Promoting Low-Carbon

Finance Low-carbon finance is a key link in the development of a low-carbon economy. Its roles include supplying related construction funds, establishing an effective carbon emission rights (CER) trading market and an accurate price signaling system, and developing pertinent and concomitant financial instruments. China has made certain accomplishments in low-carbon finance and in establishing a carbon emissions trading mechanism. Table II lists financial support and measures of some commercial banks for energy conservation and carbon emission reduction projects.

The CER trading mechanism is the core of low-carbon finance. By setting a limit on the amount of pollutants each enterprise can emit, hence giving their emissions rights, or permits, a value, a sizable emissions trading market can be established and the price of emissions rights can be decided. In this way, enterprises' investment in the development of energy conservation and emissions reduction technologies will see financial returns, and private capital and broad social resources will be attracted into environmental endeavors, hence reducing the investment pressure on the government. China's emissions trading market has been probing the way ahead since 2008. In August 2008, China Beijing Environment Exchange and Shanghai Environment and Energy Exchange were founded; in September China's first emissions trading market was opened in Tianjin - the Tianjin Climate Exchange is a joint venture with the Chicago Climate Exchange, a source both of foreign investment and mature experience in such operations. Similar establishments and platforms later appeared in Hebei Province and Guangzhou City.

Currently such environmental rights trading facilities are mainly involved in the following businesses: enterprises' voluntary emissions reduction projects, CDM (Clean Development Mechanism) information services (See Charts II and III), energy management contracts, and energy-conservation technologies transfer and financing. They also provide verification and certification services on the volume of greenhouse gas discharges and consultancy relating to emissions trading.

Multiple Ways of Promotion Macro policies and low-carbon finance are administrative and market leverages used to encourage enterprises to reduce emissions, but a broader scale of involvement by individuals as well as enterprises requires assiduous promotion of low carbon through both government and public endeavor. So far China has carried out various forms of promotion.

For example, the Tianjin Summer Davos made "sustainable development" its theme; the People's Bank of China and the Tianjin municipal government jointly sponsored the first Global Low-Carbon Finance Summit; and Shanghai established the "Green World Expo" voluntary emissions reduction and CER trading mechanism and platform, promoting the green idea on a global stage. Further examples are available at the governmental and business levels. Following its promulgation of the "Panda Standard" - China's first voluntary carbon standard, the Beijing Environment Exchange went on to publish the country's low-carbon indices on the Beijing-based Ditan Forum. The Tianjin Climate Exchange initiated a voluntary emission reduction scheme for enterprises and established a building energy efficiency trading mechanism. Tianjin's Binhai New District was cited as a paradigm in the development of low-carbon economy by the UN Conference on Trade and Development in its 2010 World Investment Report.

In addition, the Internet has also become an effective promoter of low-carbon economy, and many government websites and Internet service providers are actively involved.

Promising Future

Low-carbon economy has great prospects, but its further development still needs the government's rational planning and policy support. In the long term, carbon finance will provide an important resort and opportunity for China to gain an advantage in low-carbon industries and sharpen the competitive edge of its financial institutions. Therefore China should work out as soon as possible an efficient carbon emissions trading mechanism and guide more enterprises to get involved in trading by setting emissions limits on them. Meanwhile, the government should standardize the operations of emissions trading markets across the country, form a stable price signaling system and strengthen the power of the market in resources sourcing. Efforts should also be made to study ways of trans-national trading and elevate the international influence and pricing power of the domestic carbon market. In addition, the government should encourage commercial banks to develop low-carbon products; besides "green loans," the banks should adapt themselves quickly, in terms of both technologies and human resources, to businesses related to CDM financing and development of low-carbon derivatives. Such efforts will stand them in good stead for raising their international competitiveness.

Low-carbon economy is a flourishing human endeavor, and its fate is linked with that of humankind. China should go along with the world development trend and use all means possible to promote the transformation of its economy toward low carbon. Achievement here will lead China to its goal of sustainable development and provide a reference case for other countries.

About authors: Liang Meng and Qi Fan are researchers with the Institute of Finance affiliated to the People’s Bank of China.