According to scientific assessments, global power generation must rapidly decarbonize by 2050 in order to stabilize global warming below 2⁰C by 2100. The investments that countries, multilateral development banks, and businesses make today will have a long-term effect on our ability to meet these goals, given the lag time in infrastructure builds and the lifecycle of power plants. For example, coal fired power plants can experience a 2-10 year lag between the announcement of financing and commencement of operations. Additionally, the lifetime of a power plant is estimated to be approximately 40 years.
Coal emits the most CO2 per Btu of energy generated, and therefore it is critical to move away from burning coal to reign in carbon emissions. In 2013, the World Bank committed to stop financing coal power (except under exceptional circumstances), and most other multilateral development banks have followed suit. However, as these banks have moved away from investing in coal, national-level development finance institutions may be stepping in to fill the gap.
Our researchers have noted an important gap in counting a country’s greenhouse gas emissions: these calculations do not include emissions resulting from foreign direct investment in fossil fuel power generation outside of a country’s national boundaries. Therefore, even if a country’s capital investments or companies have made it possible to initiate new coal plants around the world, these emissions are only counted in the producing countries.
Two studies from Princeton University focusing on Chinese investments look at where China is investing, in what kinds of technologies, and the lifetime CO2 emissions resulting from DFI-financed new power generation. Our researchers have integrated data from public and commercial databases, information disclosed by publicly listed companies, government entities, NGOs, and business press to provide a more accurate picture of China’s role in coal and other power financing.
Estimating Chinese Foreign Direct Investment in the Electric Power Sector
We have developed a comprehensive trace of Chinese outward direct investment to Chinese ownership of power plants around the world. The study also analyzes the technology portfolio of these investments, including coal, hydro, wind, and solar power. We find that China began investing in overseas power projects in 2003 and has been accelerating those investments ever since. While there had been steady growth from 2003 to 2014, China substantially increased its investments from 2015-2017. From 2000 to 2017, we estimate that China invested approximately $115 billion USD in 462 overseas power plants. Almost half of new power plants China is financing are coal (48%), although financing to existing power plants is much more weighted toward gas and hydro projects (36% and 30% respectively). Other aspects of China’s financial, equipment export, and engineering services are much more coal intensive (43% of bank loans and 52% of equipment exports/engineering services to coal power plants).
The locations of China’s power investments span the globe and include some of the most and least developed countries, although there is a clear interest in emerging economies in Asia. South Asia and Southeast Asia combined receive 41% of investments, followed by Latin American countries.
Unfortunately, countries are expected to double their coal capacity by 2040, according to the World Energy Outlook. And yet, scientists have shown that there is very little room for any new coal if the world is to limit global warming. Through this study, we propose that linking foreign investments to emissions in power plants by nationality would allow analysts and policymakers to obtain a more complete picture of a nation’s carbon footprint. Such tracking could assist in identifying situations where countries are simply ‘offshoring’ their emission-intensive industries and encourage different financial decisions and more sustainable investments.
- Li, Zhongshu, Kevin P. Gallagher, and Denise L. Mauzerall. “China’s global power: Estimating Chinese foreign direct investment in the electric power sector.” Energy Policy (2020)
Power Financing by National Development Finance Institutions and their Committed CO2 Emissions
While multilateral development banks have been moving towards more renewable energy funding in recent years, national development finance institutions – particularly those of Japan and South Korea – have continued to fund overseas coal power plants. By deploying a new dataset of China’s policy banks’ overseas energy financing and using a comparative analysis of their technology choices and impact on generation capacity, we find that Chinese power financing since 2000 has dramatically increased, surpassing other national and multilateral investors.
Collectively, new overseas power generation facilitated by direct foreign investments from these three East Asian countries is estimated to be larger than that of major multilateral development banks. A large portion of these investments goes to coal fired power plants. For the majority of Chinese-financed overseas coal fired power, China also provides the equipment (77%) and construction companies (65%). This pattern suggests that financing coal technologies elsewhere is part of a process of easing decreases in the domestic coal industry to come in line with global emission commitments.
Our study also considers the lifetime CO2 emissions that result from direct foreign investment financed new power generation. From Chinese-financed power, we estimate that 12 Gt of CO2 will be produced, mostly from coal. Over 90% of the total committed emissions (based on funding commitments already in place) will occur in the future, as nearly half of the plants are still under construction or in planning stages. Once built, new coal power infrastructure will greatly reduce the potential to decarbonize the global power generation sector by mid-century. Reducing their committed CO2 emissions will require either major retrofits to permit carbon capture and storage or early retirement of operational plants - both of which are costly options.
The cost of retiring plants early or retrofits should raise questions for investors, and these risks should be incorporated into the planning of new projects. Governments should carefully evaluate the declining cost of renewable technologies and the very real possibility that fossil fuel investments will need to be abandoned before reaching their full potential. Our study suggests that short-term financial gains may be driving decisions, and it might make financial sense to redeploy some committed investments toward renewable technologies.
Related paper forthcoming
C-PREE Researchers: Xu Chen, Denise Mauzerall