Abstract
China has been one of the largest global emitters of carbon dioxide (CO2). As a result, the country is committing itself to implement the 2030 Agenda for Sustainable Development. The attention that is being paid to the serious problem of climate change has increased manifold. Corresponding policies are introduced in relation to the financing of carbon. In particular, in the wake of the announcement that China would be going carbon neutral before 2060, concrete efforts are being consistently made towards carbon emission reduction. Policies and measures related to carbon finance are being continuously promulgated, and a national carbon emission trading market too has been established on July 16, 2021. This chapter gives a brief overview of the carbon market, carbon finance, and its policies in the context of sustainable development. It also examines the approach towards the future development of the carbon finance market by discussing in detail the existing deficiencies and areas of improvement.
TopIntroduction
People’s Republic of China (PRC), a world-renowned producer of industrial goods, has today become the world’s largest emitter of carbon (Dudley, 2019). Between 2000 and 2016, China’s CO2 emissions grew by an average of more than 11% on a yearly basis with CO2 emissions almost tripling in a very short span of time (Figure 1). It has been reported that in the year 2016, nearly 30% of global CO2 emissions came from China (The World Bank, 2021). Though, it is the manufacturing industry that is generally held liable for the majority of CO2 emissions, but in recent years, the tertiary industry too is being recognized as the main source of CO2 emission in China (Wang et al., 2020).
Cities are mostly a hub for human activities and at the same time for the consumption of fossil fuels and emission of CO2 as well (Chen et al., 2020; Meng et al., 2019). In order to tackle climate change and reduce emissions, China as a country will have to bear heavy responsibility for introducing significant changes in its economy for energy conservation (Chen & Zhu, 2019; Liu & Bae, 2018). Driven by a decline in overall carbon intensity and a rise in inter-city carbon inequality, 41.38% of provinces and 49.65% of cities are still under great pressure to reduce carbon emissions. These cities emit carbon dioxide at a higher than the average level than the most parts of the country (Cheng et al., 2020).
Since the past decade, China’s primary energy consumption has been rising. Even if the elasticity coefficient of China’s energy consumption drops below 1, or even stabilizes below 0.6 for a long time, it can still be concluded that China’s GDP growth is inseparable from a large amount of energy consumption. In addition, China’s energy production is characterized by huge differences at the provincial level. All these factors have become roadblocks to China’s efforts to reduce its overall percentage in carbon emissions (Figures 2 and 3).
It is widely accepted that CO2 emissions are the macro determinants of environmental quality (Leal & Marques, 2020; Nidhaleddine et al., 2021), and serious environmental problems have resulted into significant damage to the sustainable development of economy (Wang & Luo, 2020). Hence, it is urgently required that China comes up with innovative solutions and techniques at a breakneck speed along with implementing policies and measures that contribute to reduction of carbon emissions.
As China joins global response to combatting the looming threat of climate change by working on reducing carbon footprint; appropriate financial flows, new technology framework and enhanced capacity building are few areas that will require attention from the government on an immediate basis. A systematic yet long term shift to a sustainable economy characterized by promoting investments that accelerate decarbonization, sustainable solutions, creation of green jobs are few challenges that will have to be overcome to build back better from the current crisis of pandemic coupled with increasing carbon emissions.
Figure 2. Primary energy consumption and annual elasticity of energy consumption in China and the world from 2010 to 2020 (All GDP is calculated in 2010 constant dollars)
Figure 3. Share of coal production by region in 2020
Key Terms in this Chapter
Clean Development Mechanism: Under this mechanism, any country that has an emission reduction commitment under Kyoto Protocol can implement a project to minimize greenhouse gas emissions in developing country. It assists non-parties in carrying out a plan for sustainable development.
Paris Agreement: It is a legally binding international treaty on climate change. It was adopted at the Paris Climate Change Conference in 2015, with the main goal to limit the rise in average global temperatures to less than 2 degrees Celsius above pre-industrial times and to try to limit the rise to 1.5 degrees Celsius.
Voluntary Emission Reduction: It is a scheme where industries and individuals voluntarily and in public interest, compensate for their emissions. It is also referred as verifiable emission reduction and is usually created by projects which are verified outside Kyoto Protocol’s Clean Development Mechanism. It provides financing channels for carbon emission reduction projects that cannot be developed by CDM, thereby enriching carbon market products.
Emissions Trading Scheme: A market-based energy conservation and emission reduction policy tool whereby emitters can trade units to meet their emission targets or implement internal emission reduction measures to reduce emissions and make profits. It has two main types: cap-and-trade systems and baseline and credit systems.
China Certified Emission Reductions: Under this system, the government sets a limit on amount of greenhouse gas emissions that companies can emit during a certain period. The emission reduction certificate obtained by enterprises thereafter through the implementation of projects to reduce greenhouse gases, can be used to offset part of the carbon emissions upon the fulfillment of the contract.
Carbon Disclosure Project: A project that helps companies to disclose their environmental impact and dependence on the natural resources and as well as related management strategies. The data that is collected along with the information disclosed is helpful for making informed decisions towards taking concrete actions towards sustainable economy.
Environment, Social, and Corporate Governance (ESG): It is an investment concept and a set of standards that enterprises use. It basically evaluates a company’s performance in terms of how responsibly they conduct their operations respecting the environment, how it manages its relationships with employees, suppliers, customers and community and how it exercises leadership. These three core factors measure sustainability and ethical impact in corporate or business investment.
Corporate Social Responsibility: It refers to a company’s responsibility towards its employees, consumers, community, and the environment. Under this concept, a company makes a conscious effort to integrate social and environmental concerns in its business operations.
Chinese Emission Allowance: The main trading product in China’s carbon emissions trading market currently. In the pilot carbon market in China, Shenzhen, Guangdong and Tianjin adopted the initial distribution mode of free distribution mainly and paid distribution supplemented in the initial pilot stage, while other pilot cities adopted free distribution mode.