Can China’s Belt and Road Initiative build growth and stay green?

From left, ACWA Power President and CEO Paddy Padmanathan, TS Group Advisor Ali Siddiqui, Chinese National Development and Reform Commission Energy Research Institute Senior Fellow Han Wenke, European Bank for Reconstruction and Development Director of Energy and Natural Resources Aida Sitdikova, and Citi Group Managing Director and Global Head of Environmental Finance and Sustainability Mike Eckhart participate in a panel at the Atlantic Council Global Energy Forum in Abu Dhabi on January 13, 2019.

China’s massive global energy and infrastructure investment is already paying off.

Five years ago, “Pakistan was suffering from large amounts of brownouts [and] huge challenges in infrastructure,” according to Ali Siddiqui, an adviser with Pakistani financial services company JS Group and former ambassador of Pakistan to the United States. But after engaging closely with China’s Belt and Road Initiative “there is a large amount of investment that has been made in the power sector, in roads, and soon there will new investment from China in rail. Once that is done, our entire infrastructure shortage will be completed,” Siddiqui said.

Siddiqui was joined by experts in energy infrastructure building and financing in a session on China’s Belt and Road Initiative (BRI) at the Atlantic Council’s 2019 Global Energy Forum in Abu Dhabi on January 13. Despite growing unease among US President Donald J. Trump’s administration about China’s massive infrastructure spending program, the panelists were in general agreement about the benefits Beijing’s outreach is giving to a region in desperate need of energy and transportation infrastructure.

As Asia’s economies continue to grow and attempt to pull millions of people out of poverty, “over a trillion dollars per annum is really needed for infrastructure and something like half of it needs to go into energy,” said Paddy Padmanathan, president and chief executive officer of Saudi energy company ACWA Power. In order to achieve that high level of spending, countries throughout Asia “need to be able to finance it over twenty-five or thirty years,” which is precisely what BRI provides, Padmanathan said.

While the United States and other Western nations may prefer funding and development be provided by private corporations, Mike Eckhart, managing director and global head of environmental finance and sustainability for Citi Group, explained that most private banks cannot provide the kind of high-risk long-term loans that China can. “It is a growth opportunity as we see it,” Eckhart said, “we welcome this Chinese capital coming out.” The benefit for Citi Group, Eckhart explained, is the knock-on effects of the massive infrastructure projects, which Citi Group can help its clients access through short-term funding and trade financing.

Padmanathan added that BRI will really just be the opening salvo for an investment spree in Asia, as private banks will begin to jump in to infrastructure projects once they have gotten off the ground and proved viable. Additionally, as Asian countries contract private companies to help them build BRI projects, they are gaining access to technologies that were previously unattainable by many of these countries’ state-owned enterprises “at almost no cost,” Eckhart said.

Despite the value of BRI in jumpstarting much-needed infrastructure spending in Asia, the project has significant implications for the global fight against climate change, according to Aida Sitdikova, the European Bank for Reconstruction and Development’s director of energy and natural resources in Russia, Caucasus, and Central Asia. BRI countries account for 50 percent of greenhouse gas emissions and should these countries stay on their current track they are projected to eat up almost two-thirds of the total “carbon budget” listed in the 2015 Paris agreement on climate change by 2040, Sitdikova explained.

Han Wenke, a senior fellow at the Chinese National Development and Reform Commission’s Energy Research Institute, believes that the introduction of “green development” as a program in BRI by Chinese President Xi Jinping in 2016 demonstrates that Beijing understands “the importance of low-carbon development,” and will lead to more embrace of renewables and clean energy technologies as BRI projects mature. But, as Eckhart pointed out, of BRI’s energy projects “half is hydrocarbons and half is coal. So [renewables are] almost. . . incidental to the BRI strategy.”

Padmanathan was more confident about Asia’s ability to incorporate more renewables as “it is only in the last four or five years that renewable energy in this part of the world has become compelling… cost competitive.” He said “more than half of the new [power] capacity” his company builds now is in renewables. While some may feel that Beijing has a responsibility to promote green technologies, Padmanathan argued that “the responsibility should be on the procurer to drive competitive tension, to make the right fuel choices, and go forward.”

David A. Wemer is assistant director, editorial at the Atlantic Council. Follow him on Twitter @DavidAWemer.