Joe BidenJoe BidenState Department revokes visa of Giuliani-linked Ukrainian ally: report Biden says he should not have called Trump a clown in first debate Biden inquired about calling Trump after coronavirus diagnosis MORE’s plan for climate change and environmental justice attacks China for financing fossil fuels. If the United States wants to green China’s overseas energy finance, it must compete by offering attractive funding for cleaner alternatives, such as solar and wind power.
China’s overseas energy finance has had a large impact on energy development around the world. According to Boston University’s Global Development Policy Center, Chinese policy banks provided energy finance worth $251 billion outside China between the years 2000 and 2019. Of this total, $26 billion funded coal and $88 billion funded oil.
China’s energy infrastructure footprint will play a decisive role in accelerating or mitigating climate change. The emerging economies that rely on Chinese finance to meet their growing investment needs often have few alternatives, given their low credit ratings. For example, Pakistan’s plans to expand its power generation capacity are financed largely by China.
However, China’s policies are not the primary reason for investment in coal, oil and gas. Our research at the Initiative for Sustainable Energy Policy (ISEP) shows that both Chinese project developers and state-owned policy banks are primarily interested in developing business in the recipient countries, with little interest in fossil fuels in particular. China’s energy finance is opportunistic, not strategic, in nature. China is willing to finance a wide range of projects, as long as the project developer is a Chinese company.
If recipient countries, from Bangladesh to Pakistan, decided to abandon coal, China would follow suit. Recipient countries are still building coal-fired power plants because they do not have enough experience or mature market mechanisms to support low-carbon alternatives. Coal-fired power generation is only appealing because China’s borrowers have little experience with cleaner alternatives.
For the next U.S. administration, a correct diagnosis of the fossil fuel bias in China’s energy finance is essential. With recipient countries preferring to construct fossil fuel infrastructure, vilifying China will not be productive. Even an unlikely success in undermining China’s global fossil fuel drive would have little impact overall, as other financiers would step in to meet the demand. Instead, the next U.S. president’s focus needs to be on the recipient countries.
To slow down fossil fuel infrastructure construction, the United States should offer concessional finance for cleaner alternatives. Cost-effectiveness is the most important criterion in energy planning in emerging countries. U.S. development finance institutions could offer low interest rates to energy projects that use clean sources, notably renewable energy, and commit to rigorous environmental standards.
The U.S. International Development Finance Corporation (DFC) is well-positioned to provide concessional finance for clean energy projects. Founded in 2019 through a merger of the Overseas Private Investment Corporation and the Development Credit Authority of the U.S. Agency for International Development (USAID), DFC benefits from a wealth of experience with financing private-sector projects in emerging countries and has lending capacity up to $60 billion. With these resources, the DFC can help the United States green energy finance where it counts.
The United States also should invest in environmental regulatory capacity in the recipient countries. China’s energy project developers have to meet increasingly stringent environmental standards when they build within China, but they face few constraints when they build overseas. If China’s borrowers had more capacity for environmental impact assessment and regulation, fossil fuels would be a lot less appealing from an economic perspective.
Moving forward, this kind of capacity building should be a key priority for USAID. Energy investments, from coal-fired power plants to hydroelectric dams, can be highly disruptive for nature and local communities. Enhancing such capacity would improve local environmental outcomes and direct energy investment toward clean, sustainable and resilient alternatives.
These moves would force China to green its standards and accelerate the development of low-carbon energy in emerging markets. Today, China’s overseas finance serves to mitigate massive oversupply at home. If recipient countries began to hold Chinese project developers accountable, the latter would move away from fossil fuels and focus on clean energy. This dynamic would benefit the recipient countries, China, and the United States. A livable planet is in everyone’s interest.
The United States must address the fossil fuel bias in China’s overseas energy finance, but policy must be based on a correct diagnosis of the problem. Improving environmental standards in recipient countries and financing clean alternatives can green global energy finance and re-establish U.S. climate leadership.
Johannes Urpelainen is the director and Prince Sultan bin Abdulaziz Professor of Energy, Resources and Environment at the Johns Hopkins School of Advanced International Studies. He also is the founding director of the Initiative for Sustainable Energy Policy (ISEP). Follow him on Twitter @jurpelai.