Oct 26, 2021 07:14 PM

Opinion: Six Key Messages in China’s New Decarbonization Roadmap

A year after China fixed its twin carbon goals, new draft guidance shows us where the country’s carbon peak and neutrality roadmap will lead. Photo: VCG
A year after China fixed its twin carbon goals, new draft guidance shows us where the country’s carbon peak and neutrality roadmap will lead. Photo: VCG

One year after President Xi Jinping proposed the strategic goals of reaching peak carbon dioxide emissions by 2030 and achieving carbon neutrality by 2060, the Central Committee of the Communist Party of China (CPC) and the State Council jointly drafted a guidance document sketching out how the two carbon goals will be met.

Although the goals were put forward in 2020, the guidance document (link in Chinese) considers them in more depth, examines related technical routes and encourages local authorities, industries and enterprises to act on their own initiative and take the lead in peaking carbon dioxide emissions. I found six highlights in this important roadmap.

Highlight 1: The two carbon goals go beyond the environment to address a systematic task

The goals of peaking carbon dioxide emissions and reaching carbon neutrality aim high. The guidance elaborates on it as “grounding our work in the new stage of development, applying the new development philosophy and fostering a new pattern of development.” In other words, the two carbon goals are not only an issue of environmental protection and pollution prevention and control, but also about the kind of “systematic thinking” that should be incorporated into the country’s overall economic and social development. The work should be connected with the planning of almost everything, and involve coordination between various categories and levels of plans.

Highlight 2: The importance of preventing overreaction

After the central government proposed in July to correct “campaign-style carbon emission reduction,” the pace of promoting the two carbon goals has become an issue of concern in all walks of life. The guidance does not make further mention of the issue of “campaign-style carbon emission reduction.” Instead, it says we should “encourage local authorities to act on their own initiative and take the lead in peaking carbon dioxide emissions,” adding, “we should prevent any excessive response and ensure carbon emissions are reduced in a safe and secure way.” The document clearly nods to the encouragement of local initiatives.

Highlight 3: The key to carbon neutrality is reduction, not creating carbon sinks

The idea that carbon neutrality can be achieved by simply creating carbon sinks, or anything that absorbs more carbon than it releases, is a misunderstanding of the two carbon goals. The guidance makes it clear that much more effort should be made to reduce carbon emissions in the first place. Otherwise, it is impossible to realize collaborative pollution control and economic structural optimization. A large part of the guidance discusses approaches to reducing carbon emissions. Carbon sinks are only referred to in two articles of Chapter IX.

Highlight 4: Three industries are key — energy, transport and construction

These three industries have their own separate chapters, with five articles on the energy industry; and three articles each on transport and construction. It is easy to understand the importance of the energy and transport industries to the two carbon goals, while the construction industry is a special case. Direct carbon emissions generated in the process of construction are low but upstream industries such as steel and cement, as well as power and heat supply generate far more carbon emissions indirectly.

Highlight 5: Carbon finance is promoted in a broad sense

As previously discussed, the last round of business responses to climate change concentrated on carbon trading markets (carbon finance in a narrow sense), while this round focuses on carbon finance markets (carbon finance in a broad sense).

The guidance does not elaborate on narrowly defined carbon finance, which is discussed in the article on “developing market-based mechanisms.” In addition to carbon trading markets, power trading markets and markets for energy consumption permits are covered. Three articles — namely improving investment policies, developing green finance and improving fiscal, tax and pricing policies — all discuss what I see as broadly defined carbon finance. These are important parts, respectively corresponding to the functions of the NDRC, the People’s Bank of China (PBOC), China Securities Regulatory Commission (CSRC) and China Banking and Insurance Regulatory Commission (CBIRC) as well as fiscal and tax departments.

Highlight 6: The goals should be seen in the context of China’s opening-up

The guidance directly states that the two carbon goals are “a major strategic decision made by the CPC Central Committee with Comrade Xi Jinping at the core after the overall consideration of both domestic and international situations” and “a solemn commitment to building a community with a shared future for mankind.” Clearly, China’s opening up is an important backdrop for the goals. Likewise, “Actively participating in global climate and environmental governance” is an important part of China’s efforts to achieve the two carbon goals.

Stakeholders: opportunities and risks

The “two carbon goals” boost the rapid development of ESG (Environmental, Social and Governance) and green finance in China. It is expected that during the 14th Five-Year Plan period (2021-2025), the goals will become a leading topic and an important measure for the development of ESG and green finance.

The guidance specifies that the NDRC is the responsible authority for work related to two carbon goals, and the relevant local authorities should strengthen coordination and cooperation.

Local governments are certainly incorporating the goals into their planning. Recently, Shanghai released, “Implementing Opinions on Shanghai’s Accelerated Building of an International Green Financial Hub to Support the National Carbon Peak and Carbon Neutrality Goals,” which reflects this point.

For financial institutions, the guidance can be seen as giving rise to financing demands and new risks at the same time. As a result, financial institutions should pay equal attention to both product innovation and risk prevention. At the product end, the guidance mentions monetary policy tools to support carbon emission reduction, green bonds, as well as green and low-carbon industrial investment funds. At the risk end, it highlights the economic, financial and social risks for low-carbon transformation.

It’s worth noticing that the term “social risks” have been seldom covered within the decarbonization sector previously, so special attention should be paid to them to avoid a negative impact on people’s regular life.

Enterprises should revise strategies and take “carbon” as an important indicator of business management. They should be aware of the upgrading of industrial policies from energy conservation and emission reduction to reduction. Emission reduction aims at the fight against pollution, but carbon reduction goes beyond that. For example, natural gas is pollution-free, but it is still fossil energy. Therefore, it requires that enterprises shift their management thinking, and gradually implement green transformation based on carbon reduction instead of emission reduction, which will have an impact on business management, notably supply-chain management.

In addition, efforts should be made to speed up information disclosure in enterprises and financial institutions.

According to the guidance, “carbon emission reporting and information disclosure systems for enterprises and financial institutions need to be improved.” Such a trend has been revealed by recent cases, such as the guidance for information disclosure of financial institutions released by PBOC and the encouragement of CSRC to include information disclosure of carbon emission reduction in the format criteria for annual and half-year reports of listed companies.

Of course, disclosure is based on accounting. Therefore, the guidance also requires “speeding up efforts to improve carbon emissions verification, accounting and reporting standards for regions, industries, businesses and products” and “formulating standards for GHG emissions for key industries and products.” Enterprises and financial institutions should start to make plans for their own carbon accounting, carbon disclosure strategies and measures.

Guo Peiyuan is a cofounder of SynTao Co. Ltd., a Chinese consultancy promoting corporate social responsibility.

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