By Chuck Baclagon
November 13, 2022 - The war in Ukraine has resulted in significant shocks to global energy costs, with gas prices in March rising to their highest level since 2008. Energy security has arguably never been more central in the economic discourse. Amid a tumultuous geopolitical landscape with economic shocks around every corner, resilience is in high demand.
With prices remaining volatile and inflation on the rise, the costs to consumers and the gross domestic products of countries around the world – particularly those hosting foreign-backed fossil fuel projects – are being laid bare.
Government reactions have largely involved the reintroduction of fossil fuel subsidies and a renewed interest in increasing domestic oil and gas production in the short term to curb reliance on imports. But with more countries committing to ending financing for fossil fuel projects abroad, this course of action will be no less risky for countries that continue to rely on overseas financing.
Chinese banks are the main funders of fossil fuel projects in countries across Asia and Africa – notably, the Industrial and Commercial Bank of China (ICBC) is a major financial adviser for the East African Crude Oil Pipeline, and for many coal-fired power plants in South Africa, Indonesia, Vietnam and Bangladesh.
Chinese President Xi Jinping’s announcement that the country would no longer build new coal-fired power plants abroad, at last year’s UN General Assembly, did not detail the fate of existing projects or those in the pipeline.
With at least 15 China-backed coal-fired power projects cancelled since the announcement and more than a third of new overseas projects in the “grey area” facing abandonment, affected communities, civil society and policymakers are looking to see how Chinese banks, insurers and developers implement China’s no-new-coal commitment on the ground.
It would be a strategic mistake for host countries such as Indonesia, Bangladesh and South Africa to remain entangled with foreign-backed coal as a long-term energy solution.
For those that fail to meet the moment by boosting domestic renewable energy development, high energy prices will, in the long term, create increased demand for alternative energy sources. This would in turn encourage fossil fuel financiers to diversify their investments, leaving host countries holding the proverbial bag – “stranded” fossil fuel assets, economic volatility and energy dependency, with nothing at home to fall back on.
Many of these countries receiving overseas financing for coal projects have already seen the decreased profitability of coal domestically and the diminishing justification for increasing capacity. Bangladesh, a long-time host of China-backed coal projects, faces major overcapacity in its domestic power grid, combined with dwindling demand and low rates of use.
These countries have significant untapped potential for renewable energy, which could easily replace their fossil fuel dependency.
As of August, Indonesia, one of China’s top recipients of fossil fuel financing, had a national debt of US$184.9 billion, a substantial portion of which is owed to Chinese lenders.
Meanwhile, it is using only 11.2GW of its more than 3,000GW of renewable energy potential, according to a new report by the Institute for Essential Services Reform. And domestic public funds allocated for fossil fuel developments are 27 times higher than those for clean energy.
Similarly, Bangladesh, which depends on gas and coal for most of its energy mix and is one of the countries worst affected by climate change, has significant potential for solar, wind and hydropower.
In the midst of the energy crisis and deepening calls for decarbonisation globally, it is essential that countries receiving overseas finance for coal power also look to implement policies at home that would allow them to build energy resilience and security.