The Impact of China’s Financing for Coal on Climate Change and Agriculture in Africa

 In op-ed

Back in September 2020, President Xi Jinping announced China would aim for carbon neutrality by 2060, followed by setting more ambitious Nationally Determined Contributions (NDCs) for 2030. Such bold commitments appeared to reflect Beijing progressing towards adopting climate-friendly policies, premised on low-carbon and renewable technologies.

Despite these new commitments, China continues to fund coal projects worldwide, Africa being no exception. This is somewhat a double-edged sword. On the one hand, Chinese-funded coal plants help provides power across Africa, as currently, around 53% of the population lacks access to electricity. On the other hand, there is mounting pressure on governments to close existing coal plants and end coal financing, as at current trends emissions from coal power is predicted to be over three times larger than what is compatible with the Paris Agreement by 2050 (see figure 1). Although it must be noted that Africa accounts for only 2% of total carbon emissions.

Source: Climate Analytics

So just how much of Chinese financing goes into coal-power plants across Africa? Let’s dig into the data. As the China-Africa Loan Database reveals, out of 178 power sector projects from 2000 to 2019, only 7 are coal plants. Although this appears relatively low, coal plant funding is planned to escalate. In 2020, 13 new coal plants across the continent were planned to go ahead, totaling 32,174 mega-watts – almost 3 times the current output of coal plants of 11,874 MW. This will significantly contribute to Africa’s carbon output. Take South Africa as an example – it is one of the top recipients of Chinese coal financing, with coal contributing to around 90% of its energy mix.

Whilst financing of coal plants may increase power supply, it has simultaneously produced negative externalities for agriculture – the backbone of many livelihoods and economies across the continent. As the most carbon-intensive fossil fuel, coal pollutes the air, water, and soil. This pollution has detrimental impacts on crop production and can even render arable lands unusable. For instance, the poisonous dust from power plant chimneys dries up trees and leads to lower agriculture output. By 2050 it is estimated that there will be a 10.6 % decline in crop mean yield across African regions. Moreover, this arable land acts as crucial carbon storage, but it is estimated that the continent could lose two-thirds of its arable land to desertification.

Considering that over 60% of the African population depends on agriculture as a source of livelihood, with around half of the population (approximately 670 million people) facing increasing levels of food insecurity, the impact of climate change on agriculture is one we cannot afford to ignore. This is becoming increasingly pressing as the continent’s population is set to double by 2050.

Incidence of heat stress during the hottest month in Africa. Source: International Labour Organization

But can climate action, increasing electricity access and protecting agriculture go hand-in-hand? If so, what role can China play in all this?

Beijing often opts for a bilateral approach in its engagement with Africa. Although at times this can be beneficial and is also partially attributed to African choices, it has also resulted in minimal contributions to the African Union’s (AU) continental frameworks. These frameworks have been developed to formulate strategic plans for industrial transformation. China has provided minimal contributions to the Comprehensive Africa Agricultural Development Program (CAADP), focused on agriculture-led development, with cooperation being limited as investments tend to be small-scale and country-specific.

And of course, agricultural-led development requires energy. This is where the AU energy framework – the Program for Infrastructure Development in Africa (PIDA) – comes in. PIDA’s remit concerns developing regional and continental infrastructure, including renewable energy projects. As with CAAPD, China’s contributions to PIDA have been lacking, with one report estimating that only 9 out of 76 PIDA projects have involved Chinese partners, the reason being that Chinese stakeholders do not have a coordinated approach to PIDA.

African countries themselves also have high renewable energy goals directly related to agriculture. For example, Cote d’Ivoire aims to intensify and mechanize agricultural production sustainably through integrating renewable energy plans with the agricultural sector. Similarly, Mali aims to keep the country as a carbon sink by minimizing carbon emissions in energy, agriculture, and land-use sectors, whilst Zambia’s carbon emission targets are organized around sustainable agriculture and renewable energy.

A total of 52 African countries’ NDCs have commitments to either develop energy efficiency policies or launch renewable energy projects, with three countries, Ethiopia, South Africa, and Sierra Leone, announcing carbon neutrality goals.

Clearly African governments are looking to incorporate renewable energy into their agricultural management and production processes.

Considering All This, What Are Some Practical Next Steps Policymakers From Both Beijing and Africa Can Take?

First, both African and Chinese policymakers should pursue a green recovery in the post-COVID-19 context. This refers to enforcing policies that support climate change mitigation. As noted by Hannah Ryder, CEO of Development Reimagined, “the costs of acting NOW to address climate change will be lower than the costs of doing nothing”. Governments have spent huge sums of money on COVID-19 recovery, with an average of 2.6% of GDP spent by African countries. Governments should look to prioritise policies which are climate-friendly to contribute towards a green recovery.

But How Can a Green Recovery Be Translated Into Concrete Policy Actions?

For Chinese partners, Chinese financiers of African coal-fired plants, namely the Industrial Bank of China, the China Export-Import Bank, and China Development Bank, should reduce their investment portfolio that funds coal.Evidence demonstrates that there is significant Chinese financing into renewable energy resources – however, post-COVID, this should become a norm, not the exception.

Importantly, Chinese partners should engage with the AU frameworks and country-level goals through financing at the intersection of energy and agricultural projects. For example, some African governments have established agro-industrial zones, which focuses on value-addition in agricultural goods for export. Ethiopia and Egypt have established agro-industrial parks with other countries having plans in the pipeline. Yet, most projects have not documented any plans to include renewable energy. The Egyptian agro-zone mentions the possibility of incorporating biogas, whereas, in Madagascar, there is a mention of the proposed zone being linked to pre-existing solar energy networks. There is clearly a gap here which Chinese partners should look to support. Overall, this will contribute to AU frameworks including CAAPD and PIDA.

Another point is for green projects planned before COVID to not be downgraded in importance. There have been cases of renewable projects being cancelled, as in Zambia where a US$548 million deal for three solar projects by Power China fell through due to debt concerns and fiscal squeezes from COVID pressures.

African governments should push for demand-led green recovery. Agricultural cooperation, with a focus on localisation and skills development, should be a priority. For example, African governments should encourage Chinese partners to establish public-private partnerships in the agricultural sector, which would support the sectors development through knowledge and skills transfer. Specifically, there should be a focus on increasing value-added agricultural goods. China produces its own staple cereals and grains, but does look to import value-added and specialist agricultural products. Cultivating the value-chain to meet these demands will provide more diversification in African economies whilst stimulating job creation.

I am hopeful that the targets set by Beijing for 2060 and 2030 can be achieved. However, Beijing cannot simply offshore its coal plants to Africa, otherwise, agriculture will consistently remain under threat. A green recovery must be prioritised and demanded by African governments, and Chinese partners must act now to avoid future costs.

By King Carl Tornam Duho for Development Reimagined. King is an independent finance and economic consultant based in Ghana. The report was originally published on The China Africa Project on June 25th 2021.

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