Here’s your weekly update on green finance from the International Institute of Green Finance in Beijing. It has stories on renewables, draft legislation, likes/dislikes, and trees. 12th of April 2019.

一, changing: carbon market policy 

The Ministry of Ecology and Environment has issued a regulation draft on changes to the carbon trading market in China. In the draft, the number of articles in the legislation have been cut from 37 to 27 and overall it is a simpler version of what was previously floated. In an analysis for IIGF Hong Ruichen writes:

”As a result of the simplification, the draft does not make detailed requirements on how quota allowances will be allocated, the principle of distribution, the distribution method, and how local surplus quotas should be attributed, which is to be decided by other laws.”

Overall, the draft constitutes a simplification of the previous laws, but with regards to disclosure requirements it will become stricter.

It proposes that the Ministry of Ecology and Environment will oversee regular information disclosure by companies and conduct annual compliance checks. Violators will see their ESG score affected.

Implementation time of a draft catalogue like this into law varies across ministries.

Read the whole analysis here (中文): 碳排放权交易管理条例解析及政策建议

二, renewables are cheaper

This story of the declining costs of renewables is a regular feature in the world of green finance. It’s fascinating story of breakneck innovation, economies of scale, subsidies and subsequent de-subsidies. But most important, it helps in bringing the transition costs from conventional to renewables to a more manageable level. Irena, or the International Renewable Energy Agency, have done the math on those transition costs:

“The Abu Dhabi-based group now says $115 trillion is needed, down from $125 trillion a year ago, reflecting lower costs to build wind and solar farms,” Bloomberg writes of the Irena findings.

That’s important because energy related emissions would need to fall by 3.5% a year going forward if we are to meet the aims of the Paris Agreement. A large part of that should come from a switch to renewables.

“A large-scale shift to electricity from renewables could deliver 60% of those reductions; 75% if renewables for heating and transport are factored in; and 90% with ramped-up energy efficiency.”

So that's that. According to Irena it might be good business. Now, multi decade extrapolations are bad, but still:

“The energy transformation would boost gross domestic product (GDP) by 2.5% and total employment by 0.2% globally in 2050. It would also bring broader social and environmental benefits. Health, subsidy and climate-related savings would be worth as much as USD 160 trillion cumulatively over a 30-year period, the report finds. Thus, every dollar spent in transforming the global energy system provides a payoff of at least USD 3 and potentially more than USD 7, depending on how externalities are valued.”

The report has some wonderful graphics that are too big for this little mail, so go look up the whole thing: Global Energy Transformation (A roadmap to 2050)

Bloomberg Summary: Cheap renewables shave $10 trillion off cost to curb warming

三, trees are plentier

During the early days ofs Deng Xiaoping's tenure, he launched a massive afforestation effort in the northwest of China. The plan was to build a green wall that would hold back the expanding Gobi desert. Like other grand Chinese experiments (three gorges dam, the grand canal) the plan, known as 三北防护林, has roots in ancient China but have first come to sprout in recent time. The green wall is set to be finished in 2050. Continuous PRC presidents have picked up the mantel (and the shovel) and continued the effort of tree planting. Xi too.

Xi has urged citizens to plant trees in the month of April as we approach Arbor Day on the 26th. Reports on the presidents shovelling skills are mixed. China’s afforestation efforts are not. Forest cover of Chinese territory has increased, by how much varies on definitions of what constitutes forest. A positive side effect of the green wall is its ability to extract carbon from the air and contain it.   

Xinhua: Xi stresses wide participation in promoting afforestation

Data: China afforestation success

四, bonds too

IMF has published a book on Chinese bonds and you can get the whole thing in PDF format for free (link below). The book (sic.) is structured with different chapters written by different people touching on different topics. The one on green bonds is interesting because it traces the development of policy incentives from the provincial to the global level:

"China’s local governments are also playing a critical role in spurring green bond issuance through a combination of policy and regulatory supports and fiscal and financial measures. For instance, the provincial government of Jiangsu announced an interest subsidy of 30 percent toward green bond and green asset-backed securities. It also provides a cash reward (RMB 300,000, or US$43,400) for each bond issuance for third-party guarantors of green bonds, as well as a risk compensation mechanism (covering 30 percent of actual loss) to third-party guarantors of aggregate green loans that are tailored to small and medium enterprises."

As well as the effort to harmonize standards of what constitutes green that is still on going, especially between European and Chinese entities, the chapter lists three things that could further grow the green bond market in China:

Domestic harmonization: There are currently two domestic taxonomies at play, the morphing/harmonization of them would be 666.

Subnational issuance: Getting everything in order so municipalities can get to market.

Belt and Road: BRI projects are big and many, needs a lot of financing, why not green bonds?

The green bond part is on page 155: China Bond Market

Alphaville: China’s bond markets still have a way to go

五, SME too?

Ma Jun, director of the Green Finance Committee, speaks green finance policy with Tsinghua University on the topic of how to include small and medium size businesses in the on going roll out of green finance policies (audio and transcription):

“Reporter: All listed companies will be required to disclose their environmental information by 2020. There’s a certain degree of difficulty in this? Can it be achieved?

Ma Jun: Of course, in considering these difficulties you mention we have written the two cautious sentences of “to gradually establish environmental information” and “mandatory environmental information disclosure” into the 2016 guidance.

This step-by-step measure should give actors a few years to for the transition. In 2017, the China Securities Regulatory Commission issued their three-step document on how to get there. The first step is to require key emissions companies to implement mandatory disclosure in 2017; then, in 2018, semi-mandatory, where the company can choose not to disclose, but if it is not disclosed, it must explain why it is not disclosed; and the third step will require full mandatory disclosure by 2020. At the same time, we are also doing some capacity monitoring and organizing listed companies to do try the feasibility of the steps.”

Read/hear the whole thing (中文): 马骏：绿色金融向小微企业延伸难在哪

六, green bonds go to market

There were three green bond issuances from the 25th till the 31st of March. 

Xinxing Pipe Casting Corporation was behind one, Wuhan Xingang Construction Investment Group another, while Guangdong Sihui Rural Bank took up the last.

Meanwhile, 35 bonds were issued in the non-labeled green market.

Full summary: 盘点绿色债券 3.25 - 3.31

This is the eigth issue of our Green Finance in China newsletter. The idea is to bring the latest in news, research, and opinion related to green finance in China to anyone interested. Please send tips and criticisms our way. You can also have a look at greenfinanceinchina.com where we'll host earlier editions, blog posts, and more. 

If you've been signed up to our newsletter by mistake please unsubscribe at the bottom of the email.