While every energy-saving bulb makes a difference, there are only a small number of existential frontiers in our efforts to deal with climate change. Of these, China’s Belt and Road Initiative (BRI), involving over 70 countries from Central Asia to Latin America, has been dangerously ignored.
New infrastructure will be a major contributor to global carbon emissions over the coming decades, accounting for over half of new sources according to the World Economic Forum. Such investments in countries involved in the BRI could make up as much as 60 percent of global infrastructure investments over the coming two decades. That is, BRI-involved countries could be the single largest source of growing carbon emissions over this critical period.
A forthcoming report by Tsinghua University and partners has, for the first time, aggregated growth and carbon scenarios for BRI countries. Notwithstanding data weaknesses and uncertainties, the results indicate that these countries are currently on track to generate emissions well above 2-Degree Scenario (2DS) levels based on current infrastructure investment patterns and growth projections. BRI-involved countries could exceed their 2DS carbon budget by as much as 11 gigatons by 2030 and 85 gigatons by 2050. In this scenario, these countries would account for 50 percent of global emissions by 2050, up from 15 percent in 2015, if all other countries succeeded in following a 2DS pathway.
More optimistically, emissions would be 39 percent lower if BRI-involved countries achieved “historical best practices.” However, they would still fall short by 77 percent of the reduction required to align with a 2DS, resulting in their carbon emissions still exceeding the 2DS budget by a huge margin (38 percent) by 2050.
Making things harder, carbon emissions are usually locked in at the contractual stage of an investment. Indeed, infrastructure development planning involves long lead times that predetermine technology choices, which in turn shape institutions, behavioral norms, and outcomes, including carbon emissions for decades to come. This means that carbon emissions in BRI-involved countries could become largely locked in over the coming one or two decades.
Considerable efforts over recent years in raising awareness of investors about climate risks are to be applauded. Yet these efforts are unlikely to be effective in preventing carbon-intensive investments in BRI-involved countries. Carbon- and climate-related regulations in these countries are scarce and when they exist they are often inadequately enforced. Many carbon-intensive assets in countries involved in the BRI are less sensitive to economic stranding as they will sit on public balance sheets. Many cross-border, carbon-intensive infrastructure investments are de-risked by public institutions, notably export credit agencies and development banks.
Reducing Belt and Road Emissions
There is an urgent need to act at scale to ensure that low carbon infrastructure investment becomes a norm in countries involved in the BRI. The BRI itself makes a difference in two ways. First, it increases the scale and pace of infrastructure investment, although to varying degrees in different countries. Second, it raises the possibility of a more focused, leveraged set of climate-related interventions given the high concentration of financial flows and associated policy interest and influence.
Proposed here is a subset of four interconnected interventions. Countries involved in the BRI are the ultimate decisionmakers in matters concerning their own development, including infrastructure choices with their associated carbon and environmental outcomes. A recent study by the OECD, the U.N. Environment Programme, and the World Bank, “Financing Climate Futures,” highlighted the many possible, positive choices that could deliver climate and development win-wins. At the same time, it pointed to the many reasons that such choices were not being taken, including gaps in human and institutional capabilities, perverse incentives, and behavioral factors.
Such country-level work is essential, but takes time. It is important to recognize that such efforts are unlikely to bear sufficient fruit in the time window available to ensure the essential bend of the carbon curve. The unique influence of China over infrastructure investments in countries involved in the BRI is, therefore, the second aspect of the proposals set out here. China could make a huge difference simply by applying their increasingly stringent, domestically focused policy emphasis on climate and green finance. Specific emphasis could be placed on carbon emissions as this is an unregulated and de-risked pollutant with systemic externalities.
Mandatory risk assessment would make sense but not be sufficient. For low carbon development across countries involved in the BRI to be a serious proposition, China needs to desist from exporting coal-fired power generation technology. Such a prohibition would be entirely consistent with China’s international leadership on climate, and consistent with its domestically focused move towards green energy. Such a decision would be more productive if linked to three other developments. First, would be a plurilateral agreement to do likewise with other, major exporters of coal-fired power generation technology, including India, Japan, and South Korea, an agreement that could perhaps be brokered with help from other G-20 countries. Second, would be an agreement from major countries involved in the BRI to move away from purchasing such technology, clearly linked to the first set of proposals for country-level work. Third, would be to engage key parts of the nonfinancial Chinese business community to strengthen their interest and capacity to advance greener infrastructure offerings, particularly major construction and technology companies that account for a major part of the Chinese business community’s involvement in the BRI.
China will be the most significant investor in some countries involved in the BRI. Yet it is far from being the only one. International capital, in particular, will increasingly be crowded into these countries, often encouraged and even de-risked by Chinese financial flows and institutional policy arrangements. While such international capital might in principle flow from any nonChinese financial institution, most in practice will emanate from a small number of regional and global financial centers, notably Hong Kong, London, New York, and Singapore.
So, the fourth piece of the interconnected proposal is to work directly with leading institutions in these major financial centers, including policymakers, financial regulators, and, of course, leading financial institutions themselves, including asset owners such as pension funds. This would build on considerable progress already made in engaging such actors, including the Green Investment Principles for the Belt and Road promoted by China and the U.N., Climate Action 100+, the Central Banks and Supervisors Network for Greening the Financial System, and the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.
Building on these initiatives, proposed would be to ramp up the agreement to a set of green infrastructure investment principles that would be a requirement for all licensed financial institutions and be granulated to incentivize low carbon-intensive assets. Such principles would in part focus on a risk-based approach, but integrate broader policy considerations aligned to domestic and international commitments made by countries and regions in which these centers are based.
Testing the seriousness of moves to address the climate challenge leads to an intolerance of low-ambition, incremental initiatives. Rightly so, we do not have the luxury of being distracted by interesting and often easy side exercises. The Belt and Road Initiative is a case in point. It will shape the development of a major part of the world. Its many challenges and complications are matched only by the opportunity it offers to dramatically alter the scale of carbon emissions in the short time window available. The proposed approach at least offers a way forward commensurate with both the challenge and the opportunity.