Going Green: Policy Opportunities and Challenges for Early Retirement of Overseas Chinese-Financed Coal Plants

Over the last two decades, Chinese banks and state-owned enterprises (SOEs) have provided loans and technology for a large number of coal-fired power plants abroad. With estimated emissions of 245 Mt carbon dioxide annually and a median age of seven years, this overseas coal fleet is increasingly incompatible with host countries’ and global climate goals. In order to limit warming to below 1.5°C (2°C), global coal consumption needs to decrease by around 95 percent (85 percent) by 2050. Therefore, many coal units will have to be retired early, i.e. before reaching their typical lifetime of around 40-50 years.

In a new policy brief, Cecilia Springer, Niccolò Manych and Rachel Thrasher discuss the benefits and challenges that could arise when China assists countries in retiring their coal plant fleet early, identifying plants that should be targeted first and concrete next steps that can be undertaken. The policy brief builds on a report published by the Boston University Global Development Policy Center on the role of development finance institutions (DFIs) in the early retirement of coal-fired power plants.

The authors argue that Chinese policymakers and DFIs are well-poised to assist governments in their early coal plant retirement efforts. In the past, they facilitated the construction of numerous coal plants abroad and can now leverage their influence and standing to support their retirement. An orderly phase-out of coal plants reduces financial risks for banks and investors in China and elsewhere, while simultaneously providing green investment opportunities for Chinese companies.

Policy recommendations:

• Explore options to support coal plant retirement abroad with Chinese SOEs such as plant owners and operators, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and Chinese financial stakeholders.
• Engage in bilateral and/or multilateral dialogues with governments and utilities to assess their need for support in energy transitions in general and specifically in coal plant retirement.
• Provide assistance in prioritizing plants for retirement and developing practical solutions for individual plants taking potential barriers into account.
• Establish long-term bilateral agreements with governments on sustainable development and energy transition, incorporating provisions for early coal plant retirement.

Following these recommendations, Chinese DFIs can leverage their distinctive advantages in terms of experience and coordination to support host countries in their transition endeavors. Funding early coal plant retirement through financial initiatives not only enhances China’s standing as a global climate leader, but also solidifies its position as a key partner in sustainable development.