An Inconsistent Truth: China’s Domestic and Export Policies on Renewable and Coal Energy Technologies

Abstract

China has long been considered the largest emitter of pollutants and CO2, but this narrative has changed in the past decade as China has stepped up its efforts in reducing emissions and developing its renewable energy sector. Presently, China is decidedly the leader of renewable energy, and the country has dramatically reduced carbon emissions by shutting down small and inefficient coal-fired power plants. These measures demonstrate China’s commitment to action against climate change, but China’s overseas financing of coal-fired power plants contradicts these efforts. This thesis examines the drivers and implications of China’s exportation of renewable energy technology and financing of coal-fired power plants abroad to see why this inconsistency exists and whether it can be reconciled.

The main driver behind China’s exportation of renewable energy is domestic market overcapacity and high curtailment rates, meaning that electricity generated from solar or wind farms cannot be absorbed into the electricity grid and is therefore wasted. A limited domestic market and the fact that Chinese products are competitive abroad led firms to export their products. The main driver behind China’s financing of coal-fired power plants abroad is the shrinking domestic market caused by China’s shutdown of smaller, more inefficient power plants. Simultaneously, the country sought to increase its global influence by financing infrastructure and energy projects in developing countries. The exportation of renewable energy products was a firm-led effort to expand business opportunities, whereas the financing of coal-fired power plants was a government-led effort to advance geopolitical goals.

From the analysis of financing channels for the exportation of both types of technologies, it is evident that the central government could have direct control over capital allocation. China’s allocation of funds domestically between the renewable energy and coal industries reveals its clear preference for renewable energy. However, in financing energy project abroad, non-hydro renewable energy projects only receive one percent of Chinese energy financing. This apparent discrepancy in capital allocation shows that either China’s public commitments only apply to domestic policy and the country refuses to be a responsible player in its foreign policy or that the central government’s intentions cannot be effectively implemented. Either way, this inconsistency hurts the credibility of the Chinese government.

The impacts of China’s exportation of both types of technologies are vastly different. Coal-fired power plants are detrimental to health and the environment, while renewable energy produces few harmful byproducts and can grant universal energy access to remote communities. China has the financial and political ability to direct developing countries towards greener energy options, and it must exert that influence if it is to be a leader of action against climate change. The last chapter provides some recommendations to help China shape the future of energy generation.