Financing carbon lock-in in developing countries: Bilateral financing for power generation technologies from China, Japan, and the United States. (15th October 2021)

• Record Type: Journal Article
• Authors: Chen, Xu; Li, Zhongshu; Gallagher, Kevin P.; Mauzerall, Denise L.
• Is Part Of: Applied energy. Volume 300(2021)
• Publication Date: 2021-10-15
• Subjects: Bilateral financing -- Development finance institutions -- Foreign direct investment -- Power generation -- Committed carbon emissions -- Decarbonization; Power (Mechanics) -- Periodicals; Energy conservation -- Periodicals; Energy conversion -- Periodicals; 621.042
• DOI: 10.1016/j.apenergy.2021.117318
• Languages: English
• ISSNs: 0306-2619

Abstract

Highlights: We find China, Japan, and the U.S. to be major financiers of overseas power plants. Most of their financed power capacity additions are from coal and gas plants. Bilateral financing of fossil fuel plants locks in carbon emissions for decades. It is urgent to align bilateral power sector financing with the Paris commitments. Abstract: Power sector decarbonization requires a fundamental redirection of global finance from fossil fuel infrastructure towards low carbon technologies. Bilateral finance plays an important role in the global energy transition to non-fossil energy, but an understanding of its impact is limited. Here, for the first time, we compare the influence of overseas finance from the three largest economies – United States, China, and Japan – on power generation development beyond their borders and evaluate the associated long-term CO2 emissions. We construct a new dataset of Japanese and U.S. overseas power generation finance between 2000 and 2018 by analyzing their national development finance institutions' press releases and annual reports and tracking their foreign direct investment at the power plant level. Synthesizing this new data with previously developed datasets for China, we find that the three countries' overseas financing concentrated in fossil fuel power technologies over the studied period. Financing commitments from China, Japan, and the United States facilitated 101 GW, 95 GW, and 47 GW overseas power capacity additions, respectively. The majority of facilitated capacity additions are fossil fuel plants (64% for China, 87% for Japan, and 66% for the United States). Each of the countries' contributions to non-hydro renewable generation was less than 15% of their facilitated capacity additions. Together, we estimate that overseas fossil fuel power financing through 2018 from these three countries will lock in 24 Gt CO2 emissions by 2060. If climate targets are to be met, replacing bilateral fossil fuel financing with financing of renewable technologies is crucial.