In Turkey, on the northeastern edge of the Mediterranean, a massive effort is underway to build a 1,320-megawatt coal power plant. The Emba Hunutlu power station, according to activists working to halt its construction, will pollute the air and destroy the habitat of a nationally protected sea turtle species. What’s more, once the project is finished, the rising price of coal might prevent it from ever becoming economically viable.
Nevertheless, three Chinese state banks — the China Development Bank, the Industrial and Commercial Bank of China (ICBC), and Bank of China — are financing the project with a loan worth more than $1.3 billion. And Shanghai Electric Power, a Chinese state-run power company, is building it.
“Chinese finance is quite appealing and tempting to Turkey these days because of current economic issues and the country’s search for new sources of finance,” says Ozlem Katisoz, the climate and energy policy coordinator for Turkey at Climate Action Network (CAN) Europe. “But it is essential to advocate against it funding any fossil fuel project, and especially any further coal exploitation. We need to turn China into a sustainable energy partner for Turkey instead of this high fossil financing partner.”
Turkey isn’t the only place where Chinese government banks are financing coal projects. In fact, commercial Chinese banks are the world’s largest source of financing for coal power projects, according to “Banking on Climate Change 2020,” a report released earlier this year by a coalition of six environmental organizations, including the Sierra Club and the Rainforest Action Network. Since 2016, the report says that ICBC, Bank of China, the Agricultural Bank of China and the Construction Bank of China have provided $36 billion worth of financing for coal mining projects and more than $69 billion for coal power projects globally. By comparison, the top six American banks cited by the report provided about a sixth as much financing for coal mining projects and less than a third as much financing for coal power projects.
Meanwhile, Chinese policy banks — which often work together with commercial banks to finance coal — provide the biggest pool of public financing for coal projects around the world. Since 2000, for instance, the China Development Bank (CDB) and the Export-Import Bank of China (Exim) have doled out more than $51 billion in financing for overseas coal plants, according to data compiled by Boston University’s Global Development Policy Center.
It’s easy to understand why China is so driven to finance the world’s coal projects. From 1990 to 2018, China’s coal consumption increased from 1 billion tons to about 4.6 billion tons. In fact, for the past nine years, China’s annual coal consumption has been larger than the rest of the world combined, according to data compiled by the Center for Strategic and International Studies.1See this AFP story on China’s coal consumption and how the country, in 2020, has already approved new coal powered projects And yet, in the past few years, China has mined far more coal than it needs, pushing its coal companies, which are largely state-owned, to look abroad for new markets.
“There is a very serious overcapacity issue in the domestic market for the coal power and mining projects,” says Zhang Kai, a project manager for Greenpeace East Asia. “So the overseas market actually is very important for Chinese state-owned enterprises in coal.”
New Chinese-backed coal plants and mines are often developed as part of the Belt and Road Initiative (BRI), China’s massive global development program that includes infrastructure and energy projects throughout the world. Indonesia, Pakistan, and Vietnam — all of which have signed onto the BRI — are major recipients of China Development Bank and China Exim loans for coal projects.
Chinese banks are financing coal projects at a time when banks from other counties are pulling back. For instance, Japan and South Korea, which have long been China’s main peers in the public coal financing space, have both started to move away from coal. Japan’s environment minister announced in July that the country would curtail its overseas coal financing. And South Korea has proposed an ambitious “Green New Deal” program, which includes a ban on financing overseas coal projects. Other major development banks, such as the World Bank, Asian Development Bank, and European Investment Bank, have all restricted coal lending in the past seven years.
On the commercial banking side, French banks — like Crédit Agricole and Crédit Mutuel — are implementing stringent policies to stop lending for coal projects. And American commercial and investment banks have begun to put restrictions on coal investments, such as Morgan Stanley’s pledge to stop directly financing new coal-fired power plants and new thermal coal mines.
Not a single major Chinese bank, however, has adopted any form of coal policy. “The Chinese banks are completely failing us and failing the world on the coal issue. None of them have any policy to actually put an end to this type of support,” says Lucie Pinson, the executive director of Reclaim Finance, a Paris-based nonprofit that works to align financial institutions with environmental goals.
This is partly because of the close relationship between the Chinese banks and coal companies. “The Chinese government owned banks want to be in a position to keep servicing their core clients, the giant SOE energy companies,” says Tim Buckley, the director of energy finance studies in Australia and South Asia for Institute for Energy Economics and Financial Studies (IEEFA). “So while the SOEs are still trying to extract the last remaining [coal] orders internationally, the banks will tend to support them.” In comparison, Chinese banks don’t have the same relationships in the newer renewable sector, and they don’t have extensive experience with the financing models for renewable projects.
Banks across the world are starting to abandon coal because they now see it as a risky economic investment in the long term compared to cheaper renewable energy. In China, building new solar or wind power stations on average is currently a cheaper way to generate electricity than building new coal plants, according to data from the Carbon Tracker Initiative.
And now with the economic downturn associated with Covid-19, experts say banks should be even more hesitant about funding coal projects. “Chinese coal companies were projecting very high energy demand, and then justifying building a plant for that,” says Han Chen, the manager of energy policy at Natural Resources Defense Council. “And with Covid, and just with more realistic economic growth figures, a lot of those are unreasonable projects.” Many BRI projects, not just coal related, have stalled or been called off, as cash-strapped host countries struggle to pay back the Chinese loans.
Beyond the economic and environmental risks, experts say coal projects also carry reputational risks. Especially now, with the increasing popularity of the ESG movement, which advocates for companies to take into account environmental, social and governance factors when making investments, many Western banks are reconsidering their coal investment strategy.
The justification from both public and commercial Chinese banks — none of which responded to The Wire’s requests for comment — is often the host country’s own desire to build coal plants. “It takes two to tango,” says Kevin Gallagher, a professor and director of the Global Development Policy Center at Boston University and an expert on Chinese overseas coal investments. “Whenever I talk to the Chinese banks about this, they say Indonesia, for example, asked for the coal plants.” Host countries continue to say yes to these projects, experts say, because China often provides a one-stop shop: Chinese banks provide financing, Chinese coal companies construct the plant or mine, sometimes even with Chinese labor, and China then often buys the coal.
Though President Xi Jinping has repeatedly called for the BRI to be sustainable and focused on renewables, analysts say those calls have not yet translated into more green lending from Chinese banks. “What has been curiously absent from the activity of the major Chinese banks is any demonstrated focus or willingness to finance large scale renewables projects in any of these countries,” says Melissa Brown, the director of energy finance studies in Asia for IEEFA.
The degree to which China’s banks continue to finance coal projects around the world will depend on the next “Five Year Plan,” the government’s policy roadmap for 2021-2025. Environmental groups are hopeful the plan will include domestic renewable energy targets, especially after Xi’s pledge at this week’s UN General Assembly that China will aim to hit peak emissions before 2030 and reach carbon neutrality by 2060. But how this will impact the global coal industry is uncertain given the powerful lobbying efforts of the Chinese coal industry and the current economic downturn.
Compared to the coal lobby, environmental activists in China are relatively powerless when it comes to influencing the decision making of the banks. “With the European banks, at least we’re getting somewhere,” says Ernst-Jan Kuiper, a climate campaigner at BankTrack, a Netherlands-based organization that tracks financing by the world’s banks. “But with Chinese banks, it’s basically impossible. It’s not even possible to go to the annual general meetings, which are held behind closed doors.”
For now, projects like the Hunutlu plant in Turkey, despite concerns about the environmental consequences, move forward on the back of financing from China’s banks. But this financing may dry up as the Chinese banks grow increasingly concerned about their coal financing strategy, says IEEFA’s Buckley. “Maybe they are thinking, ‘We’re the last man standing,’” Buckley says, “and the music is stopping.”
Katrina Northrop is a journalist based in New York. Her work has been published in The New York Times, The Atlantic, The Providence Journal, and SupChina. @NorthropKatrina