Few countries are unaffected by China’s overseas investments. The country’s outward foreign direct investments (OFDI) have grownfrom $29 billion in 2002 to more than $424 billion in 2011. While these investments can bring economic opportunities to recipient countries, they also have the potential to create negative economic, social, and environmental impacts and spur tension with local communities.
To address these risks, China’s Ministry of Commerce (MOFCOM) and Ministry of Environment (MEP)—with support from several think tanks—recently issued Guidelines on Environmental Protection and Cooperation. These Guidelines are the first-ever to establish criteria for Chinese companies’ behaviors when doing business overseas—including their environmental impact. But what exactly do the Guidelines cover, and how effective will they be? Here, we’ll answer these questions and more.
Promoting forest protection and sustainable agriculture in the Amazon region is vital for local livelihoods and biodiversity, as well as for global climate regulation.
In early 2011, the state legislature of Mato Grosso, Brazil passed a controversial new state zoning law (ZSEE) that opened up 50,000 km2 of new forest areas for conversion to agriculture. In February 2012, following a high-profile civil society campaign and a public civil action suit, the law was suspended through an injunction by Mato Grosso’s State Court. The injunction states: “It is true that… there were… vices of form capable of undermining the law… However, more important is that by reason of these vices, there was impairment of natural goods and services and sustainable development, so there is a risk of impairment of human life. This is the strongest argument that… imposes the granting of the injunction.” In March 2012, Brazil’s Federal Zoning Commission ordered the state government to redraft legislation.
The Instituto Centro de Vida (ICV) – a founding partner of the Governance of Forests Initiative (GFI) – led the successful campaign by producing and distributing their analysis of the ZSEE / MT. This analysis was then used by civil society – including indigenous peoples, social movements, and researchers – as well as legislators and prosecutors in Mato Grosso. Civil society used all opportunities—such as seminars, public events, and protest letters—to denounce the new law. Meetings with more 250 people in attendance were convened.
Curbing Forest Loss
Within a month of the Governor sanctioning the new ZSEE, IMAZON, the other GFI partner in Brazil, documented a more than 500 percent spike in deforestation in Mato Grosso. The immediate public outcry, enforcement actions by the state, and the start of the state case in September, however, acted as immediate deterrents, and the rate of deforestation stabilized. However, without the decisions taken by the State Court and the Federal Zoning Commission, this increase in deforestation would likely have lasted longer, as the law effectively sanctioned past clearing and allowed new areas to be cleared.
These decisions marked an important victory for democratic decision-making and government accountability in a region where the rule of law relating to forests and agriculture is sometimes circumvented for political and economic gain.
Making Change Happen: WRI’s Role
GFI is a set of civil society organization partners in the United States, Brazil, Cameroon, and Indonesia dedicated to improving forest governance through evidence-based advocacy.
In 2010, WRI helped ICV to conduct a governance assessment of the Mato Grosso ZSEE process using a diagnostic tool, the GFI Framework of Indicators (v.1), developed by WRI, ICV, and IMAZON. ICV collected information and conducted interviews to compile a record of expert and civil society inputs into the bill’s drafting over 10 years, from 2000-2010. Armed with this evidence, ICV was able to quickly demonstrate the problems with the new law and start the outcry that led to this outcome.
Giving citizens a voice is essential to environmental and development progress - from reducing greenhouse gases to curbing deforestation to achieving the Millennium Development Goals.
At the June 2012 UN Conference on Sustainable Development (Rio +20), nine Latin American and Caribbean (LAC) governments took a giant step in this direction. Together, they pledged to begin negotiations leading to a groundbreaking Regional Convention that will enshrine public rights of access to environmental information, public participation, and justice.
As coordinator of The Access Initiative (TAI), an international network of hundreds of civil society groups, WRI played a pivotal role in the agreement by Chile, Costa Rica, Dominican Republic, Jamaica, Mexico, Panama, Paraguay, Peru, and Uruguay. Since then, Ecuador and Brazil have also joined the pledge.
Building Environmental Democracy
The rights of all citizens to information, participation, and justice on environmental issues that affect their lives were enshrined at the 1992 “Earth Summit” in the form of Principle 10 of the Rio Declaration. But in many countries, these principles have not been converted into practice, including in parts of Latin America and the Caribbean.
Much of the region is plagued by escalating conflicts over natural resources, mining, and new infrastructure such as highways and dams. In such situations, legally binding international agreements play an important role in strengthening citizens’ access rights, driving the development of national legislation and practices.
Making Change Happen: WRI’s Role
With Rio+20 providing an ideal launch pad for such an agreement, WRI created an international task force to promote a LAC Regional Principle 10 Convention.
In our role as TAI Secretariat, we made submissions to the United Nations that were reflected in the draft declaration by heads of state. WRI and our partners also engaged LAC governments and regional bodies such as the U.N. Economic Commission for Latin America and the Caribbean and the U.N. Economic Commission for Europe, both of which declared their support.
Following our high-level advocacy efforts, Jamaica and Chile took the lead in publicly calling for a regional, binding legal instrument to implement access rights.
The nine countries announced their agreement at a TAI event at the Rio+20 summit, underlining our key role. Chile hosted the regional governments in November 2012 to develop a road map to achieve the convention.
A regional convention in Latin America, following on one in Europe, will also promote the spread of access rights worldwide. TAI seeks to scale such regional models into global learning and action.
While reactions to President Obama’s newly announced climate plan have focused on domestic action, the plan actually has potentially significant repercussions for the rest of the world. These repercussions will come in part through his commitment to limit U.S. investments in new coal-fired power plants overseas. If fully implemented, the plan will help ensure that the U.S. government channels its international investments away from fossil fuels and toward clean energy. The move sends a powerful signal—and hopefully, will inspire similar action by other global lenders.
Developing countries will need about $531 billion of additional investments in clean energy technologies every year in order to limit global temperature rise to 2°C above pre-industrial levels, thus preventing climate change’s worst impacts. To attract investments on the scale required, developing country governments, with support from developed countries, must undertake “readiness” activities that will encourage public and private sector investors to put their money into climate-friendly projects.
WRI’s six-part blog series, Mobilizing Clean Energy Finance, highlights individual developing countries’ experiences in scaling up investments in clean energy and explores the role climate finance plays in addressing investment barriers. The cases draw on WRI’s recent report, Mobilizing Climate Investment.
The development of Indonesia’s geothermal energy sector—and the starts and stops along the way—provides an interesting case study on how to create readiness for low-carbon energy. By addressing barriers such as pricing distortions and resource-exploration risks, the country has begun to create a favorable climate for geothermal investment.
The History of Geothermal Power in Indonesia
Indonesia holds the world’s largest source of geothermal power, with an estimated potential of 27 GW. However, less than 5 percent of this potential has been developed to date. Indonesia began to explore its geothermal resource in the 1970s, with support from a number of developed country governments. The country made some progress in advancing geothermal development by the 1990s. However, development stalled during the Asian financial crisis in 1997-98 and was slow to recover.
In the early 2000s, a number of barriers limited investment in the sector, including a policy and regulatory framework that favored conventional, coal-fired energy over geothermal. Plus, the high cost and risk associated with geothermal exploration deterred potential investors and made it difficult to access financing from banks.
The Indonesian government took a number of steps to try to advance geothermal development and received support from a wide range of international partners, including multilateral development banks and developed country governments. In 2003, it passed a law to promote private sector investment in geothermal, establishing a target of 6,000MW installed capacity by 2020.
Rabayah Akhter, an intern with WRI's Electricity Governance Initiative, also contributed to this post.
When it comes to renewable energy, the Philippines is one of the world’s more ambitious countries. The country set out to triple its share of renewable energy by 2030 based on 2010 levels. The Philippines has one of Asia’s highest electricity rates, in part due to high costs of importing fossil fuels. Enhancing the country’s energy security and keeping power costs down have been the main drivers for setting renewable energy goals.
While the Philippines has demonstrated commitment to renewable energy, the process of achieving its goals has proven to be challenging. The World Wildlife Fund (WWF) in collaboration with WRI released a new report today, Meeting Renewable Energy Targets: Global Lessons From The Road To Implementation. The report documents the challenges and solutions to scaling up renewable energy in the Philippines and six other countries - China, India, Germany, Morocco, South Africa and Spain.
Successes and Delays
The Philippines’ experience--the strides and the delays--exemplifies the importance of good governance, including transparency, accountability, and participation. Without it, policies are unlikely to receive public acceptance or support. While it’s important to choose which policies to initiate in the energy sector, equally as important is fortifying the regulatory and institutional structures that back them.
Worldwide, one out of every five people lacks access to modern electricity. Affordability, quality of service, and social and environmental impacts pose great challenges in providing people with the power they need for lighting, cooking, and other activities. Good governance involving open and inclusive practices is essential to overcoming these pressing obstacles.
The situation worsened in 2003, when Prime Minister Thaksin Shinawatra set forth a plan to restructure Thailand’s electricity sector and privatize EGAT. Rather than improving Thailand’s electricity sector in the public interest, the plan for privatization was designed to increase capital for powerful stakeholders and upper management employees. It called to maintain EGAT’s unregulated monopoly in order to maximize profits, even at the expense of public needs and environmental vulnerabilities.
Thailand’s electricity sector seemed poised to worsen--until civil society groups stepped in.
Canada’s Prime Minister, Stephen Harper, took a significant step toward promoting transparency and reducing global poverty. He announced yesterday that Canada will implement mandatory reporting requirements for Canadian extractive companies operating both in-country and abroad.
This mandate will require Canadian extractive companies to publicly disclose the payments they make to foreign governments in exchange for permission to operate on their soil. This development will help promote transparency in the mining sector and, if implemented effectively, could help combat the “resource curse.”
Fighting the Resource Curse through Access to Information
Tackling the “resource curse” is a challenge of global proportions. The term applies to situations where, despite a country’s mineral or oil wealth, poverty is exacerbated in part by weak or corrupt institutions, government mismanagement of revenues, and a failure to re-invest into projects that benefit the public—such as infrastructure, education, and healthcare. Often, citizens of resource curse countries aren’t able to hold their governments accountable for this abuse of power because they lack information about their country’s revenues and expenditures (see Box).
It’s well-known that China ranks first in the world in attracting clean energy investment, receiving US$ 65.1 billion in 2012. But new analysis from WRI shows another side to this story: China is increasingly becoming a global force in international clean energy investment, too. In fact, the country has provided nearly $40 billion dollars to other countries’ solar and wind industries over the past decade.
China’s Overseas Wind and Solar Investments, By the Numbers
According to our research, Chinese companies have made at least 124 investments in solar and wind industries in 33 countries over the past decade (2002 – 2011), more than half of which were made in 2010 and 2011 (see Figure 1). Despite some gaps in the data that prevent us from generalizing about all of China’s wind and solar investments, we learned that:
Of the 54 investments for which financial data were available, the cumulative amount invested came to nearly US$40 billion.
China invested roughly US$10 billion in 16 wind projects and US$27.5 billion in 38 solar investments.
Of 53 investments with capacity data available, the cumulative installed capacity added was nearly 6,000 MW.
The majority of investments were in electricity generation. Several investments were made in manufacturing facilities and to establish sales and marketing offices.
Most of the investments were in developed countries. A huge amount went to the United States, as well as Germany, Italy, and Australia. A handful of developing countries—including South Africa, Pakistan, and Ethiopia—also attracted multiple investments.