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Environmental Stress Testing for China’s Overseas Coal Power Investment Project

Author

Listed:
  • Minpeng Xiong

    (School of Economics and Management, North China Electric Power University, Beijing 102206, China)

  • Xiaowen Yang

    (School of Economics and Management, North China Electric Power University, Beijing 102206, China)

  • Sisi Chen

    (School of Education, University of Michigan, Ann Arbor, MI 48109, USA)

  • Fulian Shi

    (School of Economics and Management, North China Electric Power University, Beijing 102206, China)

  • Jiahai Yuan

    (School of Economics and Management, North China Electric Power University, Beijing 102206, China
    Beijing Key Laboratory of New Energy and Low-Carbon Development, North China Electric Power University, Beijing 102206, China)

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.

Suggested Citation

  • Minpeng Xiong & Xiaowen Yang & Sisi Chen & Fulian Shi & Jiahai Yuan, 2019. "Environmental Stress Testing for China’s Overseas Coal Power Investment Project," Sustainability, MDPI, vol. 11(19), pages 1-27, October.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:19:p:5506-:d:273636
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    References listed on IDEAS

    as
    1. Jiahai Yuan & Mengya Wu & Weirong Zhang & Yu Guo & Minpeng Xiong, 2018. "Coal Power Environmental Stress Testing in China," Sustainability, MDPI, vol. 10(7), pages 1-19, June.
    2. Yuan, Jiahai & Li, Peng & Wang, Yang & Liu, Qian & Shen, Xinyi & Zhang, Kai & Dong, Liansai, 2016. "Coal power overcapacity and investment bubble in China during 2015–2020," Energy Policy, Elsevier, vol. 97(C), pages 136-144.
    3. Irene Monasterolo & Jiani I. Zheng & Stefano Battiston, 2018. "Climate Transition Risk and Development Finance: A Carbon Risk Assessment of China's Overseas Energy Portfolios," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 26(6), pages 116-142, November.
    4. Yuan, Jiahai & Lei, Qi & Xiong, Minpeng & Guo, Jingsheng & Hu, Zheng, 2016. "The prospective of coal power in China: Will it reach a plateau in the coming decade?," Energy Policy, Elsevier, vol. 98(C), pages 495-504.
    5. Maria Soledad Martinez Peria & Mr. Giovanni Majnoni & Mr. Matthew T Jones & Mr. Winfrid Blaschke, 2001. "Stress Testing of Financial Systems: An Overview of Issues, Methodologies, and FSAP Experiences," IMF Working Papers 2001/088, International Monetary Fund.
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