China looks to capitalism to turn 2060 carbon neutral goal into reality

China’s President Xi Jinping pulled a surprise at the United Nations in September when he committed the world’s biggest energy user and greenhouse gases emitter to a “carbon neutral” goal by 2060, becoming only the second major economy to do so.

China emits more carbon dioxide, a by-product of fossil fuels and industries, than the United States and Europe combined, at a rate that tripled in the past two decades amid the country’s breakneck economic growth as a World Trade Organization member. The 2060 goal, along with a target for carbon emissions to peak before 2030, is critical to put the world on track to meet the 2016 Paris Agreement of capping global warming at 1.5 degrees Celsius by 2100.

To reach Xi’s target, China must wean the planet’s second-largest economy – which burns half of the world’s coal, and imports more oil and natural gas than anywhere else – off fossil fuels. It’s an ambition that may cost US$5.5 trillion over the next few decades as carbon is removed or offset in energy production, heavy industry, buildings, transport and agriculture, involving technology barely used today, according to Sanford C. Bernstein’s estimate.

“Although this is a 40-year [goal], the target is so ambitious that we will have to start immediately,” said Thomas Palme, who leads Boston Consulting Group’s social impact practice in China. “China is already doing a lot, but it needs a step-change to get on the path of what President Xi has announced.”

A man doing his morning exercises in front of chimney stacks across the Songhua River in Jilin province on February 24, 2013. Photo: Reuters

The next key step would be for China to launch a long-awaited national carbon emissions quota trading scheme, a cornerstone policy that can turn Xi’s pledge into a deliverable reality. It is one of the most effective tools, besides green financing products, that uses market forces to put a price, or financial penalty, on carbon emission. A carbon futures exchange is due for commencement this year in Guangzhou, augmenting the brisk transactions of emission certificates that had been ongoing in the Guangdong provincial capital since 2013.

“While many policies have been implemented and proven to produce effective results in certain sectors, few [have] effects across sectors,” wrote Beijing-based consultancy SinoCarbon Innovation & Investment’s analysts Chen Zhibin and Yu Jiahui. “Emissions trading system (ETS) stands out, as it covers all major sectors [that] have the strongest cross-sector abatement potential.”
China generated more carbon dioxide in 2019 than the United States and the European Union combined. SCMP Graphics

ETS directs polluters to find the most cost-efficient way to cut emissions. China’s national ETS will initially cover coal and gas-fired electricity generators, before expanding to seven pollution-prone industries: petrochemical, chemical, construction materials, steel, non-ferrous metals, paper and domestic aviation.

Nearly 1,700 of these carbon emitters, each with at least 26,000 tonnes of annual carbon dioxide emissions, will initially be allocated free quotas based on their historical volumes. Companies that need to surpass their emission quota must buy additional permits to discharge, and such payments can be used to finance government initiatives in emission abatement.

China’s annual growth rate in carbon dioxide emission has already flattened since 2013 at less than 2 per cent, down from the 8.2 per cent average in the previous 10 years, according to the Our World in Data website in the UK. Still, the Chinese ETS is likely to cap an estimated 3.3 billion tonnes of annual carbon dioxide emissions as soon as it is launched, 80 per cent more than the 15-year-old peer by the European Union, the world’s oldest and largest such system.

China’s annual carbon dioxide emission has picked up after flattening between 2013 and 2016. SCMP Graphics

Yet, Beijing has not given a launch date, raising concern that the ETS’ 2020 launch date – set three years ago – may be delayed again due to the coronavirus pandemic and its debilitating effect on the global economy.

“The 14th five-year plan (2021-25) will be a landmark period for the establishment of China’s nationwide carbon market, with regional pilots transitioning to a unified national market, single-industry participation expanding to multiple sectors,” said Li Gao, head of the climate change department at the Ministry of Ecology and Environment.

China’s national ETS incorporates lessons learned from pilot schemes set up in 2013 in Beijing, Shanghai, Tianjin, Chongqing, Shenzhen, Guangdong and Hubei.

Together, the pilots involved close to 3,000 enterprises from over 20 industries trading more than 400 million tonnes of carbon emission permits valued at 9 billion yuan (US$1.36 billion).

Data accuracy is vital in an effective carbon market because the financial penalty for emission has to be high enough to drive abatement.

“Collecting and aggregating the right data accurately is not simple because different facilities may have different carbon intensities, depending on where you buy the coal and its energy content for example,” said Chan Wai-Shin, HSBC’s global co-head of environmental, social and governance research.

China is issuing more green bonds than ever before. SCMP Graphics

The data accuracy challenge is not unique to China. South Korea gave companies five years to set up a data collection system before rolling out carbon trading.

Another linchpin for the ETS is the methodology for allocating emissions quotas. On this score, the Chinese government has given few details, with the consultation circular on the provisional trading rules saying it would take into account the national emission goals, economic growth and industry structure adjustments.

The ETS may gradually transition from allowances based on a polluter’s production level to one with an absolute cap, said Ma Jun, director of the non-profit Institute of Public and Environmental Affairs in Beijing.

“The cap should be clear for each plant’s emissions, so that we can effectively promote carbon trading and cut emissions,” Ma said.

The impending transitioning of trading currently imposed on certain firms – and done on a regional basis via pilot exchanges – to the new industry-wide national trading platform will be a policy challenge.

“Participating companies in cities with pilot ETS programmes are facing an increasingly higher bar for free emission quotas and limited room for further reduction, while non-participating players may have advantages as later comers,” said a spokesperson at the Shanghai office of German chemical firm Covestro which faces the transition.

The world needs to price carbon at more than US$40 a tonne to reach the tipping point for greenhouse gas abatement to pick up pace, said Richard Mattison, CEO of Trucost, the environmental risk analysis unit of S&P Global. That bar would rise to between US$50 and US$100 per tonne next decade, 13 leading economists supported by the World Bank said in a 2017 study.

For now, carbon emissions are changing hands at below the consensus price, with the ETS permits trading at 27 (US$32) per tonne, while prices among China’s seven pilot schemes ranged between US$1.4 and US$11 per tonne, according to the inter-governmental initiative International Carbon Action Partnership.

“There is a very big gap between the price that carbon emissions are currently traded at, and the effective carbon price needed to drive emissions reduction in line with the commitments under the Paris Agreement,” Mattison said.

Initial emission quotas need to be aggressively handed out to achieve the tipping point, he said, adding that Europe’s allocation equivalent to 90 per cent or more of companies’ emission volumes had resulted in modest reductions over 15 years.

“The EU aims to halve its carbon emissions in four decades by 2030, while China has pledged to cut it to near zero in the next four decades,” he said.

The Best & Worst Countries for Climate Change Policy. Sources: New Climate Institute, the Climate Action Network and German Watch. Statista Graphics

If investors, speculators and traders are allowed to trade futures and derivative products, they can play a role in setting carbon price and boosting trading volume, said Zhang Jianyu, chief representative of the China programme of New York-based environmental non-government organisation Environmental Defense Fund, which advises China on the launch of its national carbon market.

“The Chinese government intends to use futures to promote investment and financing to indirectly facilitate efforts to reduce carbon emission,” said Cai Yongmei, a partner of international law firm Simmons & Simmons who advises on derivatives and structured products deals.

Green bonds, green loans and carbon tax could also play a big part in financing low carbon energy and manufacturing technologies and infrastructure.

China was the world’s biggest green bonds issuer last year, printing 386 billion yuan of papers, a third higher than in 2018, although only around half met international standards, according to London-based non-profit Climate Bonds Initiative (CBI).

To narrow the gap, the People’s Bank of China this year revised issuance guidelines to remove “clean utilisation of fossil fuels” from the list of projects that can qualify as “green,” but the central bank still allows up to half of the proceeds to be used as “general working capital” not earmarked for specific green projects, well above 5 per cent of the CBI’s standards.

Chinese guidelines are expected to converge with global standards in the long term, which will open up domestic green bonds to foreign investors, said Fitch Ratings. Some foreign firms issued green bonds linking interest payments to attainment of sustainability targets, which could have showed a different way for Chinese utility-sector green paper issuers to improve sustainability achievement, said Andy Chang, fixed income credit analyst at JP Morgan Asset Management.

Secretary for Financial Services and the Treasury Christopher Hui Ching-yu, at the Central Government Offices, Tamar on 5 June. 2020. Photo: Jonathan Wong

Hong Kong is well placed to seize the opportunity to act as a bridge between international investors and mainland Chinese firms seeking to raise funds for low carbon projects, said Christopher Hui Ching-yu, Secretary for Financial Services and the Treasury.

“Hong Kong, as a comprehensive international financial centre and a global yuan business hub, is well-equipped to develop into a leading regional hub for green and sustainable finance,” he said in written comments to South China Morning Post.

The city’s rules on environment, social and governance matters for listed firms would also put it in good stead as a green finance hub, said Deloitte China’s risk advisory director Herbert Yung.

Although Hong Kong has yet to set a long-term goal to cap carbon emission, when it does, there will be demand for quotas trading.

Due to the small size of the local market and a lack of carbon trading infrastructure, it should consider joining forces with neighbouring mainland cities to create a common market, said Ma Jun, chairman of Hong Kong Green Finance Association.

The city’s Environment Bureau is working with stakeholders in “setting the direction” for carbon neutrality by 2050, Joseph Chan Ho-lim, Under Secretary for Financial Services and the Treasury told a green finance forum hosted by the association this month.

As the coronavirus pandemic continues to curb global economic activities and carbon emission, the urgency to deploy market-based tools to bolster efforts to fight climate change has not changed, according to HSBC’s Chan.

“Globally, carbon emissions are expected to fall 4 to 7 per cent this year amid the pandemic,” he said. “However, what matters for climate change is the cumulative emissions in the atmosphere … this pandemic may just be a blip in atmospheric concentrations of emissions and will not change the tools used to transition towards a low carbon economy.”

This story, originally published by South China Morning Post, has been shared as part of World News Day 2021, a global campaign to highlight the critical role of fact-based journalism in providing trustworthy news and information in service of humanity. #JournalismMatters.

VIDEO: Hong Kong’s 11-year-old climate activist on a mission to help save future generations

Lance Lau Hin-yi is the 11-year-old Hong Kong schoolboy who has spent nearly every Friday standing outside the gate of his school before class, raising awareness about climate change.

He says he was inspired by “climate girl” Greta Thunberg, the Swedish activist who is internationally known for challenging world leaders to take immediate action against climate change.

Lance also organises monthly beach clean-ups to promote the concept of sustainable development. He is also a regular speaker at environmental conservation events that push governments and major companies to make climate-conscious decisions and save the Earth for future generations.

SCMP Editorial | Police are not arbiters of who is trustworthy

This editorial first appeared on August 11, 2020. Click here to see the original article on the South China Morning Post’s website. 

  • By barring journalists from some media outlets at its press conferences, the force is only hurting its own, already shaky image

Distrust and suspicion that developed between the media and the police during months of often violent civil unrest are, sadly, far from healed. It resurfaced on Monday during the national security raid on the offices of Apple Daily and the arrests of its owner Jimmy Lai Chee-ying and others. The police operations marked the adoption of a new system under which only journalists from “trusted media outlets” are allowed to report from inside the force’s cordoned off areas. As a result, those barred included foreign wire services and local outlets Stand News and RTHK. The latter was admitted later.

Commissioner Chris Tang Ping-keung has revealed it is a pilot scheme. He defined journalists from “trusted media” as those who had not acted unprofessionally and obstructed officers, and had reported fairly. This is capable of being perceived as highly subjective in practice, and hardly an assurance of objective reporting. Journalists and the public need to know what is meant by “trusted media”. Ahead of the briefing, the force made it known that only selected representatives from “well-known media outlets” would be allowed to attend. In that sense “trusted” might refer to traditional or accredited media. Given that the new policy could undermine press freedom, there is an immediate need for clarification. So it is good to hear that in light of the feedback the police will review their action.

The number of reporters may have been seen as too large to allow them all into the briefing, and the commissioner might have had a point that not everyone wearing the yellow media vests was a reporter. But the “trusted” test does raise issues for press freedom, which is enshrined in the Basic Law. They are articulated in comments by a number of media groups such as the Hong Kong Journalists Association and the News Executives’ Association, which said the admission of only selected journalists to briefings had “further damaged the thin trust between the media and law enforcers”.

It seems the police went into this without taking into account the likely perceptions and optics, which are not helpful to the force, the media or the public. “Trusted media” is a problematic concept. Given the concerns raised, the police should revisit this policy and re-engage news organisations in search of a better solution. After all, the media remain society’s eyes and ears in holding power to account.

Only unmasked protester that stormed LegCo explains July 1 drama

Hundreds of protesters stormed Hong Kong’s Legislative Council on the 22nd anniversary of the city’s handover to Chinese rule on July 1, breaking glass panels, windows, dismantling furniture, daubing graffiti in the chamber and attempting to put up the British colonial flag.

Brian Leung Kai-ping, 25, was among those who entered the legislature – and the only one who has openly revealed his identity that night.

The storming made international headlines and marked a “quantum leap” for the entire movement against the extradition bill and the city’s push for democracy, he said.

In an exclusive interview with the South China Morning Post, via a Telegram phone call – the social networking tool widely used in the movement – he explained his actions and why he had no regrets.

Watch South China Morning Post’s video here.

Where were you on Monday (July 1) and what was your role?

I skipped another major rally to stay around the Legislative Council complex for nearly eight hours, keeping a close eye on every move. Like most protesters, we had been waiting for this opportunity to make a statement inside Legco. There was, of course, no clear consensus at the time how long we should occupy it, which underlined the very nature of the extradition bill movement – decentralised, leaderless and spontaneous. We were improvising.

After an hour and a half, reporters observed you removing your mask and asking everyone to stay. Why did you do that?

At the time, more and more people, wary of police countermoves, started to leave the Legco chamber.

I made a risky move to step on the desk of one lawmaker, removed my face mask, and shouted at the top of my voice: “The more people here, the safer we are. Let’s stay and occupy the chamber, we can’t lose no more.”

Some protesters warned me not to remove my mask, but I felt it was the defining moment of the night. I felt we ought to appeal to the crowds to join in and form a barrier and support those inside the Legco complex. No one could tell when we would step foot in Legco again.

As police were drawing closer and closer, after some deliberation, most decided to end the siege. I volunteered to be in front of the camera to read out the key demands of protesters in the chamber.

The last thing I wished to see, after all the action taken, was to have no clear demands put on the table.

If we didn’t do that, the public might only remember the vandalism and point fingers at us as a mob. That would also hand the government a convenient reason to prosecute each and every one of us, which would mark yet another setback to civil society like in the 2014 Occupy movement.

But weren’t the actions of the protesters that day, along with the damage done to Legco, violent?

Be clear that any damage was only done to the Legco building or properties within, not so much to any person or even police officers. Protesters have been restrained in their use of force.

It is worthwhile to note the graffiti was not merely vandalising. For instance, protesters spray-painted and covered up “People’s Republic of China”, leaving behind only “Hong Kong Special Administrative Region”. That is a clear mistrust of the two-systems principle. Most of the other graffiti was about commemorating the three lives lost in this movement.

So they were only telling the public that this was not just mob action but to register the accumulated frustrations of an unfair electoral system. Compared with the death of three people who used their lives to deliver a message, does the damage to several glass frames even count?

So what was the young protesters’ state of mind in being part of the July 1 protest and other sieges?

The pursuit of freedom and democracy is what fundamentally drove hundreds of protesters on Monday into Legco, the same goal shared by hundreds of thousands who took to the streets earlier. The government has thus far turned a blind eye to our demands, and there was no real change nor real actions tabled. If Carrie Lam claimed herself ready to be more humble, why did she not make clear the suspended bill was completely withdrawn, a move that could easily settle the controversy?

Or, the government could choose not to charge protesters arrested earlier, which we saw happened to those in Taiwan’s Sunflower movement. Or, it could task an independent inquiry into police’s excessive use of force.
Any of these would be welcomed by the civil society, but the government refused to take these calls on board.

You mentioned the three deaths. These are suicide cases. Isn’t it wrong to glamorise them and call them martyrs?

It was evident that protesters were so outraged that three lives were sacrificed throughout this movement, when peaceful means were almost all exhausted. Young protesters were at a point of desperation.

We were not in a position to pass any judgment on their decisions but what the protesters could do was to honour their faith.

One may well argue that time is supposed to be on young people’s side. But with the disqualification and jailing of pro-democracy lawmakers and activists after 2014 “umbrella movement”, the entire generation was banned from the political system.
We do not have the luxury of our parents to settle down in another place. Nor do we have the burden of a 30-year mortgage to worry about. Young people have nothing to lose, their only hope is to stay safe to see the sun rise, and hope to join protest another day. We want democracy, now.

Can you share your personal background, your schooling, your parents?

Hong Kong’s social movement has always inspired my academic study. After graduating from the University of Hong Kong with a dual degree in law and politics, I chose for my master’s thesis the topic of how civil society could help democratic transition and prevent authoritarian regimes.

I have always aspired to become a professor and return to teach Hong Kong students to be socially aware in the future.

I really don’t want to mention my family, as I don’t think that’s helpful.

What’s next for the movement? And what’s next for you? And are you in Hong Kong?

Civil society has already exhausted every possible peaceful means, and it is not trying to exercise violence for the sake of violence. The government needs to reflect on its response.

For my own part, I am not sure whether I can fly to the United States this September to continue my PhD studies in political science at the University of Washington. I am still considering various options, and seeking as much advice as I can.

While I am not yet a political dissident in exile, that is a real threat ahead of me and my peers if the government chooses to press charges against all those who entered Legco, who played their part in this protest.

I am blessed to receive legal advice and other recommendations from my social network, while remaining financially independent through a role as a teaching assistant. For those who may be 17 and 18 years old, there could be real consequences and it is worrying.

This story by Alvin Lum was originally published by the South China Morning Post on July 5. Read more here .

Alvin Lum is an award-winning political journalist specialising in Hong Kong politics and the city’s justice system. He sought to understand the reason why protesters stormed the council even after the government had shelved the bill. This led him to contact Brian, who had left Hong Kong right after the movement, through a mutual acquaintance.Published on Jul 5, his exclusive interview was a scoop, Alvin being the first journalist to speak to the only protest leader who was willing to take off his mask during the trashing of Hong Kong’s Legislative Council. “That interview, when it was published, helped fill the void why protesters still need to resort to this kind of more radical measures which has never happened before in Hong Kong,” Alvin said. Tammy Tam, editor-in-chief, South China Morning Post added: “Alvin’s exclusive interview with Brian Leung reflects the vital role SCMP has played in independently covering and revealing insights into an important chapter of this still ongoing unprecedented political crisis in our city. We will continue in our unwavering commitment to report these developments with professionalism and courage.”