The Secret Force Behind Asia's Coal Growth

“I want the government to give me and my friends a safe environment to grow up in. I want it to help me conserve it for future generations,” said Rabab Ali, a 7-year-old Pakistani who recently sued the government for developing coal-fired power plants in Sindh province’s Tharparkar district that used lignite coal, which is particularly low-grade and carries a significant environmental footprint.

Pakistan is one of South Asia’s headquarters of coal development, preparing to install 19 coal-fired power plants in the pipeline within the next 15 years and estimated to generate an additional 16,000 megawatts. And much like other developing countries in the region, it does not have enough money to fund these projects. The Water and Power Development Authority of Pakistan, as part of the China-Pakistan Economic Corridor, plans to draw 15 billion dollars from China over the next 15 years to finance its energy development.

“I want the government to give me and my friends a safe environment to grow up in. I want it to help me conserve it for future generations,”

Despite its commitment to green energy for domestic power demands, China has no qualms about funnelling money into at least 79 coal-fired generation projects, with a total capacity of over 52 gigawatts in countries such as Indonesia, Pakistan, Turkey and the Balkans,  as well as other places in Africa and Latin America. Though it is pushing to recreate its image from a coal-gorging, developing country to a green-energy leader, garnering praise for its promise to peak greenhouse gas emissions by 2030 at the UN Climate Change Conference in 2015, China’s public banks—the Exim Bank of China and the China Development Bank—are among the main forces pushing for coal development worldwide.

China, however, is not alone in its mission to finance dirty thermal energy projects. Leaders of the Organisation for Economic Co-operation and Development (OECD) and the Group of Twenty (G20) blocks—especially Japan, Germany and Korea—have violated their promise at the 2015 OECD meeting to stop financing coal plants. Since then, export credit agencies from these countries have continued to provide subsidized loans to overseas projects which, in turn, assist export industries in their home countries. Altogether, OECD superpowers provided 45 percent of the total lending for thermal energy projects around the world.  Meanwhile, from 2013–2016, G20 financing supported coal projects in Vietnam (9 gigawatts), Indonesia (9 gigawatts), India (6 gigawatts), Morocco (2 gigawatts) and Mongolia (2 gigawatts), among other places.

Vietnam’s biggest foreign investor is Korea, with registered investments of 55.6 billion USD, while Japan comes in second at 45.9 billion USD. Since Korea Electric Power Corporation (KEPCO) and the Japanese conglomerate Marubeni won the first international tender project in Vietnam for a large-scale coal-fired station in 2008, Eaton Vance Municipal Income Trust (EVN) has increasingly relied on Build-Transfer-Operate (BOTs) and other independent power producers to finance Vietnam’s skyrocketing power demands, assuming that Vietnam has reached its hydroelectric limits, while diesel, nuclear and of course, renewable energy, are all too expensive.

According to the Power Master Plan VII revised for 2016-2020 with a vision that in 2030, 22,000 of Vietnam’s 90,000 megawatts of electricity will come from sixteen new BOT power projects. Although many OECD countries try to justify their investments with claims of “bringing electric power to the poorest villages,” not a single coal-fired project in the past nine years has been built in OECD-designated low-income countries, such as Cambodia or Tanzania. Recipient countries mostly fall into the category of developing economies, with opaque government regulations and central planning committees eager to hog cheap energy.

Ironically, as the divestment movement gains global momentum, commercial banks—including Bank of America, Citigroup, Natixis and Wells Fargo—have been striving to eliminate coal from their financial profiles due to fear of stranded assets, which cost more to build than they would later generate in revenues.

Coal power plants have great risks of becoming stranded assets in the event of inaccurate forecasts by the government, which lead to excess capacity, or simply when externalities such as environmental damage and health impacts are taken into consideration. According to calculations made by the International Monetary Fund (IMF), an estimated 32.1 billion dollars per year are lost for every 20 coal plants, or roughly 1.6 billion dollars per year, due the costs of toxic emissions such as sulfur dioxide, nitrogen oxides, particulate matter and mercury.

This concept is not too difficult for wary private investors to grasp; the real challenge is to change the policies of public-financed banks like Korea Eximbank, which are too content to claim the profit margin from contracts for construction, equipment and technology, while recipient governments take care of the environmental and social ramifications when they arise.

It is hypocritical for countries in positions of power to say that they would “go green” and phase out domestic reliance on coal while ripping profit off of thermal plants in the developing world. In order to be seen as true leaders, they must stand by their commitments and abolish all forms of foreign investment in the coal sector, whether it be direct project financing in the form of loans, grants and equity financing or loans to financial intermediaries such as local banks and special government-managed funds.