In the coming weeks, President Obama will travel to China to participate in what will be a number of “lasts” as president: his last G20 meeting; his last trip to China; and likely, his last opportunity for an in-person bilateral meeting with his Chinese counterpart. But it will also be a first opportunity for our two countries to demonstrate that climate change will remain a critical part of our bilateral relationship at the highest political level in the era of the Paris agreement.
On this front, there is reason to be optimistic. Since their first bilateral summit in 2013 in Sunnylands, California, climate change has been a consistent and largely positive aspect of President Obama and President Xi’s interactions—and, by extension, in the interactions of our countries. This has manifested itself both in terms of ramped up technical cooperation and coordination in areas ranging from stronger vehicle efficiency to energy R&D. Such work has contributed to an improved diplomatic relationship that ultimately steered the Paris negotiations onto the path to success.
To date, these interactions have largely, and rightly, been focused on enhancing and coordinating climate action within our respective borders. But now is the time to elevate attention to what our countries are doing to promote—or undermine—sustainable, climate-friendly development around the world. Promoting such development abroad will be critical to meeting the goals of the Paris climate agreement globally.
For its part, the U.S. is still working to fulfill its share of a collective commitment by developed countries to mobilize $100 billion per year in public and private finance by 2020 to help developing countries reduce carbon pollution and adapt to a changing environment. It has ramped up efforts in this regard and been increasingly successful at using public finance tools, such as support from its Overseas Private Investment Corporation, to catalyze much larger flows of private investment. An OECD analysis found that total climate-related finance from developed to developing countries had climbed to $62 billion in 2014. So, while progress has been made, we and other countries have much more work to do to fulfil this important commitment under the Paris climate agreement.
China, meanwhile, has established a dedicated Climate Change South-South Cooperation Fund through which it plans to deliver initially $3.1 billion of support for climate-friendly development. This is an encouraging sign and a key driver in a larger trend—clean energy investment from developing to developing countries grew by more than 15-fold from 2004 to 2011, with some estimating such finance reached $10 billion in 2013.
However, most consequential for our planet will be the direction of China’s much larger overseas development finance investments over the coming decade.
According to a recent study by Boston University’s Global Economic Governance Initiative, from 2007 through 2014 global assets of China’s largest delivery mechanisms for FDI—its Development Bank and Export-Import Bank—totaled $684 billion. This is roughly equal to the global assets of the World Bank and all of the regional multilateral development banks combined.
Over this same period, China doubled its energy-related development finance to $117 billion. About three-quarters of that flowed to fossil fuel projects of some variety, with two-thirds of it dedicated to coal-fired power projects alone. Only about a quarter of China’s energy financing goes to renewable energy, and barely one percent of that goes to non-hydro renewables.
Moreover, in the past 15 years China has helped to finance more than 50 coal-fired power plants abroad, with the majority using highly inefficient sub-critical technology. In the course of their 30-year lifetime, these power plants will emit more than the total 2015 emissions of the U.S. and China combined.
China is poised to play an even larger role in this space given its leadership in the new Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (the so-called “BRICS Bank”), as well as its $40 billion bilateral Silk Road Investment Fund. The AIIB is mobilizing $100 billion with the aim of reaching $250 billion by the end of 2020; the BRICS bank is mobilizing $50 billion to start, with a goal of $100 billion by 2020.
How closely these new multilateral banks or the Silk Road Investment Fund will follow China’s past practice of heavily funding fossil fuel-intensive projects is still unknown. But if they do follow that model, then we will be building a world incompatible with the objectives of the Paris agreement.
President Obama and President Xi can make the most of their last opportunity to demonstrate joint leadership in the climate space by squarely confronting this challenge. The foundation was laid during President Xi’s visit to Washington, D.C. last year, when China committed to “strengthen green and low-carbon policies and regulations…both domestically and internationally”—a goal the U.S. should and does share. Together, the two countries must get to work on making this a reality.