China’s Pledge to Curb Coal Investments: The Backstory

Last week, the US and China announced a “common vision” for tackling climate change, an announcement that was intended to generate political momentum in the run-up to the United Nation’s Framework Convention on Climate Change talks in Paris this December.

One of the most notable portions of China’s commitment is an agreement “to work towards strictly controlling public investment flowing into projects with high pollution and carbon emissions both domestically and internationally.” This announcement took many observers by surprise, prompting the question: where did this pledge come from?

The White House was quick to point to the Administration’s role in securing this commitment. An Administration fact sheet says that “This follows a commitment in 2013 by the United States to end public financing for new conventional coal-fired power plants except in the poorest countries, and a growing number of other countries and financing institutions moving in a similar direction.” (And for the backstory on that, see our 2013 blog.)  No doubt China’s commitment was partly due to U.S. leadership –  many other countries and multilateral institutions, at the urging of the U.S., have since followed the U.S. example.

But the coal financing restriction wasn’t built on U.S. or international pressure alone. It has some pretty strong foundations in Chinese banking policy.

Some ten years ago, the State Council, China’s highest government authority, issued policies that required all Chinese banks to curb lending not only to the coal sector but to 14 industries that were considered highly energy intensive and highly polluting (the “two highs” policy).  The China Banking Regulatory Commission followed up with more specific regulations to limit banks’ total number of loans to these industries, to prompt banks to suspend or decline some loans to those sectors and to retract loans that were previously disbursed to polluting corporations.  And these requirements applied to all Chinese banks, not just publicly owned ones.

So not only is the notion of restricting coal lending hardly new in China, but one could argue that China is far ahead of the U.S. in this respect. (Indeed, it is a global leader when it comes to establishing banking policies to promote environmental protection. In another notable example, in 2012 China upgraded its groundbreaking Green Credit Policy to require Chinese banks that lend overseas to ensure that borrowers abide by international environmental and social norms when doing business abroad.)

Consider how much more impressive this week’s China-U.S. climate announcement would have been had the U.S. followed China’s lead and announced that all banks on Wall Street — including J.P. MorganChase and Citigroup, among the top ten global lenders for coal power — would have to curb their coal loans.

Of course, policies are one thing; implementation is another. Despite how impressive Chinese environmental banking policy is, Chinese banks still are by far the biggest financiers of coal mining and coal power around the world. All of the top ten global coal mining financiers are from China, and six of the world’s biggest financiers of coal power are from China. And the implementation caveat goes for the U.S. too. Even though the Obama Administration can claim credit for helping to inspire public banks around the world (including the World Bank, the European Investment Bank, and the public banks of France, U.K., the Netherlands and Nordic countries) to institute coal financing restrictions, as recently as this summer, the U.S. Ex-Im bank was reported to be considering an outrageous coal mining project that would export Australian coal through the Great Barrier Reef and has been a huge financier of other massively harmful fossil fuel projects.

In sum, in the run up to COP 21 it would have been a much more impressive (although still insufficient in terms of what’s needed to address the climate crisis) had both countries taken the Paris Pledge and announced their intentions to prohibit all banks from funding the coal sector. Real commitments with real teeth behind it? That’s “momentum” I could get behind.