Pushed to Finance? Assessing Technology Export as a Motivator for Coal Finance Abroad

Remaining below 2°C global temperature warming as stipulated by the Paris Agreement requires phasing out fossil fuels in the power sector, but coal power alone has the potential to exhaust the emissions budget for 1.5°C if all plants currently planned were realized and run until the end of their expected lifetime. In fact, coal capacity installed globally has been increasing since the early 2000s with 46 gigawatts (GW) added in 2022, translating into a net growth of 20 GW for coal-fired power plants worldwide.

What factors are driving continued investment in the coal industry, despite its substantial environmental costs?

In a new journal article published in Environmental Research Letters, Niccolò Manych and coauthors provide the first quantitative evidence documenting how the opportunity to export technology has motivated coal finance abroad.

Using a novel dataset that tracks both public and private financial involvement on a coal unit level, including information on equipment manufacturers and service providers, the authors find that financial institutions from various countries, including China, Japan, South Korea and Western nations, provide loans to coal units overseas. These finance flows, particularly from publicly owned banks, are accompanied by technology exports from the same country. 

Complementing their quantitative analysis with semi-structured interviews, they also find indications that political economy factors, such as public banks’ requirement for participation of domestic firms in financing deals and the unlocking of export business opportunities for domestic industries in financing countries, contribute to this correlation. 

Their findings highlight the importance of financing countries and their domestic industries for low-carbon transitions globally. For instance, diminishing business opportunities for coal overseas can be offset by domestic plant construction, as currently experienced by China. Other governments such as Japan and South Korea increasingly support the export of natural gas plants and related infrastructure in order to support their domestic industries. Suggesting a ‘green’ alternative, the authors advise financing countries to strengthen their domestic low-carbon firms by strategically supporting the export of renewable energy technologies through public investment.