Environmental Stress Testing for China’s Overseas Coal Power Investment Project

Abstract

The advance of the Chinese “Belt and Road” initiative encourages increased overseas investment in coal power projects. However, it also brings about external environmental risks. In this paper, we use the approach of environmental stress testing to examine China’s overseas coal power investment projects by focusing on two countries: Indonesia and Vietnam. We first identify five key testing factors (i.e., coal price, utilization hours, exchange rate, carbon tax, and environmental protection requirements) by examining the market regulation and the environmental risks of coal power projects along the “Belt and Road” countries. Then, we observed changes in the enterprise value and internal rate of return (IRR) by setting different scenarios in which the values of the five stress factors varied. The results show that (1) the economics of coal-fired projects in Indonesia is most sensitive to exchange rate, while the economics of coal projects in Vietnam is most sensitive to coal price; (2) the pressure of nationally determined contributions (NDC) goals on environmental protection will push the “Belt and Road” countries to implement more stringent environmental regulation, which will reinforce environmental stress on overseas coal power investment. These results have important policy implications for the enterprise, industry, and Chinese government.

Revisiting the energy-economy-environment relationships for attaining environmental sustainability: evidence from Belt and Road Initiative countries

“…However, China's strategic Belt and Road strategy allows the country to allocate carbon-producing ventures to the BRI associate countries. This has been evident from the fact that almost 65% of the energy-intensive investment within the BRI scheme is planned for coal power projects (Xiong et al 2019). The portion of the fund for clean energy production is found to be extremely negligible.…”

“…China is on the way to establishing 240 coal energy power projects in 25 BRI associate nations. Moreover, the country intends to establish 92 more such plants in 27 other BRI countries (Xiong et al 2019).…”

China's Carbon-Energy Policy and Asia's Energy Transition

“…This inefficient, pollution-intensive coal power increases the social cost of Chinese foreign power plants, which is US$29.7 billion annually, even by conservative estimates (Gallagher, 2018a). By contrast, NDCs to the Paris Agreement encourage host countries to prop up environmental pressures on foreign coal power investments (Xiong et al, 2019). It is argued that an increasing number of coal power projects have been opposed by fierce local protests and raised political debates, causing substantial delays and cancellations (Boulle, 2019;Vidal, 2016).…”

Country Evaluation for China’s Hydropower Investment in the Belt and Road Initiative Nations

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