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Greening the Belt and Road

Aug 06, 2019

China’s Belt and Road Initiative (BRI) is many things. It is a trillion-dollar development initiative. It is a bid to recreate the ancient trade routes of the Silk Road and maritime exchange. It is an ever-shifting collection of infrastructure projects and economic corridors, ranging from a transcontinental railroad to overseas ports. And it is green, or at least it is supposed to be. 

In 2017, the Chinese government published several guiding policies on promoting sustainability in BRI: “Guidance on Promoting Green Belt and Road,” “Belt and Road Ecological and Environmental Cooperation Plan,” and “Vision and Actions on Energy Cooperation in Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road,” which state that BRI projects will be used to advance the Paris Agreement and the 2030 Sustainable Development Goals. Most recently at the Second Belt and Road Forum in April, 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 whole host of initiatives were launched, including two on maximizing the efficiency of lighting and cooling along the Belt and Road to reduce energy use, and another on building sustainable cities. China has clearly devoted significant time and energy to setting environmental goals for BRI, but the question remains if those targets are being reached.

When it comes to greening the Belt and Road, much of the focus falls on China’s energy projects, and rightfully so since they have sponsored power generation from South Africa to Mongolia. There are few breakdowns of how much China invests in different types of projects, but energy is clearly a priority. And the demand is there. According to analysis by Deloitte, power generation is projected to increase by 3.632 trillion kWh by 2020, or 70 percent from 2016. Many of the countries that have signed on to BRI have explicitly made renewable energy a priority in meeting that need through their Nationally Determined Contributions (NDC) for the Paris Agreement. Taken together, 38 of the BRI countries have a target of installing 644 GW of renewable energy from 2020 to 2030, which could take up to $644 billion in investment to achieve; a huge opportunity for Chinese companies with low equipment costs and significant expertise in wind and solar from their domestic projects. 

Despite the demand for renewables, much of the Initiative so far has been defined by China’s promotion of coal plants abroad. Chinese banks and state lenders have proposed funding up to 102 GW of new coal fired power plants, making up 26 percent of global coal capacity in development outside China itself. From 2014 to 2017, 91 percent of loans made by six major banks in China to BRI energy projects financed fossil fuels. A new coal plant can operate for more than 30 years, committing developing nations to increased emissions and high levels of air pollution for decades to come. Not only is this dependence on fossil fuels an environmental disaster, but a potential economic liability as well. Coal plants are at high risk of becoming stranded assets as the price for renewables only continues to drop; Bloomberg New Energy Finance estimates that two-thirds of the world has already achieved price parity and the rest will soon follow suit. 

BRI is not simply a conveyor belt for coal, however. China has proven that exporting renewables abroad is feasible, and it is in fact commercial banks that are taking the lead. China 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. They have built several wind farms as part of the initiative as well, including the Dawood Wind Farm in Pakistan. Much of this investment has come from Chinese commercial banks (which are majority state owned but have more autonomy and are more profit-driven than public financing institutions like the China Development Bank), proving that renewable energy is a viable investment along BRI.

While major renewable projects are clearly a profitable option and in demand, obstacles remain to implement them on the scale necessary to achieve BRI countries’ NDCs and address climate change. Financing costs are high because of increased levels of risk in BRI countries, many of which are developing nations. There is also a lack of policy support to encourage the level of investment needed in renewable energy even to meet BRI countries’ own targets. Part of what has allowed the boom in wind and solar within China is the subsidies provided by the government that made renewable energy price competitive with coal before the market had achieved such conditions on its own. Targets are not enough to incentivize renewables development; foreign governments need tariffs, carbon credit markets, or other mechanisms to achieve them. 

Chinese overseas investment in renewables has grown in recent years, from about $.5 billion in 2015 to more than $1.7 billion in 2018 (including commercial and state policy banks). Commercial banks are leading the charge, a clear demonstration that renewable energy is a viable investment. Nevertheless, investment in coal projects still dwarfs that in renewables, contradicting the green rhetoric China has repeatedly used to describe BRI and undermining the participating countries’ own development aims, not to mention the global imperative to address climate change. China has the potential to help countries all over the world leapfrog over coal, but so far it has fallen short.

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