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China’s Energy Paradox: Green Energy-Driven Fossil Fuel Investment

Summary

China is leveraging its global leadership in green energy development to engage OBOR nations in overseas green growth initiatives. However, in the shadows of China’s green campaign exists a more calculated game to secure its own economic interests through the not-so-green methods of shrouded fossil fuel infrastructure investment and debt entrapment.

China has spent more than the United States and the European Union combined on green energy, which has provided Chinese green energy companies significant resources to invest in R&D and expand their reach. Nowadays, these companies can be found all over the world, investing in sustainability projects from Latin America to Europe in coordination with China’s ‘One Belt, One Road’ initiative (“OBOR”). Although China has made promises to promote environmentally-friendly policies within OBOR, numerous contradictions lurk in Beijing’s “green” shadow.

While Beijing flaunts its soft-power in green development, China’s international investments in renewable energy are equally matched by its overseas investment in fossil fuels. Moreover, China’s high-interest loans made to developing nations are notorious for making receiving countries overly reliant on China to build local renewable energy capabilities. China seeks to become a global leader in green development, but its contradictory actions in regards to fossil fuel suggest that the country’s principal goal remains growth-oriented rather than environmentally-focused. 

Green Energy Efforts

Beijing’s push toward a greener future took off in 2008 and was revisited in 2010 under the country’s National Energy Commission (NEC). The NEC is responsible for creating China’s sustainable energy plans and monitoring energy, while also accounting for national and international cooperation. In 2012, the Ambient Air Act was the first piece of legislation passed by Beijing that mentioned air pollutants such as PM 2.5 and enforced air quality standards. This was a momentous step forward for Beijing as it solidified China’s commitment to addressing environmental concerns and encouraging sustainable energy in efforts to protect national security. 

This initial step subsequently paved the way for China’s 13th Five Year Plan (2016-2020) to consolidate environmental and energy goals into national legislation. These guidelines would include specific goals such as reducing pollution and ultimately reducing emissions through the exploration of electric vehicles, hydropower, solar power, and wind energy. 

Since then, Beijing has enacted numerous preferential tax policies and cost-saving measures for firms working towards building sustainable energy. For example, Beijing has heavily subsidized the purchase of electric vehicles, encouraging China’s consumers to take part in reducing their carbon footprint. Also, technological advancements in renewable energy have made it increasingly more cost-effective to support China’s goal to obtain 16% power generation by way of renewable energy by 2030. 

Beijing’s efforts have paid off, as The Global Commission on the Geopolitics of Energy Transformation has praised China for positioning itself to become the “world’s renewable energy superpower.” In 2016, China had 150,000 renewable energy patents. China has landed itself in first place for manufacturing solar panels, wind turbines, batteries, electric vehicles (EV), and has been one of the largest investors in green energy for almost the entire last decade. And, as firms build a stronghold within the domestic market, larger players have also begun to leverage China’s modern “go out” push via OBOR to expand into foreign markets.

Chinese Companies Take the Lead

China has invested US$83.4 billion into green energy research and development in 2019 alone. From 2014-2017, China invested a total of US$521 billion. The financial backing from Beijing provides a substantial amount of economic opportunity and incentive for Chinese companies to develop green energy at home and abroad. As a direct result, Chinese companies have flooded into developing markets to offer new energy and financing solutions. China Three Gorges (CTG) and Goldwind, two of the largest green energy companies in China, have taken sustainability projects abroad in countries such as Pakistan, Brazil, and Scotland. 

CTG alone is established in 47 different countries. The firm operates 8% of total hydropower capacity in Brazil, and has also set up 11 wind farms there. On the shores of Scotland, CTG is also partaking in the construction of the largest wind farm. In Pakistan, the firm is currently overseeing the development of two hydropower projects and a wind farm, cumulatively accounting for 2,600 MW of power–enough electricity to power a million homes for a year. This latest project is just one of the many numerous past hydro and wind projects that CTG has completed in Pakistan. 

Goldwind is one of the top global producers of wind turbines and has supported sustainability projects all around the world, including in the United States. It became the world’s largest manufacturer of wind power in 2015 and has reported having installed 60 GW of wind energy to date. Goldwind also receives substantial financial incentives from the Chinese government to participate and invest in countries through OBOR projects. Recently, Goldwind is working on a collection of initiatives in foreign markets ranging from Kazakhstan to Ukraine to Argentina.

Beijing has set the stage for strong development at home with its preferential tax and subsidy policies, and has also provided the resources for firms to bring renewable energy to foreign markets, which eventually reinvests in the green technology manufactured in China. While interests are likely economic, they may also be pawns in a greater chess strategy being played out at the top.

China’s Grand Paradox

Despite China’s position as a world leader in green development, two paradoxes emerge that have made critics skeptical of China’s true motives in incentivizing foreign investment in renewables. First, China’s investments into fossil fuels still far outweigh its investments in renewable energy, and second, China’s investments abroad often leave recipient nations indebted to China, leading to heavy debt burdens with resource-backed collateral at risk. 

China’s Energy Needs 

China’s large population and high energy consumption drive its investments in fossil fuel energy to supplement the limited production of green energy. China currently consumes 25% of the world’s total energy consumption and about 13.8 billion barrels of oil a day – the highest in the world. On paper, China has invested US$102.6 billion in fossil fuels through OBOR to meet its energy needs.

Access to ample energy sources can place limitations on China’s future growth potential, and thus has led China to continue to invest in fossil fuel ventures in Africa, Central Asia, and South America. However, seeking out non-green energy runs counterproductive to the otherwise very green messaging China puts out. Until green energy can fully support China’s energy needs, fossil fuels will remain a key driver of China’s international development and investment strategy.

China’s ongoing investments in Indonesia is the perfect depiction of this paradox. China recently invested US$1.62 billion in Indonesia through OBOR to construct a hydropower plant. At the same time, China has also invested about US$2 billion in coal production in Indonesia from 2014-2017. While Indonesia is committed to low carbon energy sources, the mutual economic benefits that come alongside fossil fuels are too tempting for either side to pass up. To this day, coal remains the main driver of China’s power generation, and in 2019, Indonesia exported nearly 30% of its total coal supply to China

The Spoils of Debt

OBOR projects have played a large role in expanding China’s role in energy abroad. While China promises to promote green energy through OBOR, it also uses the channels to continue seeking out fossil fuels. When approaching countries with loans to fund their green energy projects, China will set up a debt repayment program. As these nations are usually high-risk, numerous countries have approached Chinese financiers to delay, restructure, or forgive billions of dollars’ worth of loans. In 2020 alone, Pakistan and Sri Lanka reached out to China for debt relief as the economic fallout of COVID-19 placed pressure on their ability to keep up with debt payments.

This wave of OBOR debt has raised other questions about the motivations behind the loans themselves. China’s OBOR loans tend to carry higher interest rates and shorter maturities, requiring refinancing every couple years. They frequently use energy resources, such as oil or coal, as collateral, a feature that is meant to give Chinese state-owned banks confidence to lend to risky debtors. Aside from boosting lender confidence, these resources also greatly benefit China. In the case that a country fails to repay the debt, China is able to seize and profit off of access to said resources. While China has historically managed these loans with benevolent treatment by granting deferred payments and debt forgiveness in many cases, lurking underneath is the fact that at any moment, Beijing could flip the switch and use significant sources of resources to its advantage.

Looking Forward

The complicated relationship that China has with energy is impossible to overlook. Between OBOR, sustainable energy, and fossil fuel, China has a well laid out plan to make sure that the country can meet its energy needs and continue to sustain economic growth. Lately there have been some more worrisome signs that China may be slipping backwards in its path towards sustainable energy. More new coal power plants have been approved in 2020 thus far than 2018 and 2019 combined as coal is still considered a cheap, reliable energy source. However, these events could have been spurred on by the pandemic, and not indicative of longer term strategy.

Looking to the future, the country may be taking a slow and steady approach. In 2020, Li Junfeng, director of the China Renewable Energy Industry Association, stated “priority development of renewable energy does not mean that there will be explosive growth. Renewables should gradually replace fossil energy based on demand.” Recent policies in late 2019 and early 2020 still point to a desire to increase renewable energy consumption and innovation. China seems well aware of the paradox that is occurring and is also intent on fixing that mismatch between being a green leader and still using dirty energy sources such as coal. Now it is a matter of keeping an eye to see if China actually does wean itself off of fossil fuels, moving closer to a world without a green shadow.

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