Climate Proofing China’s Belt and Road Initiative (BRI)
By Kelly Sims Gallagher and Qi Qi
Last fall, President Xi Jinping surprised the world with his announcement that China would achieve climate neutrality by 2060. This bold step and accelerates an already long list of major Chinese national efforts that not only will help China transform its domestic economy, but also put China in a leadership position globally with respect to having a mid-century target.
Domestically, China is already one of the top public investors in clean energy R&D. It is deploying more renewable energy than any other country on earth and recently established a national emissions trading system for its power sector. China has an ambitious a national zero-emission vehicle roadmap of having EVs account for 50% of overall new car sales by 2035. It is slowly but steadily reducing the proportion of coal in its energy system, and is continually in the process of economic structural reform. The policies driving these changes have been steady and predictable for participants in the marketplace.
Still, none of the policies have worked perfectly, and many have been reformed and fixed over time, as tracked in the new national climate policy inventory produced by our Climate Policy Lab. Notwithstanding this praiseworthy progress, China still has considerable work to do to achieve an early overall peak in its emissions, reduce coal consumption, and complete power sector reform. It still needs to tighten up its emissions trading regime and reform state-owned enterprises, as well as foster the low-carbon economic transition, among other priorities. But overall, China has done a noteworthy job in developing and implementing a comprehensive set of domestic climate policies.
China’s flagship Belt and Road Initiative (BRI) launched in 2013 also has the potential to lead by example on the global stage. While the BRI has already earmarked hundreds of billions of dollars that are filling large energy and infrastructure gaps across the world, from a climate change perspective the BRI is better known for its support of carbon-intensive coal-fired power plants in rapidly-developing countries in Southeast Asia, West Asia, and Africa. China also supports renewables, grid, and electric rail projects through the BRI, however, including Latin America’s largest solar power plant.
In a new paper published in Global Policy, which follows an earlier discussion paper published in 2019, we identify and evaluate Chinese policies governing China’s overseas investments and analyze how those policies influence environmental outcomes in recipient countries. Policies governing domestic investments are studied in order to clarify inconsistencies between domestic and overseas policies, through a comprehensive inventory of China’s investment policies.
Key findings are that there are no Chinese policies aimed specifically at limiting emissions of climate-altering greenhouse gases from China’s overseas investments. Chinese environmental overseas investment policies are mostly voluntary in nature so long as firms comply with host country regulations. Even in cases where there is a failure to comply with host country regulations, there do not appear to be serious enforcement consequences. In sum, the Chinese government’s environmental policies governing domestic investments are much more stringent than those governing overseas investments. Disclosure and transparency of information about China’s overseas investments are opaque. China encourages overseas investments in clean energy as well as exploration and development of higher carbon industries. Significantly, it fails to specifically restrict or prohibit investment in carbon-intensive and fossil fuel industries in its overseas investments, revealing differences between policy for domestic and overseas investment.
The open-access Global Policy paper offers five specific policy steps that the Chinese government could take to climate proof its overseas investments. Chinese government rhetoric about greening the BRI is laudable, but it has yet to make any substantive changes towards that goal. The time to do so is now, especially in the context of supporting a low-carbon economic recovery in the Belt and Road countries. Both Japan and South Korea have announced in the last year that they will halt bilateral lending for coal-fired power plants except under rare circumstances, leaving China the lender of last resort for coal. Coal is not the only sector of concern, however, and a comprehensive, global approach is needed to climate-proof all types of overseas development finance whether energy, infrastructure, or other types of investments.
Climate-proofing overseas investment would align the BRI with China’s ambitious domestic climate policies as well as reducing the risks of stranded assets. In so doing, the BRI would help emerging market and developing economies build back better from the COVID-19 crisis by not only filling infrastructure gaps but also by helping to reboot the world economy in a sustainable and inclusive manner—while opening markets for China’s new climate friendly technologies.
Such moves would allow China to lead by example on the international front as well. Through a reset BRI, China could forge partnerships at the G20 and beyond that align new financing in a variety of forms with a green and inclusive recovery from the COVID19 crisis. ■
Kelly Sims Gallagher is the Academic Dean and a Professor of Energy and Environmental Policy at The Fletcher School, Tufts University.
Qi Qi is a predoctoral research fellow at The Fletcher School, Tufts University.