This article was originally published by the China Council for International Cooperation on Environment and Development (CCICED).
On March 28, the Chinese government published a key policy document on the further greening of the Belt and Road Initiative (BRI), entitled “Opinions on the Joint Implementation of Green Development in the Belt and Road Initiative” (the “Opinions”). It was jointly issued by four of the most relevant ministries for the development of the BRI – the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs (MFA), the Ministry of Ecology and Environment (MEE), and the Ministry of Commerce (MOFCOM).
The document is comprehensive and ambitious. It reaffirms that no new coal power plants will be built in the BRI. But the document is much broader than that, covering the development of “green” infrastructure projects in power and transportation, industry and manufacturing, green finance, and cooperation on standards within the BRI. It specifically talks about reducing and controlling project-level environmental risk and makes reference to the BRI International Green Development Coalition (BRIGC), which championed the Green Development Guidance (aka Traffic Light System) policy framework. It furthers the commitment to fully implement the Paris Agreement in the BRI.
Given the turbulent geopolitical environment of today, it is heartening to see that China isn’t backsliding on its efforts to green the BRI. In fact, this document is a major step forward for a green BRI compared to the previous “Guiding Opinions on Promoting Green Belt and Road Construction” that was issued by the same four ministries in 2017. The new document also recognizes continuing environmental risks in the BRI, while emphasizing the need for stability.
These ‘opinions’ have no legal weight and cannot be enforced in court, but they do set a clear direction for the government departments, companies, and financial institutions involved in the BRI: in China’s policy context, this is of course much more than just an ‘opinion’. We expect the document will be carefully read, and implemented, by all key stakeholders, including project developers and financial institutions.
In this article, we share some initial observations on the contents of the Opinions.
Coal-fired power plants
Article 14 in the Opinions is sure to be the most closely watched, as it specifically covers coal-fired power plants. It is the first official interpretation of Xi Jinping’s pledge to the United Nations General Assembly in September 2021 to no longer build new coal-fired power plants overseas.
Apart from prohibiting new coal-fired power plants, Article 14 mentions to “…cautiously implement existing coal power projects”, which could be interpreted in different ways. Its ambiguity may reflect an ongoing debate about exactly how to deal with existing projects – and exactly where to draw the line on “new projects”: can projects that are already well planned but potentially not financially closed go ahead, such as the Gwadar project in Pakistan? ‘Cautiously’ may also suggest pulling out of projects, for example, if they encounter difficulties.
Article 14 also mentions to “promote the green and low carbon development of overseas coal-fired plants which have already been built”. This probably refers to the retrofitting of existing coal plants, if that would make them cleaner and/or more efficient. While that could be an improvement in some cases, there would be a risk of an increase in the lifetime emissions of such projects, especially if the retrofit involves an expansion in capacity. From a climate perspective, capacity expansions are very similar to new coal plants, so they should certainly not be allowed.
Targets for 2025 and 2030
The Opinions include time-bound targets for 2025 and 2030, although they are a bit hard to measure. In essence, by 2025 we should see clear progress towards a green BRI, and by 2030 the green development of the BRI will be basically formed.
This is consistent with previous policy – the 2017 Guiding Opinions stated that in 5 to 10 years a relatively complete ecological and environmental protection service, support, and guarantee system would be built.
The most recent Green Development Guidance published by BRIGC in October 2021, recommended that “financial institutions and enterprises are encouraged to add no new ‘red’ projects and phase out existing exposure to ‘red’ projects by focusing investments on projects in their portfolio with an ambitious timeline.”
Breadth and depth
The Opinions highlight a wide range of projects for green development, including green infrastructure, energy, transportation, industry, and trade. In terms of supporting tools and methods, it emphasizes cooperation on green finance, technology, and standards. Both climate mitigation and adaptation are mentioned as key areas.
The Opinions spell out quite a few specific requirements and mechanisms. For example, cooperation in a range of green sectors is encouraged, including:
- Green infrastructure development: enterprises should carefully select sites and routes to minimize the impact on protected areas and ecologically fragile areas and improve green development throughout the project lifecycle from construction to operation, management and maintenance;
- Green energy: the focus will be on high-efficiency and low-cost renewables, nuclear, smart grids, hydrogen, energy storage, carbon capture, utilization, storage, etc. The inclusion of smart grids and energy storage is important, as they play a key role in accommodating a higher share of renewable energy;
- Green transportation: promote low carbon shipping and aviation, new and clean energy vehicles, and encourage enterprises to participate in railway electrification upgrades, and develop multimodal transport and green logistics;
- Green industry: encourage enterprises to invest e.g. in the new energy industry and new energy vehicles, and to set up equity investment funds to support industrial development in the BRI countries.
- Green finance: Under the framework of the UN and multilateral cooperation such as G20, to promote voluntary guidelines and best practices. Projects should leverage international financial institutions – which often would have specific environmental standards, and specifically encourage financial institutions to adopt the Green Investment Principles (GIP) for the Belt and Road Initiative for promoting green finance. Financial institutions and enterprises are encouraged to carry out green financing in the international market, and vice versa and international financial institutions and companies are encouraged to issue green bonds and make green investments in China.
- Technology cooperation: the Opinions highlight scientific and technological research and application and improving the “Belt and Road” Science and Technology Innovation Action Plan for joint research;
- Green standards cooperation: the Opinions highlight the need to participate more actively in the development of international standards, strengthen BRI standards, and publish more industry standards and guidelines in line with international standards.
Environmental laws and standards
Building on previous policy documents on greening BRI, this Opinion re-emphasizes the need to strictly follow host country laws on environmental protection. However, contrary to the 2017 Opinions and in line with the 2021 and 2022 Guidelines by MOFCOM and MEE, the new Opinions also encourage enterprises to follow international or Chinese environmental standards, such as for project environmental risk management. Relevant industry associations are expected to create codes of conduct for protecting the environment in enterprises’ overseas investments.
Environmental impact assessments are another highlight, required at the project level. Article 18 asks to identify environmental risks and perform EIAs before initiating construction. This is clearly in line with the Green Development Guidance for BRI Projects, initiated by the BRIGC in 2020, which includes a “traffic light system” to help avoid and mitigate environmental impacts throughout a project’s life.
Article 18 also asks to develop guidelines for key industries. This would follow the work of the BRIGC, which has recently published a Guide for Highways and Railways, and a Guide for Enterprises and Financial Institutions.
In article 13, the Opinions even suggest “regulating” the environmental behavior of enterprises abroad, which would be a significant change compared to the previous “encouragements” to apply international standards.
The Opinions are co-issued by four ministries and specify the key role of the Belt and Road Construction Leadership Group, which is a coordinating body established by the State Council. These issuing bodies confirm a solid endorsement by the central government.
As to the target group, the Opinions point to a wide range of recipients. Compared with previous documents, this list of addressees is of much wider coverage, explicitly incorporating authorities in the finance sector and transport sector. Responsibility also lies with private parties, such as financial institutions, industry associations, and enterprises.
It is very encouraging to see this continued effort to green the BRI. The Opinions draw on the technical studies conducted by the BRIGC, which has worked to advance environmental protection and low carbon development in the BRI since its establishment by China’s Ministry of Ecology and Environment and international partners in 2019.
As the next steps, we would hope to see an increased emphasis on multi-stakeholder governance mechanisms, such as environmental disclosure and public participation. Further clarification on pathways to accelerate the reduction of environmental risks from existing projects would also be helpful, such as the phase-out of ‘red’ projects, as specified in the BRIGC Green Development Guidance. The formulation of green development guidelines for key overseas project investment sectors is also essential.
A possible new area to explore in the BRI could be debt-for-nature or debt-for-climate swaps, which might be a way to respond to debt crises in some BRI countries by swapping debt for nature or climate action, such as nature-based solutions of stepping up renewable energy deployment.
Overall, the Opinions are ambitious and comprehensive. They provide a clear policy signal for further greening China’s overseas investments in the next years. This is extremely timely, as the world is facing increasing pressure from climate change and biodiversity loss. China, as the main finance and trade partner in most of the BRI countries, can play a key role in the green and low-carbon transition for many developing countries.