China’s banks had already been quietly cutting back on funding for overseas coal projects this year. An official announcement to this effect was expected any day and is seen as a boost for the upcoming UN climate talks in Glasgow this November.

The exact meaning of China’s announcement is unclear. It’s not yet certain if it only applies to Chinese companies building coal plants overseas, or if it’s broader and includes financing both direct and indirect, investments in coal companies, and supplying equipment and technology for these projects.

There are two ways to view China’s announcement. Optimists believe the broad wording allows environmental groups to pressure China for a complete ban on coal support, similar to how 2020’s carbon neutrality pledge was expanded to include all emissions after lobbying. Pessimists see it as a symbolic gesture, suggesting any actual financing or investment in coal projects would be politically risky for Chinese companies.

This is a major development for funding coal plants around the world. China used to be the biggest source of money for new coal projects, investing between 6 and 8 billion dollars a year from 2017 to 2019. Leaders in China saw reports showing the need to stop funding coal, and by early 2021, they had already unofficially stopped new investments overseas. This announcement comes after discussions with important groups and further analysis of the situation.

While China had already been quietly reducing overseas coal funding, President Xi’s announcement at the UN makes it official. In China, formal international pronouncements like this carry significant weight, suggesting a strong commitment and reducing worries that the policy might be reversed.

China’s pledge to stop funding coal plants abroad is just one step. They’re still the world’s biggest coal power producer and have a massive backlog of planned coal projects at various stages. In 2020 alone, they built 38 gigawatts of new coal plants, which is a staggering 76% of all new coal power built globally that year. This surge was driven by provincial governments trying to boost the economy after COVID-19. To put that in perspective, Australia’s entire coal power capacity is only about 24 gigawatts, highlighting the sheer scale of China’s coal dependence.

There might be a shift happening within China. Even though they’re a major coal producer, there are signs of change. Shandong province, which uses the most coal in China, hinted in late 2023 that they likely won’t approve any new coal power projects beyond those already underway during their current economic development plan. This suggests a potential slowdown in China’s domestic coal reliance.

China’s coal power industry faces conflicting pressures. Coal plants are running far below capacity across the country. In 2019, even major cities like Shanghai saw their coal plants operating at just 37% of their potential. Hydropower-reliant regions like Yunnan were even lower at 24%. Even in coal-heavy Shandong, utilization dropped to just half capacity. These low utilization rates make it difficult for many coal plants to turn a profit.

There’s a flip side to the low coal plant usage. Recent blackouts in China’s northeast and Guangdong provinces have sparked concerns about meeting peak electricity demands in summer and winter. However, the real culprit seems to be high coal prices, not a lack of power plants. With these high costs, generators are cutting back on output to avoid losing money. Interestingly, the regions facing power rationing were only using less than half of their available power capacity. This suggests that the answer might not be building more coal plants, but reforming the energy system itself.

China’s central government is tightening its grip on approving new high-polluting projects. In early September, a new policy document was released that takes control away from provinces and puts it back in the hands of the national government. This move shows that reducing carbon emissions remains a top priority for China, aiming for an earlier and lower peak in emissions. The sooner and lower this peak is, the easier it will be for China to achieve carbon neutrality by 2060.

While China still faces a long road to reduce its reliance on coal, their recent announcements are encouraging steps. Pledging to stop funding coal plants internationally and potentially slowing down domestic projects show a commitment to move away from coal. However, significant efforts are still needed to truly accelerate this shift.

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