On September 3 and 4 this year, Chinese President Xi Jinping hosted representatives of 53 of the 54 African countries for the Summit of the Forum on China-Africa Cooperation (FOCAC), under unusually blue skies in Beijing. Only for the most important political events are strict control measures put in place to ensure no smog clouds anyone’s decision-making. This was especially important for the FOCAC Summit, as a large share of the $60 billion pledge of Chinese financial support to Africa will be spent on energy infrastructure projects.
The triennial FOCAC summit is part of the Chinese government’s “going abroad” strategy, representing growing Sino-Africa economic and diplomatic cooperation. China boasts of its rapid economic development to underline its suitability as a development partner for Africa. The negative environmental consequences of this rapid development are not helping its case. The win-win rhetoric of China’s South-South cooperation policy emphasizes financing for clean energy projects. But the megaprojects being built and planned on the African continent show an increasing gap between the green energy cooperation that is promised, and the actual investments, which still include large amounts of oil, gas and coal.
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Of all the measures of sub-Saharan Africa’s poverty levels, few are as blatant as the fact that more than two-thirds of the region’s population does not have access to reliable energy. Access is especially limited in rural areas, where development challenges mount. Energy poverty costs lives in hospitals and clinics, it hampers education, it makes public areas unsafe, and it is expensive for governments and the economy. Currently, three-quarters of African energy demand is met by fossil fuels, which is still by far the largest source of global greenhouse gas emissions. As the population and the economy grows, the demand for energy is expected to triple by 2040. Africa needs significant investment to be able to provide more, reliable, and sustainable energy to its people.
This is where China enters the stage. In an unclear time for global climate cooperation, China propelled itself to the forefront of global climate diplomacy and policy. It is reducing the use of fossil fuels and is yearly installing the largest amount of renewable energy capacity in the world. Chinese companies have taken a principal role in solar and wind technology in global renewable energy value-chains. Currently, China is investing more than any country in renewables overseas as it increases its global reach.
African Development Bank President Akinwumi Adesina said at the FOCAC summit that combating energy poverty is one of the main goals of the China-Africa economic cooperation. This much is clear. Chinese-backed financing is fueling development of energy infrastructure across the African continent. Research from AidData found that China is the largest development partner in the energy sector in Africa, concentrated almost entirely in sub-Saharan Africa.
In order to mobilize such large amounts of financing, China relies greatly on its national development banks, such as the China Development Bank (CDB) and the Export-Import Bank of China (EXIM). These policy banks loan to African government departments or state-owned enterprises, often in close coordination with the National Development and Reform Commission (NDRC), China’s development planning agency. As part of the loan conditions, Chinese state-owned energy companies are contracted to implement the projects. The importance of financing from these banks should not be underestimated. A study from Boston University’s Global Economic Governance Initiative found that CDB and EXIM alone already provided as much energy financing to foreign governments globally as the World Bank and the Western-backed multilateral development banks combined.
Chinese government officials claim that such financing prioritizes renewable energy projects. At the 2009 FOCAC summit, then-Chinese Premier Wen Jiabao proposed to build 100 clean energy projects in Africa. In 2015 the South-South Climate Cooperation Fund was launched and established China as one of the global leaders for supporting clean energy deployment in developing countries. This year’s FOCAC summit included a Forum on African Energy Interconnection Development which launched the African Energy Interconnection Sustainable Development Alliance. This three-year cooperation plan highlighted Africa-China energy cooperation in clean energy. But while comfortably settling itself into the role as the green energy financier of the developing world, on the ground, China’s image of a clean energy emissary is falling apart.
China’s Fossil Financing
Chinese energy financing in Africa is not as green as promised. The International Energy Agency (IEA) found that 44 percent of the capacity added in sub-Saharan Africa between 2010 and 2015 by Chinese contractors comes from to coal, oil, or gas, the most polluting energy sources. Another half of added capacity goes to large-scale hydropower projects, which have negative environmental and social impacts of their own. Whereas the cleanest energy sources, such as wind and solar, are widely installed within China, only 7 percent of Chinese-backed projects in sub-Saharan Africa actually install such capacity.
According to a report from Oil Change International, from 2014 until 2017 China’s policy banks CDB, EXIM, and China Export and Credit Insurance Corporation provided the largest share of public finance of all G20 financiers, an average of $5 billion a year, for energy projects in Africa. Almost three-quarters of this financing went to oil and gas. China was also the largest provider of finance for coal power, as still 13 percent of its public financing supported large coal projects. None of these banks contracted any Chinese companies to do renewable energy projects over this period of time.
Africa actually provides a great asset base for renewable energies such as wind and solar. Renewable energy is a cheaper and more sustainable solution to energy poverty, as it will allow for decentralized energy grids to be installed in rural areas, as opposed to having to connect these areas to a centralized national grid. This is widely regarded by many international development actors as the most sustainable way to provide energy access to areas in Africa. But instead of contracting Chinese renewable energy companies and structurally reforming Africa’s energy system, China focuses on extractive resources.
This focus is closely related to China’s domestic energy transition policies. As China is trying to curb its emissions and pollution due to international and domestic pressure, the pressure on domestic state-owned enterprises to keep driving economic growth whilst minimizing the environmental impact has only increased. The green energy policy shift in China has forced the state-owned energy enterprises, traditionally focused on fossil fuels such as coal, to look abroad for opportunities. In 2005, the NDRC released a joined statement with EXIM and CDB, stating that one of their priorities was to develop overseas resource extraction projects to make up for domestic insufficiency of resources. While these agencies are now not as clear about their priorities, this still seems to be a major concern.
Earlier this month, President Cyril Ramaphosa of South Africa signed a deal in Beijing after the FOCAC summit to build a 4,600-megawatt coal-powered station in Limpopo. This power plant will not power households. It will power Chinese metallurgical companies in the Musina-Makhado special economic zone, which received an injection of Chinese financing earlier this year. This while the new resources investment plan for South Africa was released by its energy ministry right before the FOCAC summit. At this time, the plan did not include any mention of coal added capacity and focuses on the green energy transition. This coal plant seems to serve Chinese industry interests, while displaying the lack of transparency or environmental and social assessment of these deals.
Another issue is that developing countries, though they receive energy capacity, are actually put in a long-term disadvantaged position. Once a carbon-intensive development pathway is chosen and investments are made, the energy sector of a country will be reliant on fossil fuels and plants need to run for many years to become economically viable. It also makes it more difficult and expensive for countries to transition to greener pathways of development, effectively locking them in a carbon-intensive pathway. If we want to limit the temperature increase to the 2 degrees Celsius agreed upon in the Paris Agreement, which China wholeheartedly supports on the international stage, the energy sector especially needs to transform. Around three-quarters of global greenhouse gas emissions come from energy extraction. The IEA found already in 2012, that if we wish to keep temperature increase under 2 degrees Celsius, almost four-fifths of the allowed emissions by 2035 are already locked-in by existing plants and other infrastructure. This means only very small amounts of carbon-intensive infrastructure can be built.
Meanwhile, China continues to build coal plants in countries that do not have such extractive industries yet. On Lamu, a Kenyan island in the Indian Ocean, a Chinese energy multinational financed by a Chinese policy bank is going to build a $2 billion coal plant to supply “cheap and reliable” electricity. The European Union, along with international and local environmental groups, opposes the project because it makes little economic or environmental sense. Kenya is currently not using any coal for energy, and a new coal plant effectively locks Kenya into a high-carbon future. This while Kenya wishes to be a hub for renewable energy and coal has lost much of its economic viability. Such projects, while providing energy access, are in the long term only creating more problems than they solve.
Shifting to Green Financing
This significant share of carbon-intensive energy projects from China means it will take more than pledges at high-level summits to deliver on China’s green energy promises and mitigate climate change. But there is a silver lining. Due to China’s dominance in renewable energy industries and the large amount of financing for energy projects, China has great potential to influence Africa’s development objectives for the better. A study from Boston University’s Global Economic Governance Initiative notes that “China’s development finance model is such that Chinese development financial institutions could make a swifter and more decisive shift toward cleaner energy finance for all. […] It could easily use the same model to globalize its world class solar and wind industries.” The report notes that if China redirects public financing of the CDB and EXIM, it could quickly become a global leader in sustainable development finance for energy.
If China wants to be a global leader for climate governance, and supports the goals set out in the Paris agreement, it should reform its policy bank-led energy financing to contract renewable energy companies and implement low-carbon projects. This would create the structural transformation necessary for long-term sustainability in Africa and it would put China on the map as the global climate leader it wishes to be, in a time where such a global leader is most needed.
Jill van de Walle is currently working at the Global Public Policy Institute in Berlin, Germany, on Rising Powers and Global Governance.