Whatever gets discussed at Mar-a-Lago between Donald Trump and Xi Jinping, it probably won’t include climate change. Trump has just ripped up Obama’s Clean Power Plan and approved Keystone XL. Xi is positioning China as the new global leader in climate change. Anyone trying to make sense of what this means for demand for renewables and the global dynamic in climate policy obviously has an interest in wondering what this adds up to. Xi can legitimately argue that he is bringing more to the energy transition table than the Trump administration is. But that is a very low bar. How seriously can we take China’s claim to leadership?
In some ways, quite seriously. The economics are finally adding up to allow China to pursue its ambitious development targets while relying on ‘greener’ strategies to do so, whether through investment in renewables or green buildings. Popular discontent at pollution means that driving change is closely tied to the government’s sense of its own popularity and legitimacy. Mandating carbon disclosure and ESG reporting is a lot easier when you run an authoritarian regime, meaning that China is likely to be one of the first states globally to implement mandatory versus voluntary reporting requirements.
Large-scale government procurement policies have also enabled China to use its buying power to create economies of scale, driving costs of solar and wind projects down. China also has its eye on business opportunities which renewables offer internationally – with Chinese investment in overseas renewable projects increasing by 60% in 2016. A recent study by IEEFA expects China to install 36% of hydroelectricity, 40% of wind energy and 36% of solar introduced globally between 2015 and 2021.
But the scale of the underlying challenge in China is also huge. Despite continued reductions in coal consumption domestically over the last three years, 65% of all electricity generated in 2016 was generated by coal-fired plants, with only 4% generated through wind power and 1% by solar. China needs to mobilise more capital towards sustainability and probably needs international support to reach these targets. Despite being the world’s largest issuer of green bonds, this kind of debt only accounts for 2% of bonds in China. Some estimates suggest this will need to be closer to 20% if China is to succeed in cleaning up its economy.
These sorts of problems might genuinely encourage China to turn a domestic environmental crisis into global policy coordination and cooperation in some areas. Current initiatives such as the CUFE-CNI green bond index series aims to do just that, in connecting the European and Chinese bond markets. We can expect China to continue to play a guiding role in the G20 finance group throughout the German presidency.
But it’s not quite that simple. China’s relationship with coal is still the defining one. ‘Clean coal’ remains eligible for green financing within China’s Green Bond Guidelines, in contravention of international guidelines. Though the National Emissions Trading Scheme, to be launched later this year, brings some hope; leading policy, such as governing regulations for green bond issuance, has done little to discourage a short-termist outlook from regional factory owners. China has also been a large financier of overseas coal power generation, with an estimated $25bn spent financing projects between 2005 and 2014. This is a role that China seems unlikely/unable to give up anytime soon. For example, coal-fired plants are priority projects in the China Pakistan Economic Corridor (CPEC) initiative, running from 2015 to 21.
China’s current policy is providing some good examples of how to go about changing an energy mix that other countries will follow, including a test case of mandatory reporting methods to further develop and refine. That is leadership of a kind. But in many respects, ‘leadership’ will push against Chinese autonomy in a way that should make us doubtful. China will arguably prefer to continue to play its developing country card and go on exceeding low expectations than step into the kind of leadership role that would see it face much greater scrutiny and pressure to commit to more. So while China looks likely to remain committed to the Paris deal in a way that Trump is not, those seeking a serious counterbalance to Trump’s clean energy and climate reversals will need to look further than the country on the other side of the table in Florida this week.
The views expressed in this note can be attributed to the named author(s) only.