Chart of the Week: Energy Finance Commitments by Major Development Finance Institutions, 2016-2021

By Christina Duran

Last month, countries met in Egypt for the 2022 United Nations Climate Change Conference (COP27) to discuss progress on achieving climate goals with a focus on the Global South.

The presence of one country in particular loomed large at the conference – China. While it is presently the largest carbon dioxide emitter, China has also been positioning itself as a leader in green energy development finance around the world.

After Chinese leader Xi Jinping’s September 2021 announcement that China would stop building new overseas coal power plants, recent guidelines on greening the Belt and Road Initiative (BRI) by 2030 and a new concept note on green energy cooperation, with an emphasis on Global South partnerships and development, have followed in recent months.

However, China’s energy development finance has hit a historic low since the takeoff of its Belt and Road Initiative in 2013. In March 2022, Xinyue Ma, Cecilia Springer and Honest Shao released an update for the China’s Global Energy Finance Database, an interactive database tracking lending commitments for global energy projects by China’s two global policy banks, finding that China’s policy banks provided no new energy finance commitments in 2021 for the first time this century.

For the researchers, this development was not unexpected, given the residual impacts of the COVID-19 pandemic, the high risks of debt distress in developing countries and the global trend away from fossil fuel financing, especially coal.

Despite the sharp decrease in lending commitments from Chinese policy banks to the global energy sector in the past two years, this Chart of the Week, Figure 2.0 from their accompanying policy brief shows lending over the past five to six years is still higher in total than that of the major multilateral development banks (MDBs) combined.

Indeed, China has provided more energy sector loans to public entities than any other MDBs in the world. The chart illustrates a large spike in energy financing from China’s two major policy banks, China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM) in 2016, followed by a subsequent decline on trend with other MDBs, until it reached $0 in 2021. Even with zero energy finance commitments in 2021, CDB and CHEXIM have issued a total of 331 loans to 68 foreign governments and associated entities in the energy sector since 2000, totaling $234.6 billion. From 2016-2021 alone, CDB and CHEXIM disbursed 92 loans worth $75.1 billion to 37 foreign governments and associated entities in the energy sector. This amount far exceeds total energy sector lending by the World Bank over the same period.

What does this mean for the expected new wave of green energy finance from China?

China’s much-anticipated green transition for its overseas energy sector participation may be driven by other forms of engagement. Another recent study analyzed the potential of foreign direct investment (FDI) to tackle system-level constraints to drive renewable energy transition. Furthermore, an October 2022 working paper found that while overseas development finance from China’s policy banks has been declining, China has diversified its outward finance towards emerging special investment funds, which the researchers term overseas development investment funds. 

Given China’s continued emphasis on South-South energy cooperation, China is likely to continue shifting its global energy leadership towards greener sources of energy.

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