies are currently still among the biggest expansionists in coal-fired power plants around the world: of the 503 companies with plans for new plants, 26 percent are Chinese companies, compared to 11 percent from India, the second biggest expansionist.

Nevertheless, it is now necessary to record how much of the coal power in planning has already reached financial close (not defined as “new”, and thus probably not addressed), and what happens to those in preparation for construction (this could concern, for example, two of the five power plants under construction in Cambodia). Urgewald, together with colleagues worldwide, is investigating which and how much coal investments abroad could be covered.

It’s pretty clear: the announcement was also a test. It had two parts. Coupled with the offer to promote low-carbon technology in a big way in the BRI countries, wish lists are now being sought between now and COP 26 on how to “transform” the coal plans. This is also about competing to see who will end up providing the most money for low-carbon in Southeast Asia, Latin America, and Africa.

One fossil fuel replaces the other

What we are seeing around the world is one fossil fuel being replaced by another. About a third of the coal plants “retired” in the U.S. between 2011 and 2019 were actually converted to gas. And countries like Bangladesh, which has canceled a third of its planned coal plants, and the Philippines, which has canceled more than half of the new coal plants in its project pipeline, are now heading for a massive expansion of liquefied natural gas (LNG) terminals and gas-fired plants.

These plans must be stopped if we are to meet the 1.5-degree target. Just in October 2021, OECD countries, including Japan, Australia, and Turkey, agreed to end export credits for new coal-fired power plants that do not use Carbon Capture (Utilization) and Storage (CCUS/CCS). Although this is the first internationally binding agreement to end export support for international coal projects by the end of 2021, it relies on false solutions. There is no such thing as a “clean” coal plant. Even if emissions can be “captured/stored”, the coal industry is still attached to dirty coal production, coal mining. CCS legitimizes the continuation of fossil industries. The processes are energy-intensive, costly, and pose new risks.

However, China will also follow exactly this path: Switch to gas and liquefied natural gas (LNG), and CCS/CCUS. Nuclear power and dams are the other two “climate-friendly” technologies touted at COP26. Gas cannot be a bridging technology in which massive investment is now being made. Although combustion produces less CO2 per kWh, the extraction and transport of fossil gas releases methane, which is even more harmful to the climate.

Warning against sham solutions

We want to prevent these technologies from finding their way into the European taxonomy. They are among the ‘false solutions’. Another bogus solution is the ETM (Energy Transition Mechanism) scheme, under which power plants are paid compensation for shutting down earlier. This is what is supposed to happen with the German lignite phase-out (though this is still under review in the EU Commission since 2021). At COP26, this scheme will be touted as the golden road by the Asian Development Bank (ADB) (3 November 2021). An expert opinion at the European level has shown that these ETMs allow de facto extensions. These solutions are also shams in China and Asia. The ADB, which would then own coal-fired power plants, despite its “coal phase-out strategy”, declares the “reduction of the lifetime to 15 years”. This cannot be a real solution given the new IPCC report of 9 August 2021. Moreover, these buyout plans are supposed to happen in conjunction with investors who are among the biggest expansionists, such as Blackrock, HSBC, and Citigroup Inc.

In a grand coalition of like-minded people, we are working to move away from such bogus solutions. But aside from that: China’s internal coal expansion plans alone, 250 gigawatts of new coal-fired power plant capacity, after all, could however overturn the Paris climate agreement. Building the giant dam in Tibet or mega-solar plants in the desert will compete with new coal power for the grid. A fundamental statement on the coal phase-out within China is more urgent than ever.

Nora Sausmikat is head of the China Desk of the environmental and human rights organization urgewald e.V.

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