The Carbon Externality of Investments Financed by China’s Development Banks: The Case of Energy Investments in Central Asia

Abstract

Abstract Most Chinese overseas energy investments financed by China’s development banks flow into fossil fuel extraction and coal-fired plants. The carbon intensity of Chinese foreign energy investments imposes environmental and social costs on host states. Building on the literature related to the environmental reform of the World Bank, this article critically analyses the carbon-intensive projects backed by China’s development finance in Central Asia. It shows that China’s energy investments in the region will face increasing carbon-related regulatory risks. So far, the transition towards a more environmentally-driven development policy has been limited in China. However, the increasing importance of climate regulations in host countries is likely to induce fundamental changes to the project-screening process of China’s energy development finance.