{"id":33658,"date":"2026-09-21T12:24:41","date_gmt":"2026-09-21T16:24:41","guid":{"rendered":"https:\/\/www.bu.edu\/gdp\/?p=33658"},"modified":"2026-09-21T12:24:41","modified_gmt":"2026-09-21T16:24:41","slug":"subsidised-retirement-beats-a-buyout-for-china-backed-coal-plants-and-only-china-can-make-it-happen","status":"publish","type":"post","link":"https:\/\/www.bu.edu\/gdp\/2026\/09\/21\/subsidised-retirement-beats-a-buyout-for-china-backed-coal-plants-and-only-china-can-make-it-happen\/","title":{"rendered":"Subsidised Retirement Beats a Buyout for China-backed Coal Plants \u2013 and Only China Can Make It Happen"},"content":{"rendered":"
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Jilin Dalu, China. Photo by Andreas Felske via Unsplash<\/figcaption><\/figure>\n

By Alex Clark<\/a><\/p>\n

In 2021, Chinese President Xi Jinping announced a halt to new public funding for coal plants abroad. By this point, China’s state banks and state-owned enterprises had already financed nearly 47 gigawatts of coal-fired power outside China, most of it built the previous decade. This fleet of China-backed plants, concentrated in South and Southeast Asia, could keep burning coal for decades past the 2040 deadline set by the International Energy Agency’s \u201cNet Zero by 2050\u201d scenario for phasing out unabated coal power.<\/p>\n

At a conservative carbon price of $100 per ton, retiring the entire Chinese-financed coal fleet 10 years early would also avoid $240 billion in social costs, without any additional investment in more efficient combustion technology or carbon capture.<\/p>\n

A new journal article<\/a><\/strong><\/em> published in the journal Applied Energy by GDP Center researchers and colleagues explores the options available for retiring these coal plants earlier than originally planned. Using a discounted cash flow model of a 500-megawatt coal plant as an illustration, built around real-world conditions in Vietnam and Indonesia, the study compares four routes to early retirement: buying out its owners outright, subsidizing the returns owed to its lenders and shareholders so they retire the plant early without losing money, funding a buyout with revenue from a price on avoided carbon dioxide emissions, or using that carbon revenue to fund a subsidy instead.<\/p>\n

A subsidy almost always beats a buyout<\/strong><\/h5>\n

The study revealed a major finding that buying out a coal plant’s owners in one lump sum, the most direct route to shutting it down immediately, may not actually be the cheapest option from a financial perspective. Subsidizing the interest and equity returns that lenders and shareholders would otherwise collect, spreading the cost out over time instead of paying it all at once, can achieve the same outcome for less.<\/p>\n

In the study’s baseline case, retiring the illustrative plant 20 years early costs $151 million through a subsidy, almost 20 percent less than the $184 million needed for a full buyout. Retiring it 15 years early costs $46 million through a subsidy versus $81 million for a buyout, about half the price, and retiring it 10 years early costs $11 million versus $33 million, roughly a third of the cost.<\/p>\n

Table: Cost of early retirement, illustrative 500 MW coal plant, baseline case with refinancing in year 5 of operation.<\/p>\n

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Source: Clark, Jindal, Gorbatyuk, Rafaty, Springer and Shrimali, “Designing financial instruments for accelerated coal plant retirements,” Applied Energy, 2026.<\/figcaption><\/figure>\n

A subsidy loses its advantage only where a government’s own cost of borrowing runs well below the plant’s overall cost of capital. In that narrower set of circumstances, a straight buyout can end up cheaper.<\/p>\n

Carbon prices needed to justify retirement are low<\/strong><\/h5>\n

The study’s other route to retirement, paying for plant closure with revenue from setting a price on the emissions avoided as a result, also turns out to be affordable in the context of global carbon prices. Fully funding the subsidy required to justify retirement with avoided-emissions revenue would require a carbon price of just $12.5 per ton of CO2 to retire the modeled plant 20 years early, falling to $2.8 per ton for a plant retired 10 years early. Every scenario the researchers modeled required a carbon price below $20 per ton, roughly one quarter of the market price on emissions in the European emissions trading system.<\/p>\n

Cheaper does not mean easier<\/strong><\/h5>\n

Attempting to chart a path from theory to practice, the study takes an in-depth look at the political economy of coal power in Indonesia, Vietnam and Pakistan, the countries hosting the largest, and in Vietnam’s case the oldest, share of China-financed coal plants, with average plant ages of nine, 13 and six years respectively as of 2025. In all three cases, state-owned enterprises dominate the power sector, electricity demand is still rising, and coal is still a primary source of electrical power even as its economics worsen steadily against cheaper solar and wind power.<\/p>\n

The prevalence of fossil fuel subsidies compound the problem. Indonesia, Vietnam and Pakistan spend the equivalent of 15 percent, 14 percent and 10 percent of GDP, respectively, on fossil fuel subsidies, much of it propping up coal and electricity prices in ways that make clean alternatives look comparatively expensive. Vietnam has moved furthest toward solar and wind power and pays the lowest government borrowing costs of the three, yet is still directing most of its fossil fuel subsidies toward coal and electricity rather than reforming them. Indonesia and Pakistan lag further behind on both clean energy policy and a structured plan for phasing out coal.<\/p>\n

Chinese DFIs are best positioned to act<\/strong><\/h5>\n

With domestic political economy heavily constrained by existing subsidy structures, power distribution among key actors, and rising electricity demand, the study argues that China’s own development finance institutions are the best placed to lead on early retirement. Their public and quasi-governmental status and alignment with China\u2019s environmental goals places them in a strong position to act to benefit to both China and host countries.<\/p>\n

China is unlikely to join the G7-backed Just Energy Transition Partnership model already operating in South Africa, Indonesia and Vietnam, and the Asian Development Bank’s Energy Transition Mechanism has limited reach into China-financed assets because of gaps in the financial instruments and market structures needed to make it work there.<\/p>\n

Instead, three more direct levers are possible. First, Chinese lenders could renegotiate loan terms or provide subsidies directly, in exchange for a committed early retirement date. Second, a plant’s debt and equity could be reassigned to a different Chinese institution, such as a state bank or infrastructure fund, with an explicit mandate to wind the asset down. Or third, ownership could transfer to an international blended finance vehicle that combines concessional and commercial capital. China has already established more than 20 overseas development investment funds that could serve as a home for assets marked for early retirement.<\/p>\n

Subsidised retirement can work with active Chinese participation<\/strong><\/h5>\n

While these recommendations prove a potential path forward, it will be challenging to resolve some of the underlying issues present. For example, coal plants in these countries sit inside power markets tightly controlled by domestic political and economic interests, making it challenging for market-based retirement tools to work on their own. However, the numbers suggest the financial case for early retirement is stronger and cheaper than the buyout framing that has dominated the debate so far. Turning that case into results will depend on Chinese lenders and equity holders coming to the table, as well as host governments directing the savings toward the renewable capacity needed to replace the coal power taken offline.<\/p>\n

This post summarizes findings from “Designing financial instruments for accelerated coal plant retirements: the case of China-backed coal plants in South and Southeast Asia,” by Alex Clark, Abhinav Jindal, Anna Gorbatyuk, Ryan Rafaty, Cecilia Springer and Gireesh Shrimali, published in Applied Energy, Volume 422 (2026).<\/em><\/p>\nRead the Journal Article<\/a>\n","protected":false},"excerpt":{"rendered":"

By Alex Clark In 2021, Chinese President Xi Jinping announced a halt to new public funding for coal plants abroad. By this point, China’s state banks and state-owned enterprises had already financed nearly 47 gigawatts of coal-fired power outside China, most of it built the previous decade. This fleet of China-backed plants, concentrated in South […]<\/p>\n","protected":false},"author":25773,"featured_media":33670,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[398,1070,156,72,1075,1],"tags":[4924,1765,2514,2943,5052,3613,802,2278,409],"_links":{"self":[{"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/posts\/33658"}],"collection":[{"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/users\/25773"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/comments?post=33658"}],"version-history":[{"count":13,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/posts\/33658\/revisions"}],"predecessor-version":[{"id":33689,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/posts\/33658\/revisions\/33689"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/media\/33670"}],"wp:attachment":[{"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/media?parent=33658"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/categories?post=33658"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/tags?post=33658"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}