Carbon neutrality brings new opportunities for green finance
By Sun Tianyuan and Wang Peng
Carbon-pricing mechanism is one of the new models China embraced as it pledged to reach peak emissions before 2030 and achieve carbon neutrality by 2060, which "will bring enormous opportunities in investment and earthshaking changes in financial business models," said Xiao Gang, former head of the China Securities Regulatory Commission.
It's been two months since China's first-ever carbon market began trading in July, replacing the EU's as the world's largest. As of September 16, the market's cumulative trading volume of the CarbonEmissions Allowance (CEA) was 8.4 million tonnes, with a cumulative turnover of 417 million yuan ($64 million).
So far, the market covers over 2,000 companies, mostly state-owned power and heat giants, which operate coal and gas plants. The market gives financial incentives to reduce their emissions. Basically, companies are allowed to purchase or sell carbon credits in the market, which are quotas or allowances for emissions generated during production.
With traditional industries trying desperately to reduce CO2 emissions in line with China's green drive, experts said new openings will inevitably appear in multiple sectors, for instance, wind and solar power, high quality manufacturing and innovative applications using carbon as a green material, which can inspire China to achieve its climate goals.
Although market-oriented trading, using carbon as a commodity, has the potential to efficiently reduce emissions whilst still achieving high-quality growth, some argued the responsibility of cutting carbon emissions should not fall solely on corporations.
"One resident produces about 10 tonnes of carbon emissions every year. So, we could set a bar and charge taxes if the emissions exceed this number, or give stipends when they are lower," said Ju Jiandong, director of the research center for green finance development at the PBC School of Finance, a joint venture between Tsinghua University and the People's Bank of China.
Ju said China's carbon market is still in a phase with room to grow in sectors including legislation and pricing. He pointed out that the EU's program has a turnover ratio – a key indicator of a stock's liquidity – 80 times that of China's number and with a price roughly 10 times of China's CEA prices.
"If the market should fall short of expectation to efficiently boost development to reach carbon neutrality, we may as well count on the tax measures," said the director." The tax is already active in Europe and Canada, some other Asian countries including Singapore and Japan. India is expected to levy the tax in 2022. But so far, China hasn't implemented this tax."
China has made tremendous efforts on its green shift of economic and social development. In 2019, China's carbon emission intensity dropped by 48 percent compared with 2015, according to a report last year by the State Information Office.
Experts said it will not be easy to find the best way forward but hopefully the country may ultimately reshape the nature of key industries, economies and lifestyles for a greener future.