Although several German companies are already involved in carbon markets and decarbonization in China, the vibrant market offers promising further business opportunities and potential for cooperation with Chinese enterprises and institutions. Based on their international experience in other countries regarding climate solutions and innovative business models, German companies are keen to bring their knowledge and expertise to China to further shape the carbon markets and to provide know-how and technologies for decarbonization. Mobilizing German companies and stakeholders and supporting their participation in these evolving markets is therefore crucial. 

Since the beginning of 2021, AHK Greater China has been implementing the “Carbon Market Cooperation Project” in China on behalf of the German Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV). The two-year project aims at engaging relevant stakeholders for climate protection and carbon markets in China, consolidating interest among German companies in the Chinese carbon markets and facilitating partnerships. The project builds on AHK Greater China’s large network of stakeholders in the field of emissions reduction and climate protection that has been in place since 2008. 

As part of the current project, AHK Greater China organized a series of four networking meetings in Beijing and online in 2021 and 2022. Meetings typically comprised of presentations by three experts followed by a discussion and networking session together with around 85 selected participants. 

The meetings held included presentations from leading Chinese experts from the National Center for Climate Change Strategy & International Cooperation, Chinese Academy for Environmental Planning, Academy of Macroeconomic Research of National Development and Reform Commission, as well as Institute of Technical Information for Building Materials Industry of China. Also, speakers from renowned international institutions were invited, such as International Energy Agency and German developmentbank KfW, as well as leading think tanks and universities like Tsinghua University and the International Institute of Green Finance of the Central University of Finance and Economics. In addition, senior experts from companies such as FutureCamp, Perspectives Climate Group, and China Anhui Conch Group actively contributed to the events. The meetings presented a useful platform to facilitate exchange and further promote cooperation between German, Chinese and international stakeholders related to decarbonization in China. More than 340 representatives from enterprises, business associations, international organizations, NGOs, embassies, consultancies, and academia attended the events to learn more about new developments and measures concerning carbon markets in China.

ETS as a major tool for China to reach its decarbonization goals in key sectors 

Shortly before the 26th UN Climate Change Conference (COP26), China published new implementation plans and guidelines at the end of October 2021, thus further sharpening its climate policy goals. China’s ambitious goals of peaking carbon emissions before 2030 and achieving carbon neutrality by 2060 provide an important long-term perspective for the country’s low-carbon transition and are officially part of its Nationally Determined Contributions (NDC). To achieve the carbon peak and neutrality targets, the State Council released a “1+N” policy framework in October 2021, that is supplemented by detailed action plans for carbon dioxide emissions peaking as well as key areas and sectors including e.g., energy, industry, transport, and circular economy.

A crucial role in the implementation of these goals is attributed to the Chinese National Emissions Trading System (ETS). The ETS is intended to contribute to the effective control and gradual reduction of CO2 emissions in China, as well as to achieving green and low-carbon development. After implementation of the national ETS in China started in 2017, it came into operation in July 2021. The Chinese ETS is intensitybased and benchmarks are set based on actual production volumes. Companies that emit less CO2 than specified can sell part of the certificates – companies that emit more CO2 must purchase certificates. Currently, approximately 2,200 enterprises – mainly consisting of state-owned power plant operators – are being included in the ETS, accounting for an estimated 4.5 billion tons of annual CO2 emissions. This already makes China’s ETS the world’s largest carbon market. While the ETS initially covers the power generation sector, which accounts for 30 to 40 percent of total national emissions, China aims to gradually expand the national carbon market to cover seven more energy-intensive industries. The building materials and non-ferrous metals sectors are most likely to be included in the next step – adding nearly 2 billion tons of CO2 emissions to the market. 

 With the ambitious goals of peaking carbon emissions before 2030 and achieving carbon neutrality by 2060, the ETS is deemed to become a decisive market-based instrument on China’s path to decarbonization.

Climate finance as a catalyst for energy transition and decarbonization

On November 20 this year, the 27th UN Climate Change Conference (COP27) ended in Sharm el-Sheikh. From the point of view of the German government, the results of the conference are mixed, with Economic Affairs and Climate Action Minister Robert Habeck commenting that it produced “an outcome we cannot really be satisfied with”. Indeed, according to a report from the UN’s Intergovernmental Panel on Climate Change, the implementation of current pledges by national governments would result in a global warming of 2.5°C by the end of this century and greenhouse gas emissions would need to decline 45 percent by 2030 to limit global warming to 1.5°C. 

While carbon markets and the implementation of Article 6 of the Paris Agreement remained in the background, the focus of COP27 was on climate finance, adaptation funding and the establishment of a “loss and damage” fund for vulnerable countries, which have been hit hard by climate disasters. The latter marked an important point of progress, as it was the first time that the issue of creating a specific fund for climate change related loss and damage was added to the official agenda of COP. According to German Development Minister Svenja Schulze, especially the big emitters such as the United States, China and the EU should be required to pay in the new fund. As a first step, the G7 – under German presidency – and the V20, the group of the 58 most vulnerable countries, launched the Global Shield against Climate Risks, with new commitments of over 200 million USD as initial funding, which is to be implemented immediately.

The cover decision of the COP27 highlights that a global transformation to a low-carbon economy will require investments of at least 4 to 6 trillion USD a year and about 4 trillion USD per year would need to be invested in renewable energy up until 2030 to be able to reach net zero emissions by 2050. According to the cover decision, delivering such funding will require a swift and comprehensive transformation of the financial system and its structures and processes, engaging governments, central banks, commercial banks, institutional investors, and other financial actors. 

Besides implementing market-based mechanisms such as the carbon emissions trading system, China is already planning to further scale-up green and climate finance instruments to achieve its “dual carbon” goals. Overall, green finance has been developing rapidly in China since the aim for establishing a green financial system has been pointed out in the 13th Five-Year Plan in 2016. In 2021, the issuance of domestic green bonds in China exceeded 600 billion CNY, and the balance of green loans reached almost 16 trillion CNY, more than in any other country worldwide. Considered as a landmark national policy move in addressing the key role of finance to fulfil China’s climate targets, different ministries and banking regulators jointly released the “Guidance for Promoting Climate Investment and Finance” in October 2020. It positions climate finance as an essential part of green finance, further promoting financial flows towards activities for climate change mitigation and adaptation, as well as the establishment of a corresponding policy system and standards framework. The recently issued “Notice of the Pilot Work on Climate Investment and Financing” of December 2021 further explores differentiated institutional mechanisms for climate investment and financing also in dedicated pilot areas at the provincial and local level. 

As a global challenge, climate protection to support decarbonization can be one of the opportunities for dialogue and cooperation between Germany and China in an increasingly uncertain international political and economic environment. 

AHK Greater China will continue its networking approach throughout the coming years. Further activities regarding decarbonization and the climate protection sector in China will support information exchange among German, Chinese and international stakeholders and facilitate business partnerships and cooperation in the Chinese market.

Article Source:Econet Monitor Green Markets & Climate Challenge December 2022