BILATERAL FINANCING OF THE POWER SECTOR AND IMPLICATIONS FOR THE GLOBAL LOW CARBON ENERGY TRANSITION

Abstract

The Paris Agreement climate target entails a rapid decarbonization of the global power generation sector by mid-century. This requires a fundamental redirection of international finance from fossil fuel infrastructure towards low carbon technologies. To date, most research on the power sector transition has focused on domestic and multilateral finance. Bilateral finance also plays an important role in fueling global power infrastructure development. However, understanding of its influence is limited. This dissertation fills this knowledge gap by evaluating the impact of bilateral financing on global power technology deployment as well as its implications for future CO2 emissions.

Chapter 2 focuses on the globally active Chinese development finance institutions (DFIs) and compares their overseas power generation financing with multilateral development banks (MDBs) as well as other East Asian national DFIs. I find that China’s two DFIs have dramatically increased their financing of overseas power projects since 2000. In the late 2010s, their power financing surpassed the major MDBs’ collective financing. As the MDBs stepped away from coal power financing, East Asian DFIs have filled this gap by continuing to finance overseas coal plants.

Chapter 3 analyzes bilateral financing of fossil fuel and renewable power technologies from the three biggest economies – China, Japan and the United States. I find that these three countries’ overseas financing between 2000 and 2018 through their development finance and greenfield foreign direct investment facilitated 233 GW power capacity additions globally. However, the majority of the facilitated capacity additions are coal, gas and hydroelectric power plants, while less than 10% are in non-hydro renewable technologies.

Chapter 4 analyzes Southeast Asia’s current power generation pipeline and its implications for long-term CO2 emissions and short-term electricity generation. I find that power plants which were under construction and planned as of mid-2020 will more than double Southeast Asia’s fossil fuel power generation capacity. As a result, Southeast Asia’s current power generation pipeline will commit 53 Gt CO2 emissions in the long term. In the short term, continued reliance on fossil fuel power generation in Southeast Asia may result in stranded assets of fossil fuel power and crowd out renewable technology deployment.