China’s pledge to end building coal plants abroad improves Belt and Road’s reputation, development bank says

China’s pledge to stop building new coal-fired power projects overseas could improve the reputation of its massive Belt and Road Initiative, said the president of the Asian Infrastructure Investment Bank.

Chinese President Xi Jinping made the pledge on coal on Tuesday at the United Nations General Assembly. He said China will support other developing countries to move toward to green and low-carbon energy, but did not provide further details.

“I think this is very much [an] important policy initiative taken by China,” Jin Liqun, president of AIIB, told CNBC’s “Squawk Box Asia” on Thursday.

“It could enhance the reputation of the Belt [and] Road Initiative,” he added.

Jin said Beijing has been grappling with how to balance demand from other countries for coal-fired power plants with its climate commitments. Xi said last year that China aims to become carbon neutral by 2060.

“Now, I think the decision is made,” he said. “The next step is for China to do its utmost to export renewable technology to these low-income countries.”

The Belt and Road Initiative or BRI is an ambitious program to build physical and digital infrastructure connecting hundreds of countries from Asia to the Middle East, Africa and Europe. The U.S. and many countries have criticized the BRI for financing building projects — particularly those involving coal — that harm the environment.

Burning coal produces a large amount of carbon emissions, and countries such as Japan and South Korea have previously said they will stop funding overseas coal power projects.

Coal projects were a consistent feature of the BRI in the last few years. In 2015, coal accounted for 46% of China’s energy investments through the BRI, according to the International Institute for Green Finance, a Beijing-based think tank.

China has started to move away from such projects, and has not invested in any new coal plants in the first half of 2021, research by the think tank found. Countries such as Japan and South Korea have previously said they will stop funding overseas coal power projects.

China has built nuclear power plants domestically, but it could focus on other other forms of clean energy for other countries, said Jin.

“The best way is to develop hydropower, and wind and solar,” he said. “With new technology, particularly in solar, I think cost effectiveness and efficiency would be greatly enhanced.”

In 2020, more than 57% of Chinese energy investments overseas through the BRI were in hydro as well as solar and wind projects, said International Institute for Green Finance. Coal made up 26.85% of those investments, said the think tank.

However, some countries may not be able to retire their coal plants on schedule, said Shirley Zhang, principal analyst at energy consultancy Wood Mackenzie.

“Due to the relatively young coal plant ages in developing Asia and the lack of new coal financing, countries may be forced to extend the life of their existing coal fleets to accommodate a less disruptive transition,” she said.