Abstract
The advance of the Chinese “Belt and Road” initiative encourages increased overseas investment in coal power projects. However, it also brings about external environmental risks. In this paper, we use the approach of environmental stress testing to examine China’s overseas coal power investment projects by focusing on two countries: Indonesia and Vietnam. We first identify five key testing factors (i.e., coal price, utilization hours, exchange rate, carbon tax, and environmental protection requirements) by examining the market regulation and the environmental risks of coal power projects along the “Belt and Road” countries. Then, we observed changes in the enterprise value and internal rate of return (IRR) by setting different scenarios in which the values of the five stress factors varied. The results show that (1) the economics of coal-fired projects in Indonesia is most sensitive to exchange rate, while the economics of coal projects in Vietnam is most sensitive to coal price; (2) the pressure of nationally determined contributions (NDC) goals on environmental protection will push the “Belt and Road” countries to implement more stringent environmental regulation, which will reinforce environmental stress on overseas coal power investment. These results have important policy implications for the enterprise, industry, and Chinese government.
Highlights
In 2013, China proposed the “Belt and Road” initiative (BRI) in order to promote common prosperity and development through enhanced inter-country trust and cooperation [1]
This paper developed an environmental stress testing tool to examine the environmental risks of China’s overseas coal power investment
We elaborated the overall framework of stress testing and provided an in-depth case study to showcase how best to employ the proposed method: Vietnam and Indonesia were used as two national cases and two specific case coal power projects
Summary
In 2013, China proposed the “Belt and Road” initiative (BRI) in order to promote common prosperity and development through enhanced inter-country trust and cooperation [1]. This paper applied the environmental stress test to China’s overseas investment in coal power projects, and analyzed the influence of environmental risk on the economy of projects in Indonesia and Vietnam. These were chosen as the case nations because they are the largest coal power FDI investment destination countries of China.
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