China's energy law could help address the Belt and Road's climate impact Policy 2020-06-23 16:51:38

The draft bill is a step in the right direction, but falls short on screening the export of fossil fuel technologies

In May, China's energy authority announced a public consultation for a draft energy law, setting the agenda for "green, low-carbon" production and a "safe and efficient" energy system. The draft law, which has been 13 years in the making, is an omnibus bill that seeks to unify China's diverse laws governing coal, renewables and energy conservation.

Five years after the signing of the Paris Agreement, references in the bill that position it as a "response to climate change" are welcome. Unfortunately, the proposed legislation also specifies the need for further exploration of fossil fuel energy sources such as coal, oil and natural gas.

This matters because under the Paris Agreement, China committed to peak carbon dioxide emissions around 2030 or earlier if possible. China is the largest public financer of fossil fuels, providing $20.2 billion a year for oil and gas and $4.4 billion for coal, according to a recent report on G20 financing.

China also ranks as the world's largest producer and investor in clean energy and while coal still occupies the top spot in the country's energy mix, its share is declining. However, the country's effort to reduce emissions is being undermined by a relaxation of coal-power restrictions, which has led to approximately 10 gigawatts of new approvals at home and the financing of coal projects overseas.

A priority of the draft energy law is improving the regulation of energy exports and imports, including the management and import of "clean” and “advanced" energy technologies. But the bill falls short on exports, as there are no provisions for the screening of fossil fuel products or technologies. This means the bill does not address the "carbon leakage" resulting from China's export and support of coal technologies and products.

China's support for fossil fuel projects, such as coal power in countries that are part of the Belt and Road Initiative (BRI) has environmental and social impacts. Changes to the draft energy law are needed to introduce binding climate and export screening criteria for all Chinese exports of fossil fuel projects. This would align such projects with practices commonly accepted by the international community, including multilateral development banks of which China is a member.

The government has made some progress in this area. In 2017, four government regulatory bodies issued an advisory document, "Guidance on Promoting a Green Belt and Road". This recognised the challenges faced by Chinese companies undertaking overseas infrastructure projects and called on them to adopt higher environmental and social standards.

One concern is the prominent role of Chinese state-owned enterprises specialising in coal power and resource-extraction that are locking BRI countries into high-emissions pathways. China is the top lender and exporter of coal technologies internationally. A plethora of state-owned enterprises, backed by government loans from China Development Bank and China Exim among others, are in fierce competition for projects in Europe, sub-Saharan Africa and Asia. According to Ma Jun, former chief economist of the People's Bank of China, "BRI countries could account for over half of global CO2 emissions by 2050".

In Africa, Chinese state-owned enterprises announced two new coal deals in Ivory Coast and Zimbabwe in late 2019. As much as 3.5 gigawatts may be built in Europe, including a new unit for Tuzla's coal-fired power station in Bosnia and Herzegovina, phase two of a new unit at Kostolac coal-fired power station in Serbia, and the recently announced 350-megawatt Kolubara B coal project also in Serbia.

China's coal financing runs contrary to international financial institutions such as multilateral development banks that have been phasing out or banning direct coal financing. OECD countries and their export credit agencies, for example, have screening conditions in place for the support of coal-fired power, although in practice these have failed to prevent some financing being permitted.

The energy bill could help address the carbon leakage associated with fossil fuel projects undertaken by Chinese companies overseas. To make that happen, the bill should include measures and standards that prioritise a low-carbon energy transition that applies to domestic consumption and production, as well as investment, import and export of energy products and technologies. This green roadmap would define the incentives and restrictions for all energy projects, including coal power, gas and oil extraction, and transportation across boundaries.

(Writing by Alex Guo  Editing by Harry Huo)
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