Macroscope | Bond market innovation could help China climate change pledge
World leaders have agreed to limit global average temperature rises to within 2 degrees celsius. To achieve this, the Intergovernmental Panel on Climate Change recommends a 40-70 per cent reduction in greenhouse gas emissions by mid-century from 2010 levels, and decarbonisation of the global economy by the end of the century. The leaders of the G7 countries emphasised the importance of these targets at their summit in Germany last month.
As the world’s largest greenhouse gas emitter, China has an important role to play in meeting the 2°C limit. China, along with all 196 Parties to the UN Framework Convention on Climate Change, will meet in Paris in December to negotiate a universal climate agreement.
Countries are in the process of submitting their pledges towards this agreement and some 17 parties covering over three-fifths of global emissions have already done so. For China, the target is for emissions to peak around (or before) 2030 and to reduce carbon intensity of GDP (the ratio of carbon emissions to GDP) by 60-65 per cent by 2030 (from 2005 levels).
China’s environmental problems are well known and while climate change and the environment are not the same, they overlap, and many pollution problems may be exacerbated by climate change. The government declared war on pollution in 2014 and has passed a new environmental law aimed at stopping further degradation and begun the process of cleaning up the environment.
As such, more environmental policies will almost certainly be implemented under the 13th Five-Year Plan from 2016 to 2020. It is clear that China’s war on pollution and the transition to a low-carbon economy require substantial financing.
Bond markets have traditionally been used to fund large projects such as infrastructure. The ‘green bond’ market has emerged internationally in recent years to fund ‘green’ projects. They are guided by the Green Bond Principles, voluntary guidelines drawn up by issuers and bankers in 2014 and revised in 2015.