Who Funds Overseas Coal Plants? The Need for Transparency and Accountability

At the June 2021 G7 Summit, leaders made a significant commitment to restrict international investments in coal, but the impact of the commitment was stymied by its exclusion of private finance.

There is a misconception that the majority of new funding for overseas coal plants comes from public financing institutions in China, which is partly due to a lack of transparent, reliable, systematic and comprehensive data on cross-border financial flows, and for coal fired power plants, in particular.

But a new policy brief  by Xinyue Ma and Kevin P. Gallagher aims to correct this knowledge gap by comparing China’s overseas coal finance relative to its public and commercial counterparts globally. Our research shows the lion’s share of total financing for overseas coal plants comes from entities outside China.

Key takeaways:

• China is the largest public financier of overseas coal plants: The Export-Import Bank of China and the China Development Bank accounted for US$15.6 billion, or 50 percent of global public finance commitments in overseas coal fired power plants that reached financial closure between 2013 and 2018, or 40 percent by generation capacity.
• But 87% of total (public and private) finance for overseas coal plants is funded by entities outside China: Altogether, Chinese public and commercial entities (which include policy banks, state and privately-owned commercial banks and firms) financed 32 GW of overseas capacity, accounting for just 13 percent of the coal power capacity outside China that is operational or under development between 2013 and mid-2019 (17 percent of the total overall newly added coal fired power generation capacity outside China during the period, and roughly 11 percent of the power generation capacity under construction or planning outside China).
  • China’s share of the total financing (13 percent) is drastically lower than other figures that have been cited in public policy discourse, some of which are as high as 70 percent.
• Clear and official estimates of non-Chinese international coal funding by the sources of finance are currently lacking: According to independent research by the nonprofit group Urgewald, Japanese and Western institutional investors and commercial banks are major financiers of international coal power abroad. While many of these commercial institutions have recently made ambitious climate commitments, better data disclosure on climate-related finance is needed for accountability and policy coordination.

Key recommendations:

• Inclusive global leadership is needed to accelerate the coal phase-out. At the upcoming July 9-11, 2021 Ministerial meeting, the G20 should commit to limiting all overseas fossil fuel financing, starting with overseas coal finance from the public and private sectors.
• The G20 should work to formalize global disclosure and transparency so the global community can properly track, monitor and hold public and private actors accountable to new commitments.
• The G20 should also work to advance policy frameworks that ensure no worker, entrepreneur or community is left behind by coordinated financing phase outs of coal and subsequent fossil fuels.

Ma and Gallagher point out that “confusion over the underlying facts can lead to poor policy design, conflict and contention.” Additionally, given that coal finance is an important priority for global decarbonization, they argue “it is paramount that data on coal finance be disclosed and available to the public in a transparent manner” and that private sector finance for coal be addressed, particularly in the advanced economies.