Explainer: What does China's UNGA coal-funding pledge mean?

Explainer: What does China's UNGA pledge to stop funding coal abroad mean?
4 min read
22 September, 2021
The world's top polluter has not set out a timeline for when it will take effect, and it is not clear whether funders will be forced to pull the plug on projects under construction or in planning.
President Xi Jinping addressed the United Nations General Assembly on Tuesday [MARY ALTAFFER/POOL/AFP/Getty]

China's pledge to stop funding overseas coal has been welcomed as a climate landmark that could dry up funding for smoke-billowing plants in poorer countries. While Beijing has promised increased assistance for climate-friendly power, it was not immediately clear what the impact of the end of China's coal funding would be on developing nations and their economies.

But the world's top polluter has not set out a timeline for when it will take effect, and it is not clear whether funders will be forced to pull the plug on projects under construction or in planning.

This is what we know:

What did China promise?

China on Tuesday said it will stop providing funding for 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," President Xi Jinping told the United Nations General Assembly.

Is it a game-changer?

Yes and no. China is the biggest public funder of overseas coal plants and its shift is symbolic.

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Both Japan and South Korea - the two other biggest state funders - have said they will stop funding projects by year end.

"China was the last man standing on this front," said Li Shuo, a climate analyst for Greenpeace China.

It is hoped the move will discourage China's private players from investing.

"When public money goes somewhere, private money tends to follow," Li added.

But China's overseas coal footprint is small in real terms.

A total of 13 percent of the money going into coal plants worldwide between 2013 and mid-2019 came from China, according to Boston University's Global Development Policy Center.

This means recent China-funded coal projects in Africa, Asia, Latin America and even parts of Eastern Europe will only generate about 53 gigawatts (GW) - a fraction of the 1,188 GW global coal pipeline according to advocacy movement Endcoal.

About 87 percent of total funding for coal plants in developing nations come from entities outside China.

So, who funds global coal?

Private banks and institutional investors from Japan, the US and the UK bankroll a bulk of the coal projects in the developing world.

Commercial banks in Japan were the top lenders to overseas coal projects and loaned $76 billion, bankrolling nearly a quarter of all coal plants in developing countries.

The US, with $68 billion mostly from private lenders, funded 21 percent, while Britain gave seven percent of all loans.

Chinese state banks invested over $50 billion on overseas coal-fired projects in the five years to 2019.

Will China deliver?

China has been promising to green its overseas infrastructure investments amid criticism that new coal plants would derail global climate goals.

Lenders are also taking note of resistance to Chinese-funded coal projects in countries including Bangladesh, Kenya and Vietnam.

"China has slowly passed the early... feverish years of emphasising big numbers", said Li from Greenpeace, and "slowly it is moving towards improving project quality, including sustainability."

Beijing didn't fund any new coal projects in the first half of 2021 under its $1 trillion Belt and Road Initiative infrastructure push, according to the commerce ministry.

But there are still several caveats to Xi's promise.

Importantly, it is unclear whether it will cover private players - or only freeze funding from public banks - as well as when it will kick in, and if it will halt projects already being built.

Will China also cut coal at home?

China is the world's top emitter of greenhouse gases with coal powering nearly 60 percent of its economy.

Despite pledges to peak coal consumption before 2030, China brought 38.4 gigawatts of new coal-fired power into operation domestically last year - more than three times what was brought on line globally.

Beijing has pledged to cut China's coal consumption after 2026, and a Greenpeace report in August said in the first half of 2021, local governments only approved the construction of 24 coal-fired plants - a 79 percent drop on last year.

"But there is no absolute cap on how much China could emit before cutting back," said Yuan Jiahai, a professor at North China Electric Power University in Beijing.

"That means China can pollute as much as it wants before the deadline."