Caixin ESG Bi-weekly: debut on the Chinese carbon market

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In depth

China’s launch of the world’s largest carbon market has a flying start

At 9:30 a.m. on July 16, the first carbon emissions allowance transaction was successfully offset at a price of 52.78 yuan ($ 8.16) per metric tonne, marking a major milestone for the largest gas emitter to greenhouse effect to achieve ambitious climate goals. The national emissions trading system could use more cash and higher-level regulations, according to industry insiders. Learn more about how China launched its long-awaited domestic carbon trading market here.


Expert view

This week, we have expert opinion from Xie Zhenhua, China’s special climate envoy. Xie is a climate veteran and served as chief negotiator at key climate meetings in Copenhagen and Paris. Its renewal is seen as China’s commitment to communicate with all parties on the issue of climate change, including the United States. Here is Xie Zhenhua’s point of view, as stated in his recent remarks.

Roadmap for carbon targets

On July 24, Xie Zhenhua revealed at the Global Asset Management Forum that China is formulating a timetable and roadmap for peak emissions and carbon neutrality to be released soon.

According to Xie, the high-level design plan would be a “1 plus N” policy framework, covering the following 10 areas: optimization of the energy mix, modernization of industry, green construction, low-carbon transport, circular economy, green technological innovation, financing, economic and fiscal support measures, carbon market and pricing mechanism, and nature-based solutions.

Xie invited foreign companies and investors to join and share the investment and market opportunities offered by China’s green transformation, estimating the total expenditure at 136 trillion yuan.

“The government will set specific targets with encouraging economic and financial policies to send clear signals to the market, and thus establish a stable expectation. It will also make the most of public funds to leverage private investment, ”Xie said.

Nature-based solutions

On July 12, Xie presented Nature-Based Solutions (NbS) at the Global Guiyang Eco Forum 2021.

He stressed that the costs of reducing emissions and technological challenges would continue to increase in the long run. Therefore, increasing carbon sinks with natural ecological functions to offset 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, delivering benefits for both human well-being and biodiversity. More specifically, they involve the restoration of natural and semi-natural wetlands, the sustainable management of aquatic systems, croplands and forests.

The NbS is an important environmental program for the Chinese government. During the United Nations Climate Action Summit held in September 2019, China and New Zealand became the co-leaders of this action plan.


Main articles

Preferential rates to offer for green projects

On July 7, the proposal to “put in place a monetary policy tool to support the reduction of carbon emissions” was again put forward at the executive meeting of the Council of State. According to Caixin sources, this “tool” designed by the People’s Bank of China (PBOC) will offer a preferential interest rate for green projects. Like other direct monetary policy tools, it will support qualified financial institutions in the form of a new loan, which will allow them to offer loans at preferential interest rates for qualified projects (energy clean, environmental protection and emission reduction technology) that meet the minimum emission reduction standards. As the first formal tool supporting green projects in the form of a new loan, the PBOC will have special requirements for capital investment, emission reduction and transparency of project information. At the same time, the central bank will organize 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 PBOC Finance Institute, indicated that the formulation of the “common 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 rate of return and a relatively stable green bond market. Once the CGT is completed, China and the EU will share a similar rationale of taxonomy and general principles, which will make it easier for foreign investors to invest in Chinese green bonds.

Power plants authorized to build new energy transmission projects

On July 5, the National Development and Reform Commission and the National Energy Administration issued an “Opinion on matters related to investment and construction of new energy 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 specifies that in order to prevent electricity transmission projects from restricting the development of new energies, power grid companies, power generation companies and local energy services are required to ensure coordinated development of new energy supply and grid construction. In the meantime, power generation companies are allowed to invest in new energy transmission projects to relieve consumption pressure resulting from the rapid development of new energies to connect to the grid.

Photovoltaic companies return to the A-share market

On June 28, the Shanghai Stock Exchange accepted the IPO applications of Jinko Solar Holding Co. Ltd. and CSI Solar Co. Ltd. in its STAR market. The two companies intend to re-listing on the A shares market by exclusions. Jinko Solar and CSI Solar are seeking 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 production market and PV application to the world. However, European and American investors are unfamiliar with Chinese companies, which usually results in the valuation of US shares of Chinese PV companies lower than that of A shares.

Construction of the battery exchange station reaches its peak

The China Electric Vehicle Charging Infrastructure Promotion Alliance revealed that as of June 2021, China had built 716 battery exchange stations, a 30% increase from December 2020. The top three operators of battery exchange stations are Aulton New Energy Automotive Technology, NIO and Hangzhou First Technology. Electric vehicle battery recharging and exchange infrastructures, in particular the latter, benefit from preferential policies. In May 2021, the Ministry of Industry and Information Technology (MIIT) announced that China will implement battery swap pilots for new energy vehicles in the second half of 2021.

Shenzhen sets up carbon fund to control absolute amount of emissions

Shenzhen revised its procedures for managing the carbon market and announced its intention to create a carbon emissions trading fund. The fund will be used to manage the income from the paid allocation of government allowances and gradually achieve control of the absolute amount of greenhouse gas emissions. Since China has not set an absolute carbon cap in its new five-year plan, exploration of Shenzhen to control the absolute amount of emissions is worth watching.

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