Multilateral development banks and initiatives key to funding RE development

Multilateral platforms including MDBs, intergovernmental forums and international treaties, provide a potential avenue for the US and China to engage in promoting RE finance abroad, as detailed below. Benefits of multilateral engagement include the ability to leverage existing platforms and mechanisms, and the ability to coordinate in a public and more neutral space, relative to bilateral engagement.

MULTILATERAL DEVELOPMENT BANKS Multilateral development banks (MDBs) in which the US and China are both shareholders, including the World Bank, the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the African Development Bank (AfDB) and the Inter-American Development Bank (IDB), provide an existing channel for coordination on RE finance. All of these MDBs have policies or programs in place to support increasing RE investment, particularly in developing countries (Ray, Bhandary, et al. 2021).

Prior scholarship has argued that MDBs are an important venue for increasing coordinated support for global public goods and sustainable infrastructure (Bhattacharya et al. 2019) (N. Lee 2017), of which RE projects that contribute to climate mitigation are a key part. In 2015, MDBs and the International Development Finance Club (IDFC) agreed on a set of Common Principles for finance to mitigate climate change and to support adaptation to climate change (AfDB et al. 2021). Studies, along with the MDBs themselves, have pointed to the need for better coordination across institutions to better harmonize their approaches and methodologies in promoting climate finance (Citi Global Perspectives and Solutions 2021).

There are also significant challenges to coordination with MDBs, and to the US and China increasing coordination for RE projects both within and across MDBs. For example, the US and China have different stances within MDBs about what types of projects should receive support, with China favoring infrastructure and the US favoring social sectors (Yu 2017). Furthermore, the US and China have somewhat differing strategies towards engagement in the MDBs, with the US favoring more direct intervention on guiding policies and projects, and China favoring capital participation without exercising shareholder interventions.

Despite these challenges, MDBs represent an existing channel with precedent for cooperative activity on overseas financing. For example, to the extent that the Asian Infrastructure Investment Bank (AIIB) represents China and the World Bank represents the US, there are numerous examples of collaborations between these two institutions (Gallagher 2021).

INTERGOVERNMENTAL FORUMS Another existing channel for potential coordination is intergovernmental forums, such as the Group of Twenty (G20). China and the US are both members of the G20. The G20 issued a sustainable finance roadmap in 2021, which focused on aligning and harmonizing green finance standards. Also in 2021, the G20 issued a joint communique on ending financing for coal-fired power plants overseas. G20 working groups and engagement groups include relevant topics and actors for the US, China and other G20 countries to engage on overseas RE financing. In addition, the G20 finance track convenes finance ministers, central bank leaders and other relevant actors on economic, financial and monetary issues. The finance track, which includes a sustainable finance agenda, could also be an important venue for engagement.

China and the United States are both participants in the Clean Energy Ministerial process, as well as the World Economic Forum and the Belt and Road Forum for International Cooperation, all of which have clean energy finance tracks. China and the US both also participate in the Major Economics Forum on Energy and Climate.

MULTILATERAL ENVIRONMENTAL AGREEMENTS There are also opportunities for coordination via multilateral environmental agreements (MEAs) and treaties that target RE finance overseas, including the United Nations Framework Convention on Climate Change (UNFCCC) and Paris Agreement.

Climate finance has long been a central and contentious issue in the international climate negotiations. China historically has been a recipient of international financial assistance through global environmental treaties, such as the Montreal Protocol, and research has shown that its access to the Protocol’s Multilateral Fund played a key role in China meeting its targets to phase out the use of ozone depleting substances (Zhao 2002). As a result, China has taken on increasingly more ambitious targets under the Protocol, and worked bilaterally with the US to call for an international hydro-flurocarbon (HFC) phase-down in advance of the Kigali Amendment (Lin and Schmidt 2013; White House Press Secretary 2013). China was also the leading beneficiary of climate finance through the Kyoto Protocol’s Clean Development Mechanism (Reuters 2009). Yet, as China has emerged as a more active player in MEAs, it has yet to play a significant role in contributing to climate financing instruments, even as it becomes less and less of a beneficiary of these instruments. For example, China has primarily excluded itself from the Green Climate Fund (GCF), instead preferring to establish its own financing mechanisms targeting South-South climate cooperation, such as the South-South Climate Cooperation Fund, established in 2015 with a capitalization of $3.1 billion.

Should China move to become more engaged in the climate financing instruments within key MEAs, there are several opportunities. In addition to the GCF, in the leadup to 2021 United Nations Climate Change Conference (COP26) in 2021, the Taskforce on Access to Climate Finance was announced in response to calls for coherent and effective support for developing countries’ efforts to decarbonize their economies, adapt to climate change and establish green growth pathways (UK Government 2021b). The Taskforce is initially chaired by the United Kingdom and Fiji and includes steering committee members Bhutan, Belize, Malawi, Rwanda, Senegal, Germany, Sweden, the US the GCF and the World Bank, lacking direct involvement from China (UK Government 2021a).

While China has preferred to establish its own multilateral platforms for engagement, rather than joining international ones, these may also provide important channels for US engagement in the future. China recently released a concept note on a Global Clean Energy Partnership, which announced the intent to co-host a forum with IRENA and invite partners from other countries (S&P Global Commodity Insights 2022).