The Problem With China’s Promise To Stop Funding New Coal Power Plants Abroad

A truck transports coal in a coal mine in South Kalimantan, Indonesia, April 2018. Photo: Dominik Vanyi/Unsplash

When China announced, in late September, that it would stop financing the construction of new coal plants overseas, Indonesia looked to be one of the most impacted countries. The Southeast Asian nation is one of the world’s most prolific builders of coal-fired power plants, often with Chinese support.

Three months later, however, not one of the eight Chinese-funded coal plant projects in the permitting or planning phase in Indonesia has been shelved. Instead, the only major coal-related news was in October, when Indonesia’s Powerindo Cipta Energy and state-owned China National Chemical Engineering Corporation announced they would conduct a feasibility study into building a $560 million coal-to-methanol gasification plant in Meulaboh, a city in Indonesia’s Aceh province.

Coal gasification is a century-old technology in which coal is converted into a liquid gas that can then be used for industrial or transportation purposes. In recent years, the coal industry has revived gasification as an alternative to importing natural gas and petroleum. But observers say China’s financing of the Meulaboh project violates the spirit of China’s pledge to stop funding coal plants abroad, suggesting that China will merely shift to gasification and other fossil fuel-related projects in Indonesia rather than, as hoped, clean energy.

Andri Prasetiyo, program manager at Trend Asia, an Indonesian nonprofit that focuses on accelerating the transition to clean energy, said the announcement made China’s pledge seem like an “empty commitment.” Christine Shearer, program director for coal at Global Energy Monitor, a California-based NGO that tracks fossil fuel projects around the world, called it a “worrying development,” telling Mongabay, “It’s certainly a concern that coal gasification may be a loophole in the commitment to ending coal financing.”

The pledge by China, which has been responsible for $15 billion in financing for coal-fired power plants in Indonesia, follows similar commitments by South Korea and several banks, such as U.S.-based Citibank, Japan’s Sumitomo Mitsui Financial Group, and the state-backed Japan Bank for International Cooperation. But unlike most of those pledges, China’s is specific to coal-fired power plants, leaving investments into alternatives like coal gasification open, something that is increasingly unlikely for other financiers, says Ghee Peh, an energy finance analyst at the Institute for Energy Economics and Financial Analysis who has been tracking coal gasification. Because of that, “It’s Indonesian or Chinese banks [that] would have to finance these projects” in Indonesia, Peh said.

Moreover, China, unlike Japan and South Korea, also has a large domestic coal gasification industry, and thus the capability to export this technology abroad to countries like Indonesia.

At the same time, Indonesia, a top producer and exporter of coal, has been pushing gasification at home as an alternative to expensive imports of liquid natural gas and to boost demand for the commodity, which is likely to fall as key importers such as Vietnam, Japan and South Korea shift away from coal-fired electricity generation.

Now, China’s investment in the Meulaboh project could open the door to more financing to develop additional gasification projects in Indonesia, which could help lock in the use of Indonesian coal for decades to come.

“Indonesia cannot develop coal gasification by itself,” Andri told Mongabay. “One plant will need 28 to 30 trillion Indonesian rupiah [$1.9 billion to $2.1 billion], a huge amount of money, impossible if there is no foreign investment.”

At the recent U.N. climate summit in Glasgow, Indonesia joined more than 40 countries in pledging to transition away from coal power generation by the 2040s. At the same time, under President Joko Widodo, Indonesia has promised billions of dollars of support for gasification in the form of lower royalties on coal and subsidies while also seeking foreign investment to expand the industry.

Just weeks after China’s announcement — and days after the climate summit — Indonesia announced that US-based Air Products and Chemicals, a leading provider of gasification technology, would invest $13-15 billion in several gasification projects, though details, such as the financial and underwriting partners, were unclear. Still, the timing, so soon after the climate summit, raised concerns.

“Jokowi made a commitment that Indonesia could phase out from coal, if there is support from other countries, but just after he attended COP, he signed another coal gasification project,” Andri said, referring to the president by his popular nickname. “There is inconsistency between Jokowi’s commitment and his actions towards climate issues.”

Air Products, which did not respond to an interview request, has said it uses carbon capture and storage technology, which is meant to reduce carbon emissions from coal plants, and produces synthetic gas that it considers a “clean transportation fuel.”

From an energy perspective, though, the difference is merely technical, according to Peh.

“You could say that a methanol plant is converting a black rock, coal, and that looks cleaner when you burn methanol, but the hydrocarbon content is the same,” he said.

There’s also widespread skepticism about the viability of carbon capture technology, and it is unclear whether it will be implemented in Indonesia.

“They are offering carbon capture technology, but it’s not yet established,” Andri said.

“We think this technology is just an excuse. The Indonesian government should just focus on developing renewable energies that are proven [rather] than focusing on an unsure technology like carbon capture.”

This is reminiscent of arguments used to promote coal-fired power plants. Despite promises of clean coal and proposals to build carbon capture facilities, thus far, there are no carbon capture or clean coal projects under construction in Indonesia. In fact, the Indonesian plants being built by not only China, but Japan and South Korea, often have lower pollution standards than in their home countries.

While Andri and others say they’re still hopeful that China’s coal pledge will have an impact in Indonesia, so far, they’ve been left disappointed. To them, it’s more of the same. China’s financing of coal plants in Indonesia ramped up when its Belt and Road Initiative, a plan to invest in infrastructure projects in dozens of countries, was announced in 2013. Indonesia has seen massive investment by China in coal power plants, mining and even nickel smelters using coal power, but not a single wind or solar clean energy project.

“We are still waiting for a serious climate commitment from China,” Andri said.

He said his concern is that any decommissioned or canceled coal-fired power plant would merely result in the coal being sent for gasification, resulting in no change in coal production — or greenhouse gas emissions.

“If we are really going to achieve the climate target, and prevent the climate crisis from getting worse, it’s not just stopping coal-fired plants,” he said. “A real coal phaseout means any kind of coal processing, including coal gasification, should be stopped.”

This article was first published by Mongabay and has been republished here under a Creative Commons license.