COP26 Side Event Summary: Cooperation for Net-Zero and Climate Resilience – Ethiopian and Chinese Perspectives
By Xinyue Ma
As delegations from around the globe met in Glasgow to advance the world’s efforts against climate change at the 2021 United Nations Climate Change Conference (COP26) on November 10, the Ethiopian Ministry of Environment, Forest and Climate Change, the Boston University Global Development Policy Center, the Tufts University Climate Policy Lab and Chinese NGO Greenovation Hub hosted an official side event to discuss developing country perspectives on leveraging development finance to accelerate climate action and sustainable development. Specifically, the panel examined Ethiopian government efforts to promote climate resilience, the footprint of China’s overseas development finance, opportunities for shifting Chinese overseas energy finance towards net-zero and renewables and the outlook for international cooperation for a green recovery in the post-pandemic era.
The discussion began with Tefera Tadesse from the Ministry of Agriculture of Ethiopia introducing Ethiopia’s Rural Productive Safety Net Project (PSNP) Response to Climate Change. In Ethiopia, seasonal food insecurity is an ongoing challenge, which is compounded by soil and land erosion. Ultimately, public work is needed to reduce land degradation, adapt and mitigate climate change and improve food security and land productivity. The PSNP developed in response to these needs is an innovative land-based social security program that conducts activities, such as soil and water conservation, biological conservation, social infrastructure and small-scale irrigation and agricultural services. In operation for 15 years and implemented in nearly 6,000 community watersheds, the program covers nearly 4 million hectares and has over 8 million beneficiaries. Tadesse explained the program has generated multiple benefits, including climate change adaptation and mitigation, livelihood benefits and improvements in ecosystem management. Achievements include significant reductions in soil erosion and improvement in vegetation cover across different land covers, which led to a net sequestration of about 5.2 million ton of CO2e. Through the small-scale irrigation program, the proportion of households practicing irrigation and water availability has also increased and the average amount of months with sufficient food have increased in some areas.
Next, Cecilia Han Springer, Senior Researcher with the Boston University Global Development Policy Center, presented and discussed China’s role in overseas development finance, especially in the energy sector, with an eye towards opportunities of moving towards net-zero and renewable energy.
Drawing on data from the China’s Overseas Development Finance Database, one of five databases maintained by the Boston University Global Development Policy Center on China’s overseas activity, Springer noted that China’s overseas development finance has reached the same scale as the World Bank, despite a decline since 2017. Springer explained China’s development finance is highly concentrated in just three sectors, including transportation, extraction and pipelines and the electric power sector, highlighting the need to focus on China’s energy-related overseas activities.
Since the 76th United Nations General Assembly in September 2021, much has been made of Chinese president Xi Jinping’s commitment for China to step up support for other developing countries in developing green and low carbon energy and to not build new coal-fired power projects abroad. Summarizing a recent policy brief, Springer explained the scale of impact of Xi’s announcement will ultimately depend on whether the moratorium applies to projects under construction, or just those under planning, and whether it will apply to finance, as well as construction arrangements. China’s overseas coal pipeline includes more construction arrangements without associated finance, i.e., providing equipment and construction services.
Explore Cecilia Han Springer’s presentation slide deck:
Springer then explained how China is poised to lead a global scale up of renewable energy for several reasons. First, China has the technical expertise as a world leader on manufacturing wind and solar technologies. Chinese state-owned enterprises that have traditionally focused on fossil fuel and hydropower development, are increasingly diversifying towards supporting renewable energy, supported by high level commitments and targets on the part of the national government. In fact, Chinese investment in overseas renewable energy development has already grown fourfold over the past five years. Chinese policy banks also have experience in mobilizing overseas finance at a large scale. The question now is how this finance will be transferred from fossil fuels to renewables.
Looking forward, Springer recommended China commit a high proportion of its overseas finance portfolio to financing for renewable energy targets and towards supporting countries’ Nationally Determined Contributions (NDCs) as part of the Paris Agreement. There is ample financial opportunity for doing so – a recent study by the Boston University Global Development Policy Center estimated developing countries outside China have an $800 billion opportunity in renewable energy investment to meet their NDCs. In addition to more specific policy guidance on Xi’s announcement, China can also seek to achieve international best practices and move from commitments to policy programs and concrete assistance. Finally, China could leverage its financial resources through triangular cooperation, South-South cooperation and engagement with other development finance institutions to increase support for renewable energy overseas.
Kelly Sims Gallagher, Professor and Director of the Climate Policy Lab at the Fletcher School, Tufts University then introduced findings from case studies on the drivers of Chinese overseas investments in renewable energy through its policy banks, providing insight on how China can scale up its renewable energy investment. The study covered Chinese policy bank-financed renewable energy projects in nine countries across the world, comparing them with coal-fired power projects financed by China.
According to the study, the most important driver of Chinese investment is policy targets and incentives in host countries. Chinese investors value certainty, either through predictable policy incentives, or bilaterally negotiated contracts with the host government. A wide assortment of policies incentives are found to have been met with ready willingness from Chinese investors and technology providers, who can very quickly mobilize attractive full-service packages. Ethiopia is in fact a typical example of a country with a clear power sector plan and a specific list of renewable energy projects that it would like to pursue, and Chinese companies and institutions were ready and willing to finance and help build those plants.
Another important driver is declining technology costs. Although technology costs for renewable energy were still relatively high just a few years ago, the Chinese were still willing to invest. Now that the technology cost barrier has essentially been overcome, other barriers, such as inexperience with renewables, lack of transmission and distribution infrastructure and concerns about grid integration, have taken precedence. According to Sims Gallagher, the international community needs to focus more on transmission and distribution infrastructure, and take a systematic approach to renewable electricity provision.
Next, Hongyu Guo from Greenovation Hub spoke on the potential priorities for China’s international cooperation in the post-pandemic era, especially after China’s recent commitments towards a net-zero carbon and climate-resilient future.
Zooming in on the post-pandemic era, changes are already being observed in China’s overseas investment activities, as China’s investment in the Belt and Road Initiative (BRI) countries increased by 20.6 percent year-on-year in 2020, and China’s foreign direct investment (FDI) share in solar and wind power surpassed FDI for fossil fuels for the first time since the BRI was launched.
Xi’s announcement this September to support green and low-carbon energy and stop building new coal power projects overseas also came one year after China’s carbon neutrality commitment. It is also coupled with domestic policy updates, including the strengthened Green Bond Endorsed Projects Catalogue, Guidelines on Green Development of Outbound Investment Cooperation and the White Paper on International Development Cooperation in the New Era, emphasizing higher standards for green finance and overseas activities. Even though questions remain, these documents are seen as a clear political signal to investors, public or private, and changes are already observable.
Guo also reviewed lessons that can be drawn from China’s side on greening international cooperation, and suggested three areas of enhanced cooperation for China’s pursuit of zero-carbon and climate-resilient cooperation. First, Chinese entities need to enhance the understanding of other developing countries’ real demand based on their respective national situations. Second, drawing on China’s own domestic lessons and experience with green transitions, China could facilitate more knowledge sharing with other developing countries in areas such as policy planning regarding carbon neutrality, just energy transition and finance for transitioning. Third, stakeholder engagement is also key for promoting zero-carbon and climate resilience in international cooperation. Meanwhile, Guo added the linkage between biodiversity and climate change cannot be ignored.
Among the wide range of developing countries that include both finance providers and recipients, what can be done collaboratively to achieve sustainable development in a climate resilient manner? While significant financial, technical and policy obstacles exist, developing countries, including China and Ethiopia, are on the path to overcoming these barriers and reaching net-zero and climate resilience. Overall, the presentations and dialogues in the panel demonstrated that when policies are scientifically designed and effectively implemented, positive outcomes can be generated and further maximized through experience sharing and international cooperation in complementary sectors.
With new and reinforced resolutions following COP26, this side event highlighted hopes for the Global South and international community to continue engaging in dialogue and cooperation initiatives in the years to come.