What drives Pakistan’s coal-fired power plant construction boom? Understanding the China-Pakistan Economic Corridor’s energy portfolio

Abstract

Pakistan has sought to meet its increasing energy needs using coal-based energy generation. In this paper, we explore how the Pakistani government sought and obtained financing for coal-fired power plants from China. We analyze Pakistan’s partnership with China to develop energy projects via the China-Pakistan Economic Corridor. Based on interviews with key decision-makers and stakeholders, we show how the Pakistani government’s policies have steered Chinese investment towards coal-fired power plants. Chinese actors were most willing to match Pakistan’s desire to construct coal-fired power plants and exploit coal resources with financing. Chinese actors have also displayed risk aversion, which has translated into steep economic costs for Pakistan. This case study provides a fine-grained analysis of the demand drivers of China-backed coal finance. It complements the existing literature’s focus on the supply of Chinese finance. This paper identifies how project-level and policy-level factors can draw in investments into the coal sector. As countries seek decarbonize their economies, this case study illustrates how and why incumbent technologies like coal are receiving preferential policy support over renewables.