China is massively betting on coal outside its borders — even as investment falls globally

  • China is still investing massively in coal projects outside its shores, notably in places linked to the Belt and Road project.
  • One reason is to offload coal overcapacity as China cracks down on the polluting industry at home.
Chinese residents wear masks for protection as smoke billows from a coal fired power plant in Shanxi, China.
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Chinese residents wear masks for protection as smoke billows from a coal fired power plant in Shanxi, China.

Once globally vilified for extensive air pollution due to heavy coal usage, China now talks a big game about its environmental efforts after the U.S. withdrawal from the Paris climate pact.

But, beyond its borders, the country has been the world's biggest investor in coal power.

"Chinese banks' and companies' investments in coal abroad are a cause of major concern because of their potential to lock in more climate warming emissions in our carbon-constrained world," said Huang Wei, a climate and energy campaigner at Greenpeace East Asia.

Chinese financial institutions are the world's largest investor of overseas coal plants, pumping in $15 billion in coal projects from 2013 to 2016 through international development funds, according to the Natural Resources Defense Council, a U.S.-based non-profit environmental advocacy group. There's another $13 billion in proposed funding.

That is even as data from the International Energy Agency show a slowdown in coal power investment globally.

Belt and Road

One major source of concern is the Belt and Road Initiative — an infrastructure and investment program widely seen as an attempt by China to construct a massive, multi-national zone of economic and political influence that has Beijing at its center.

The coal investments come in various forms: Chinese banks and companies provide financing, construction and equipment, said Huang. That is even as China continues to invest and promote renewables such as wind and solar energy.

"It is a complicated web of involvement, but ultimately all investments in coal, the world's dirtiest fossil fuel, are bad for everyone involved — recipient country, China and the planet as a whole," Huang said in an email to CNBC.

A more recent report by Greenpeace and counterparts Sierra Club and Coalswarm shows the extent of Chinese involvement in coal plants overseas, revealing that Asia leads the world in new coal power building even though overall coal plant construction is falling globally.

CoalSwarm, which describes itself as a network of researchers studying fossil fuels and alternatives, estimated Chinese firms are involved in the construction, ownership, or financing of at least 16 percent of all coal-fired power stations under development outside China.

By the end of 2016, Chinese companies and banks had been involved in 240 coal-fired power projects in 25 of the 65 countries along the Belt and Road, according to research released in May 2017 by the Beijing-based Global Environment Institute.

Beijing has issued guidelines on overseas investments advocating environmentally friendly practices, but one big concern is that the guidelines are not binding and merely offer a blueprint, said Greenpeace.

"If China wants to enhance its leadership on climate and 'ecological civilization', Chinese companies' and banks' investment must steer away from coal towards renewable alternatives such as wind and solar and help countries along Belt and Road to leapfrog from traditional development model that sacrifices environment for economic advancement," said Huang.

Overcapacity

China's push in coal away from home comes against the backdrop of an aggressive and determined cut in overcapacity in China as the manufacturing giant transitions to a consumption and services-driven economy. The drive to cut coal consumption also plays to the Chinese Communist Party's powerful constituents in big cities who are burdened by bad air quality from steel mills and coal plants, posing potential political risk to President Xi Jinping.

The official Xinhua news agency recently said China has met its 2020 carbon intensity target three years ahead of schedule. That is, the country claims it has cut the amount of carbon dioxide it produces per unit of growth by almost 50 percent in 2017 from 2005.

This is even as a report released by China's National Bureau of Statistics earlier this year said coal consumption rose percent in 2017 for the first time since 2013, mainly due to economic stimulus from the government. Furthermore, coal continued to constitute the largest energy source for the country.

It's not just China

Globally, there was an increase in global coal consumption last year after two straight years of decline, according to data released last month by the International Energy Agency. The trend was driven by Asian demand, the IEA added.

East Asian economic powerhouses Japan and South Korea are also pumping money into the fossil fuel.

According to the report from Greenpeace and others, Japan is the second biggest recent public financier of overseas coal-fired power capacity, with $10 billion invested in coal projects from 2013 to 2016. Another $9 billion in proposed funding out of Japan is in the pipeline. That's as Asia's second-largest economy builds up its fuel mix at home. Coal is cost efficient and supply threats from geopolitics are low, Japan's Ministry of Economy, Trade and Industry has said.

It remains to be seen how long Japanese companies can continue expansive coal investment amid social and political backlash, said Nicholas Browne, head of Asia gas and liquefied natural gas at consultancy Wood Mackenzie. Japan has been cutting back on its reliance on nuclear power in the aftermath of the Fukushima disaster in 2011.

South Korea, meanwhile, has financed $8 billion in overseas coal power projects since 2008.