Chart of the Week: Opportunities for US-China Engagement on Overseas Renewable Energy Development Finance

By Claire Paul

Ahead of a bilateral meeting on November 15, China and the United States announced an agreement to jointly tackle global warming by ramping up wind, solar and other renewable energy with the goal of displacing fossil fuels.

The agreement comes just weeks before global leaders, policymakers and other key stakeholders will meet in the United Arab Emirates for the 2023 United Nations Climate Change Conference (COP28) to discuss progress on achieving climate goals with a focus on the Global South.

The world’s two largest energy users and greenhouse gas emitters, China and the US, will both be in attendance. Both countries have made serious commitments to supporting renewable energy (RE) transition, especially in Global South countries, but before this most recent agreement, bilateral cooperation had been at a low.

Namely, political tensions have restricted channels of communication and collaboration between the two countries. This impasse has extended to issues that require joint efforts like climate change, development and RE transition, where both countries have focused on their own domestic agendas, for example, the Inflation Reduction Act in the US. The mutual opposition currently entrenched within US-China relations has limited pathways to international collaboration.

How do these factors impact coordinated RE financing for the Global South from China and the US? And what are opportunities for US-China engagement on overseas RE development finance?

In an April 2023 working paper, Joanna Lewis and Cecilia Springer outline viable paths for US-China joint collaboration on overseas RE financing projects, charting the potential impact and level of required coordination. This Chart of the Week, detailing Figure 3 from the working paper, shows options ranging from closely-coordinated financing projects to interrelated policy goals with varying levels of impact.

In assessing high-impact policies, the authors weigh projects against their ability to open new lines of development financing for Global South countries, as limited funding is a major barrier to clean energy deployment. Accordingly, they designate a joint clean energy investment bank as the initiative with the highest-projected impact for channeling RE financing into developing countries, while recognizing its tenuous political viability. Other direct financing measures, such as co-financing or coordinated project finance, are also ranked as high impact, high coordination activities.

The authors mark trade policy initiatives, such as agreements on tech transfer or shared standards for traded products, as another area that could enhance Global South countries’ ability to finance clean energy projects. However, existing political tensions surrounding trade and intellectual property may inhibit implementation.

Using parallel investment principles and standards under either a bilateral or multilateral framework is regarded as the most feasible in the current political climate, but the authors flag it as likely to have a limited impact on increasing lines of funding for developing economies’ RE transitions.

To maximize both US-China cooperation as well as RE financing opportunities for the Global South, the authors’ final recommendations call for a focus on joint project finance, joint capacity building efforts and parallel bilateral investment principles and standards.

Ahead of COP28, these strategies could pose a significant potential for accelerating RE by increasing investment opportunities in the Global South. To Lewis and Springer, both the US and China can benefit from joint collaboration – not only to act upon their complementary strengths, but also to realize their ambitious climate goals for the Global South and beyond.

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