Caixin ESG Biweekly: China’s Carbon Market Debut
China’s Launch of World’s Largest Carbon Market Has a Sputtering Start
At 9:30 on July 16, the first carbon emission quota transaction was successfully matched at a price of 52.78 yuan ($8.16) per metric ton, marking a major step by the world’s largest greenhouse gas emitter to realize ambitious climate goals. The national emissions trading scheme could use more liquidity and higher-level regulations, industry insiders say. Read more about how China launched its long-awaited national carbon trading market here.
This week we have expert view from Xie Zhenhua, special climate envoy of China. Xie is a veteran climate official and served as chief negotiator during key climate meetings in Copenhagen and Paris. His reappointment is seen as China’s commitment to communicate with all parties on climate change issue, including the United States. Here is Xie Zhenhua’s take as stated in his recent remarks.
Roadmap for Carbon Goals
On Jul 24, Xie Zhenhua disclosed at the Global Asset Management Forum that China was formulating a timetable and roadmap for emission peak and carbon neutrality which would be published soon.
According to Xie, the top-level design plan would be a “1 plus N” policy framework, covering the following 10 areas: energy mix optimization, industry upgrading, green building, low-carbon transport, circular economy, green technological innovation, green finance, economic and fiscal supportive measures, carbon market and pricing mechanism, and nature-based solutions.
Xie welcomed foreign enterprises and investors to join and share the investment and market opportunities offered by China’s green transformation, estimating the total expenditure to be 136 trillion yuan.
“Government will set definite goals with encouraging economic and financial policies to send clear signals to the market, and therefore establishing a stable expectation. It will also make the best of public funds to leverage private investment,” Xie said.
On July 12, Xie highlighted the Nature-based Solutions (NbS) at the Eco Forum Global Guiyang 2021.
He pointed out that both emission-reduction costs and technological difficulties would continue to rise in the long term. Therefore, increasing carbon sinks with natural ecological functions to offset the carbon emissions has become a critical path to achieve the ultimate goal of carbon neutrality.
NbS involves working with nature to address societal challenges and increase climate resilience, providing benefits for both human well-being and biodiversity. Specifically, they involve restoring natural and semi-natural wetlands, sustainably managing aquatic systems, croplands and timberlands.
NbS is an important ecological agenda for the Chinese government. At the UN Climate Action Summit convened in Sept. 2019, China and New Zealand became the co-leaders for this action plan.
Top News Items
Preferential Rates to Be Offered for Green Projects
On July 7, the proposal of “establishing a monetary policy tool for supporting carbon emissions reduction” was once again put forward at the State Council executive meeting. According to sources from Caixin, this People’s Bank of China (PBOC)-designed “tool” will offer a preferential interest rate for green projects. Similar to other direct monetary policy tools, it will support qualified financial institutions in the form of re-lending, which will allow them to offer loans with preferential interest rates for qualified projects (clean energy, environmental protection and emissions reduction technology) that reach the minimum emission reduction standards. As the first formal tool supporting green projects in the form of re-lending, the PBOC will have special requirements for capital investment, emission reduction and information transparency of projects. Meanwhile, the central bank will conduct training sessions on carbon accounting for financial institutions.
China-EU “Green Taxonomy” to Be Completed by Year-End
On June 25, Zhang Bei, deputy director of the Finance Institute of the PBOC, indicated that the formulation of the “Common Ground Taxonomy” (CGT) between China and the EU will be completed by the end of 2021. According to Zhang, consensus has been reached on the basic taxonomy and technical methodology between the two parties. China enjoys a high yield rate and relatively stable green bond market. After the CGT is completed, China and the EU will share a similar logic of taxonomy and general principles, which will further facilitate overseas investors to invest in China’s green bonds.
Power Plants Entitled to Construct New Energy Transmission Projects
On July 5, the National Development and Reform Commission and National Energy Administration issued the “Notice on Matters Related to Investment and Construction of New Energy Supporting Transmission Projects (关于做好新能源配套送出工程投资建设有关事项的通知).” The document points out that in order to prevent power transmission projects from restricting the development of new energy, power grid enterprises, power generation enterprises and local energy departments are required to ensure a coordinated development of new-energy power supply and grid construction. In the meantime, power generation enterprises are allowed to invest in new-energy transmission projects to relieve the consumption pressure emerging from the rapid development of new energy to connect to the grid.
Photovoltaic Enterprises Return to A-share Market
On June 28, the Shanghai Stock Exchange accepted applications of Jinko Solar Holding Co. Ltd. and CSI Solar Co. Ltd. for an IPO on its STAR Market. The two companies intend to re-list on the A-share market through carve-outs. Jinko Solar and CSI Solar seek to raise 6 billion yuan and 4 billion yuan respectively. Their return to the A-share market demonstrates the changes in the global photovoltaic (PV) industry: the industrial chain has been transferred from Europe and the United States to China, making China the largest PV production and application market in the world. However, European and American investors are unfamiliar with Chinese enterprises, generally resulting in the valuation of the U.S. stocks of Chinese PV enterprises to be lower than that of A-shares.
Battery Swapping Station Construction Hits Peak
China Electric Vehicle Charging Infrastructure Promotion Alliance disclosed that as of June 2021, China has cumulatively constructed 716 battery swapping stations, a 30% increase from December 2020. The top three operators of battery swapping stations are Aulton New Energy Automotive Technology, NIO and Hangzhou First Technology. The infrastructure for charging and battery swapping of electric vehicles, especially the latter one, is enjoying preferential policies. In May 2021, the Ministry of Industry and Information Technology (MIIT) announced that China will establish battery swapping pilots for new-energy vehicles in the second half of 2021.
Shenzhen Sets Up Carbon Fund to Control Absolute Emission Amount
Shenzhen revised its procedures for carbon market management and stated plans to establish a carbon emissions trading fund. The fund will be used to manage income from the paid allocation of government allowances and gradually realize control over absolute amount of greenhouse gas emissions. Since China didn’t give an absolute carbon cap in its new five-year plan, Shenzhen’s exploration in controlling absolute emission amount is worth watching.
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