China’s Belt and Road Initiative, the broad infrastructure and market-building initiative of the world’s second-largest economy, has a different feel than trade agreements initiated in the West – and it could have major implications for the future of energy across many parts of the world, writes Sonia Aggarwal, Vice President of think tank Energy Innovation, and Director of America’s Power Plan.
That’s partly because unimpeded trade and financial integration are just two of five pillars of China’s ambitious plan for international collaboration. The other pillars are policy coordination, infrastructure connectivity, and people-to-people bonds. And in this program, the Chinese central government has issued guidance on promoting “Green Belt and Road,” to highlight how to incorporate the principles of resource efficiency and environmental awareness into the whole program, touting the need to “develop global energy interconnection and achieve green and low-carbon development.”
The question is: Are the environmental protections real?
China will have a substantial impact beyond its own borders as it decides how to allocate the $900 billion in foreign infrastructure spending President Xi suggested would be available for the program
The Belt and Road Initiative is intended to span 68 countries on four continents, reaching more than 60% of the world’s total population, one-third of global GDP, and a quarter of all goods the world moves.
At a forum held last May in China for nations involved in the Belt and Road Initiative, heads of state of countries representing more than 40% of global emissions showed up, making clear just how important the Belt and Road program is. China will have a substantial impact beyond its own borders as it decides how to allocate the $900 billion in foreign infrastructure spending President Xi suggested would be available for the program.
The Silk Road Economic Belt and the 21st Century Maritime Silk Road, collectively known as the Belt and Road initiative. (via Xinhua)
China’s Belt and Road initiative will Influence global carbon trajectory
Global energy demand is expected to rise 30% between 2017 and 2040, but Southeast Asia, one of the focus regions in the Belt and Road effort, is looking at growth in energy demand of nearly 70% over the next 25 years. This growth will require an enormous investment in new infrastructure, and while domestic policies in Southeast Asian nations will be paramount, Belt and Road will undoubtedly influence whether new power plants in Southeast Asia and other high-growth regions are coal or clean.
Outside its own borders today, China is involved in more than a hundred coal-fired power plant projects in active planning or construction phases. Coal plant planning and construction timelines are long, and Western countries were supporting coal projects in many of these countries well before Chinese involvement, so at least some of the large number of coal plants in the pipeline can be explained by inertia in the system.
Belt and Road related coal projects declined last year, but the data does not show a clear trend. The coal slow-down could be sustained even if China’s infrastructure investments continue apace, as the result of many factors, not the least of which is the fact renewables have been beating coal on cost alone, but also a strengthening connection between the green promises and the actions of the Belt and Road Initiative.
Forecast change in primary energy demand from 2016 to 2040. © OECD/IEA 2017 World Energy Outlook, IEA Publishing
Last year as coal investment slowed, China also issued nearly $25 billion worth of green bonds for infrastructure investments (in the context of $188.8 billion in outward foreign direct investment). The proceeds of those bonds are being used for clean energy, clean transport, resource conservation and recycling, pollution prevention and control, and energy efficiency, in approximately equal shares (17-21% each). A smaller share (8%) of proceeds are going to ecological protection and climate change adaptation.
Regional grid could provide energy to China’s neighbors
China intends to spend more than $360 billion through 2020 on domestic solar and wind power, but given the current policy and market framework in China, energy from these new resources is often crowded out on the grid by coal-fired generation, despite being less expensive on a marginal cost basis.
Due to domestic policy and market advancements, the Chinese grid is already getting better at maximizing energy from renewable resources, but this could be further helped by building out transmission lines within China as well as better integrating with neighboring regions.
And if excess power generation persists on China’s grid, it could be exported to neighboring regions to meet growing energy demand. Certainly, using the Belt and Road-related overseas investments to build clean power plants rather than coal would help solidify China’s leadership in the global energy industry of the future.
Just as the U.S. looks to be forfeiting its seat at the negotiating table for international trade deals, China is stepping into the lead, going beyond the old-fashioned trade agreement to emphasize infrastructure and better energy connectivity over much of the globe
“China has become the principal market for renewable energy worldwide,” said International Renewable Energy Agency Director-General Adnan Amin during the recent Belt and Road Forum for International Cooperation. “The [Belt and Road] Initiative can not only help to interconnect electricity grids and deploy more renewable energy, but it can also expand electricity markets to countries with extremely high renewable energy potential, including those in Central Asia. China has the technology and the resources, and it can help to achieve these goals by building partnerships and cooperation.”
These recent developments are promising—though by no means dispositive—for the green future of the Belt and Road Initiative. Just as the United States looks to be forfeiting its seat at the negotiating table for international trade deals, China is stepping into the lead, going beyond the old-fashioned trade agreement to emphasize infrastructure and better energy connectivity over much of the globe.
If China’s Belt and Road Initiative is truly green, it will have a global benefit. Watch this space.
For more information on this topic see also this article by Lili Pike on ChinaDialogue.