With most pundits fixated on the fate of the Korean Peninsula and the exact position of America’s elusive USS Carl Vinson carrier strike group, China has been racking up notches on its belt by positioning itself as the dominant economic force in the Asia-Pacific. And while this might sound hyperbolic, remember that Beijing is already a leader in one area: financing energy projects, where it has outpaced the World Bank as well as other Western development banks by a factor of 3 to 1. Last year alone, China invested more than US$43.2 billion in various energy projects across the world, getting a heavy say in the makeup of the world’s future energy mix.
China’s ambitious “One Belt, One Road” plan calls for just that kind of infrastructure investment in Southeast Asia and other regions, to revive the historical Silk Road trade route, fostering economic cooperation across Asia and beyond. With the US coping with its most divisive president in recent memory, China has a golden opportunity to bolster regional ties – if it plays its cards right.
Paradoxically, China achieved the role of main energy financier by heavily investing in coal projects in developing nations needing cheap power that were turned away by the West. After major multilateral investment banks (such as the World Bank) decided to move away from coal projects, China stepped up to the plate. As the world’s largest coal producer, Beijing now provides more energy to the global economy than the entirety of the Middle East’s oil production. Unfortunately for the countries on the receiving end of China’s largesse, these new plants came with one major design flaw: they were not built using the newest technology available. Indeed, just 40 percent of Chinese coal investment abroad went towards modern “super-critical” or carbon capture coal plants, which can emit up to 90% less CO2 than their traditional counterparts. This can only bode ill for Beijing’s ambitions of becoming a leading clean energy champion.
With the US having kicked itself out of the climate debate following the November elections, China started collecting accolades for its ambitious clean energy plans. In 2015, Beijing pledged that its greenhouse gas emissions would peak “by around 2030”, and announced it would spend $360 billion on renewables by 2020. In a bombastic show of grit, Chinese Premier Li Keqiang announced that “we will make our skies blue again” and decreed that heavy industry production will be suspended during winter months in the areas most affected by smog.
Yet for all of China’s hot air at home, its foreign investments in inefficient coal power undercut the government’s pledges to reduce emissions, at a time when Beijing has the opportunity to become the world leader in the fight against climate change. And while appetite for new coal power has not abated in the region, Beijing’s obtuse financing of outdated plants could backfire spectacularly.
As coal technology improves, policy questions posed in terms of development versus environmental needs will increasingly rely on a false dichotomy. As some countries have shown, the technology exists to address both. Conscious of the need to bring electricity to several hundred million of its citizens who languish in pre-modern conditions, India, for example, plans to convert coal plants older than 25 years to “super-critical” plants, which would emit eight times less than traditional plants. This is an important statistic, as coal plants will fulfill half of India’s power generation demand by 2040 (according to the International Energy Agency) and the importance of using super-critical plants cannot be understated. The country is also the proving ground for the world’s first clean coal plant that can operate without the need of government subsidies
The technology exists to address both, but in Southeast Asia’s developing nations this will require funding and technology from abroad. As a neighbor and a prospective world leader in climate change action, China is well-positioned to step into such a role. Not only would this help countries meet their rising energy needs as they climb up the supply chain, it would also allow China to step into a new social and economic role on the global stage.
For example, Vietnam plans to increase the share of coal in its energy mix to 50 percent by 2030 but needs $60 billion in investment to fund its future plants. It currently has 20 coal plants, but in order to satisfy its 2030 energy consumption, which is expected to triple compared to current levels, it will need at least 51 plants to do so. The country’s competitive advantage in the region is partly sustained by low energy costs, making Hanoi especially vulnerable to transitioning over to more costly renewable energy.
Chinese energy firms have not fully harnessed Vietnam’s demand for high quantities of power generation. If China were to finance its neighbor’s clean coal projects, it would make a great step towards delivering on its often touted mantra of achieving “win-win” situations: investing in a promising business opportunity with long-term payoffs, while helping Hanoi power its economy.
This sort of economic bet is commonplace in Asia’s high-growth but underdeveloped markets. By providing financing and technology for these kinds of clean coal projects, China can help Vietnam, and perhaps the rest of the region, follow in India’s footsteps and develop in sustainable ways.