Cross-border finance is a key component of promoting low-carbon technologies and helping countries align with the goals of the Paris climate accord. But the world’s three largest economies have largely focused their funds on fossil fuel plants, potentially creating greenhouse gas problems for decades, according to recently released research findings.
The United States, China, and Japan have used their funding to contribute to power generation capacity growth in lower-income countries, but “this finance is not well aligned with global decarbonization goals,” according to a Boston University blog post about the study.
“If climate targets are to be met, replacing bilateral fossil fuel financing with financing of renewable technologies is crucial,” the study said.
Projects financed by the three countries between 2000 and 2018 will have contributed 24 gigatons of carbon dioxide to the atmosphere by 2060, the research found. A gigaton weighs as much as 10,000 fully loaded U.S. aircraft carriers.
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The big three: The three largest economies' overseas financing has led to 233 gigawatts in new power capacity since 2005, with more in the planning stage. The overwhelming majority of capacity additions rely on fossil fuels. “China, Japan, and the United States are the largest bilateral financiers,” Xu Chen, one of the researchers behind the study, told Devex.
Why bilateral finance matters: The study notes that multilateral development banks have been moving away from funding fossil fuel plants and stopped providing new funding for coal-fired plants. The World Bank recently said it would only support gas “in specific cases.” Therefore, the researchers said, it is crucial to better understand bilateral financing, which has been a relative laggard.
Why now? Fossil fuel plants lead to “carbon lock in” for decades, the study argued, because these facilities have long life spans. Bilateral financing must quickly switch to sustainable power generation if climate targets are to be met.
About the author
Shabtai Gold
Shabtai Gold is a Senior Reporter based in Washington. He covers multilateral development banks, with a focus on the World Bank, along with trends in development finance. Prior to Devex, he worked for the German Press Agency, dpa, for more than a decade, with stints in Africa, Europe, and the Middle East, before relocating to Washington to cover politics and business.
