On September 22, 2020, Chinese President Xi Jinping announced in his speech to the UN General Assembly that China's carbon emissions would peak before 2030 and the country would become carbon neutral in 2060. The international community welcomed this pledge as China's stepped-up emissions control plan should help slow global warming significantly. Ambitious as these goals sound, many experts have expressed their concern as to how these goals could be actually achieved.

As the world's second largest economy, China produces about 28% of the world's emissions, with coal remaining its primary source of energy. To meet its carbon neutrality goal, China will have to transform its energy structure and replace a compelling portion of the fossil fuel consumption with renewables. According to a model developed by Tsinghua University in Beijing, this requires a 16-fold increase in solar power, 9-fold increase in wind power and a 6-fold increase in nuclear power over the next 40 years. The remaining fossil fuel capacity calls for the use of Carbon Capture and Storage (CCS) technology to offset emissions, which for now is still too expensive to roll out on a large scale.

The Guiding Opinions on Promoting Climate Change Financing (关于促进应对气候变化投融资的指导意见) (http://www.mee.gov.cn/xxgk2018/xxgk/xxgk03/202010/t20201026_804792.html) (the Guiding Opinions), which was jointly published by China's top environmental, economic and financial authorities on October 21, came as the first policy to kick off China's drive towards carbon neutrality. The Guiding Opinions define climate change financing as financing that helps achieve China's nationally determined contributions goal (which includes the 2060 carbon neutrality goal) under the Paris Accord and the green and low carbon goal under China's 13th five year plan, including both slowing climate change and adapting to climate change ("Climate Change Financing").

According to the Guiding Opinions, China seeks to establish a series of standards in relation to Climate Change Financing, including for identifying climate projects, disclosing climate information and evaluating climate performance. Notably, the identification of climate projects shall be aligned with the existing Catalogue of Green Industries (绿色产业指导目录)(https://www.ndrc.gov.cn/fggz/hjyzy/stwmjs/201903/t20190305_1220625.html) and internationalization of such standards. The Guiding Opinions also encourage private and international financial institutions and private equity funds to participate in Climate Change Financing. Qualified institutions and individuals may be allowed to participate in carbon trading and institutions could develop carbon derivatives such as carbon futures.

In terms of cross-border Climate Change Financing, the Guiding Opinions encourage foreign investors to own more RMB-denominated green finance assets in China and mention the possibility of issuing sovereign guarantees in favour of Chinese firms to help them obtain offshore Climate Change Financing. Conversely, qualified foreign institutions are encouraged to issue green bonds in China and to use RMB as the settlement currency.

One should note that the Guiding Opinions are addressed to provincial and municipal governmental authorities and state-owned banks. While the Guiding Opinions attempt to set a policy orientation in relation to Climate Change Financing, they do not provide any operative rules and regulations for domestic or foreign investors. From this perspective, investors are yet to see how Climate Change Financing will evolve practically at both the national and local levels and await more detailed rules and regulations to implement the general ideas adopted in the Guiding Opinions.

Source:

Climate Home News, Xi Jinping: China will aim for carbon neutrality by 2060 (https://www.climatechangenews.com/2020/09/22/xi-jinping-china-will-achieve-carbon-neutrality-2060/)

Ministry of Ecology and Environment of the People's Republic of China, Guiding Opinions on Promoting Climate Change Financing (关于促进应对气候变化投融资的指导意见) (http://www.mee.gov.cn/xxgk2018/xxgk/xxgk03/
202010/t20201026_804792.html
)

Nature, How China could be carbon neutral by mid-century (https://www.nature.com/articles/d41586-020-02927-9)

Reuters, Five Authorities of the Chinese Central Government Published Guiding Opinions on Promoting Climate Change Financing in to Support Companies to Obtain Financing through Capital Market (中国五部委发文推进应对气候变化投融资发展,支持相关企业资本市场融资) (https://cn.reuters.com/article/%E4%B8%AD%E5%9B%BD%E4%
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Sina Financial News, Interpretation of the Guiding Opinions on Promoting Climate Change Financing (商道融绿解读气候变化投融资指导意见) (https://finance.sina.com.cn/esg/investment/2020-10-27/doc-iiznctkc7989875.shtml)

The New York Times, China’s Pledge to Be Carbon Neutral by 2060: What It Means (https://www.nytimes.com/2020/09/23/world/asia/china-climate-change.html)

Yi Tan Jia, Interpretation of the Highlights of the Guiding Opinions on Promoting Climate Change Financing (《关于促进应对气候变化投融资的指导意见》亮点解读) (http://m.tanpaifang.com/article/74910.html)