Notwithstanding their contribution to the overall GDP, Chinese investments in the Balkans are proving to be detrimental in terms of carbon dioxide emissions and their consequent environmental and social impact in the region. Most Western Balkan countries depend on lignite coal for electricity generation. Understanding the economic and geopolitical advantage of possible investments in the region, China has offered an interesting financial alternative. In the last decade, these Chinese have injected about 14 billion dollars into the regional economy, in contrast with the European Union, the World Bank and other credit institutions that have decided to reduce investments in projects involving the use of coal.
Although the Chinese government has announced that it intends to reach zero emissions by 2060, in countries such as Serbia or Montenegro it continues to finance motorways and coal-fired power plants. Chinese investments have become increasingly attractive to CEEC governments, as China-backed initiatives, unlike European funding, do not require structural reforms. Many of the projects are awarded without tenders, without the inclusion of anti-corruption measures and are not based on an evidence-based cost / benefit assessment. China often finances investments, for example in lignite-fired power plants or transport corridors, which are not aligned with the strategic priorities of the countries and which are not commercially viable in the current situation. Financing takes the form of (intergovernmental) loans, which, while not subject to a whole series of regulatory constraints, have a number of conditions including the mandatory use of Chinese contractors, labor and equipment.
Even when Chinese investments are geared towards energy transition goals, RES investments are not in line with the EU energy policy agenda which prioritizes local, urban and regional energy transition initiatives that focus on decentralization and the democratization of energy supply. These investments were promoted in the form of grants, development loans, domestic business acquisitions and franchise agreements. To date, Chinese loans related to energy and infrastructure projects represent approximately 5.6% of the region’s GDP. For example, in Serbia, Chinese loans are worth 7% of GDP, in Montenegro 21%, in Bosnia and Herzegovina 3% and in North Macedonia 8%. The ultimate goal of this ambitious plan is to improve China’s connectivity with the rest of the world. In particular, the Western Balkans play an important role as a potential transit corridor for Chinese goods to reach European markets.
However, these investments are problematic. Since these states are not yet part of the European Union, they are not subject to its environmental standards. For this reason, investments in coal and fossil fuels could represent an obstacle to the future accession of countries to the Union. Furthermore, if the latter gain membership, they may have to undergo costly upgrades to existing coal plants to comply with European standards. As a matter of fact, according to the European Directive on Industrial Emissions, the main EU instrument that regulates polluting emissions from industrial plants, all coal-fired plants must comply with the best available techniques (MTD or BAT ‘Best Available Techniques’). Many of these states had already pledged to reduce pollution by 2018, but little progress has been made since then.
Chinese investments continue to rely on old technology, which has some of the highest emissions in the continent. Although coal provides low-cost energy to the region, the equipment used is old, polluting, and highly damaging to the health of the region’s inhabitants. A report published by the ‘Europe Beyond Coal’ campaign found that 16 coal-fired power plants in the Western Balkans produce the same amount of emissions as 250 plants in the EU. The first two plants responsible for the highest pollution levels are located in Serbia and Bosnia and Herzegovina. To conclude, it is also important to emphasize that, apart from the environmental impact, the benefits to locals from Chinese funding have limitations. Beijing often provides building materials and manpower for most of its projects as a condition for these loans. Besides the environmental externalities, they also have a limited local and social benefit.