Banking on coal? Drivers of demand for Chinese overseas investments in coal in Bangladesh, India, Indonesia and Vietnam

Abstract

This paper investigates why new coal-fired power plants are being financed and built in South and Southeast Asia given that new coal plants without carbon capture and storage are incompatible with a 1.5 °C temperature goal. The paper particularly focuses on developing countries where these coal-fired power plants are being built that are recipients of Chinese government-backed finance. The central research question of this paper is: Which factors drive the demand for financing for coal-fired power plants from China’s policy banks? Field research was conducted in four recipient countries: India, Indonesia, Vietnam, and Bangladesh. We find that the demand for Chinese-backed coal plants in the four recipient countries is mainly driven by domestic policy that embraces a growth of coal-fired power in their economies. Recipient country demand is well matched by China’s willingness to finance and export equipment and services to build new coal-fired power plants overseas. In every case, there are explicit, preferential domestic policies for coal, and in at least one case renewables are disallowed by regulation from competing with coal on a level-playing field. None have environmental policies that would require cleaner or more efficient plants to be constructed and operated. The main policy implication of the findings is that it is crucial for recipient countries to put in place the enabling policy conditions for an energy transition to a low-carbon future.