Greening or Greenwashing the Belt and Road Initiative?
May 1, 2019
- The second Belt and Road Forum for International Cooperation met in Beijing, on April 25-27, 2019.
- During the three-day forum that drew leaders from 37 countries, China highlighted a few deliverables related to energy, environment, and climate.
- Both the keynote by Chinese president Xi Jinping on Day 2 of the forum and the BRI progress report, released few days before the forum, stressed China’s commitment to environmental sustainability but fell short of introducing concrete steps to correct its high carbon financing practices.
Energy projects have been central to the Belt and Road Initiative (BRI) since its inception in 2013. For example, energy accounts for roughly 44 percent of BRI construction, followed by transport at 30 percent. Chinese financing and exports have targeted the unmet energy generation and transportation infrastructure needs in countries around the world. While Chinese financing and exports are not limited to fossil energy projects, China’s energy outreach under the BRI has been carbon-intensive. For example, the Silk Road Fund, which was set up to finance BRI projects, made over 90 percent of its energy-sector investments in fossil fuel projects. Moreover, between 2013 and 2016, Chinese financial institutions invested $15 billion in coal projects abroad.
Especially since the first forum two years ago, “greening” has become a sub-theme of the BRI that seeks to propel China to become a global leader in environmentally sustainable development. For example, the government guidance on how to execute the BRI visions, which was released shortly before the first forum in May 2017, suggests that China sees it its moral obligation to share its “experience and practice in ecological civilization and green development” with other growing economies, as well as to promote global trade, investment and financial systems that are environmentally sustainable.
In its seventh year, however, the BRI finds itself under a heightened pressure to address the emissions implications of its energy projects. In 2018, over 40 percent of the BRI lending for the power sector was still in coal projects. Also, some BRI recipient countries are beginning to voice concern over Chinese coal projects for their impact on the local environment as well as the potential of crowding out lower carbon power generation alternatives in the future. In Kenya, the construction of a Chinese financed coal power project has been halted per judicial order issued in September 2018 amid local environmental activists warning the environmental and public health effects of burning coal. In December 2018, Pakistan decided to suspend a 1,300-megawatt coal project that had been planned under the auspices of the China-Pakistan Economic Corridor, a flagship BRI project, as the Pakistani government had determined that “surplus generation capacity had already been contracted and more contracts would lead the country to a capacity trap.”
Cognizant of the reputational toll from high emission energy financing, the Chinese government highlighted a few initiatives that seem to emphasize its commitment to greening BRI during the second forum. For example, the Green Investment Principles (GIP), which aim to build an international network to improve the management of environmental and social risks for investing in the BRI regions, has gained 27 signatories, including the financial institutions from France, Singapore, and the United Arab Emirates. The GIP was co-developed and announced by China’s Green Finance Committee and the City of London’s Green Finance Initiative in 2017.
Also, following through on Chinese president Xi Jinping’s call for its creation two years ago, the Chinese government launched the Belt and Road International Green Development Coalition in an effort to align the BRI’s environmental sustainability principles with the UN Sustainable Development Goals. The coalition was co-initiated by the UN Environment Programme and the Chinese Ministry of Ecology and Environment. To the UN, this coalition can be another tool to help its effort to steer Chinese energy investments toward a lower emissions profile while also assisting BRI partner countries gain or exercise due diligence capacity when it comes to evaluating social and environmental impacts of choosing energy infrastructure projects.
The biennial forums may be a useful customer relations occasion for Beijing. It may also be reassuring for the world to see a list of initiatives that underscore China’s continued commitment to environmentally sustainable development. The time appears ripe, however, for Beijing to begin checking off the to-do list of existing commitments. For example, issued ahead of the launch of the BRI itself in 2013, the Chinese government guidance calls for Chinese companies to borrow best practices from multilateral development banks and international organizations in terms of environmental protection in foreign investment. Yet, Chinese banks and companies significantly lag behind their cohorts in terms of transparency and accountability. For example, the member countries to the Organization of Economic Cooperation and Development (OECD) have reporting obligations on the loans, guarantees, and insurance provided by their export credit agencies or their aid agencies, but China has no comparable reporting obligation, as the second largest economy in the world is not an OECD member. Also, the export credit agencies of OECD member countries are bound by agreement to phase out the financing for the least efficient, high emission coal-fired power generation technologies, but China remains unconstrained.
The BRI has a great potential to become a force for the global clean energy transition underway. Beijing has now had several chances to take its green intentions and turn them into action. Making good on the environmental protocols and standards it has once again put forward to guide BRI investments will mean the difference between genuine greening or simply greenwashing.