Opportunities for US-China Engagement on Development Finance for Overseas Renewable Energy

Photo by Sander Weeteling via Unsplash.

A dramatic scaling of renewable energy (RE) is needed to achieve global climate goals, particularly in the Global South. 

However, increasing geopolitical tensions between the United States and China have spilled over into the realm of climate cooperation, stymying collaboration and climate action. Time is of the essence for finding ways to leverage American and Chinese financing to accelerate and expand RE investment in the Global South.

Given the central roles that China and the US play in RE deployment and finance globally, how can China and the US expand their engagement and cooperation to support the development of RE in the Global South?

A new working paper by Joanna Lewis and Cecilia Springer argues that US-China coordination and cooperation could increase resources available for RE development in developing countries through multilateral, bilateral and triangular engagement. Their analysis finds that the greatest gains for the climate can be had from the initiatives that require close cooperation and engagement, which underscores the importance of US-China engagement abroad.

Main findings: 
  • There is substantial complementarity in the institutions and instruments that the US and China have deployed to promote renewable energy development finance overseas.
    • Both the US and China have provided bilateral financing to overseas energy-related projects heavily skewed towards fossil fuels.
    • The leaders of both China and the US have also both recently announced that they would stop financing coal plants overseas.
  • Given the relative specializations of their respective development finance institutions, there is opportunity for further US-China coordination and cooperation on overseas RE. 
  • The initiatives with the largest potential impact on RE deployment are the establishment of a joint clean energy investment bank funded by both countries, followed by project specific financing and a joint investment instrument focused primarily on de-risking any other investments. 
    • These are among the least politically viable options due to the extensive coordination that would be involved. 
  • In contrast, the set of initiatives focused on investment standards and principles ranked among the most viable, requiring relatively minimal bilateral coordination which would likely have less impact if implemented in the absence of a broader set of initiatives focused on finance.

In all, the authors recommend a focus on the following areas for expanding US-China engagement on renewable energy development finance: 1) joint project finance, 2) joint capacity building efforts and 3) parallel bilateral investment principles and standards. 

They say these three areas pose a significant potential for accelerating the RE transition by increasing financing opportunities in the Global South. Even in the current political environment, Lewis and Springer argue these are areas where leaders and officials in both countries should see a common interest and benefit to expanding cooperation and coordination. If initiatives under these three categories are implemented in tandem, they will most certainly have a bigger impact on RE deployment than if only one of the three is implemented. 

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