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Report: China looks to strengthen climate finance to mitigate global warming effects

20 November 2012
Report: China looks to strengthen climate finance to mitigate global warming effects

BEIJING: China should further strengthen its institutions and governance in climate finance if it wants to effectively mitigate the negative impacts of climate change, according to a new report commissioned by the Chinese Government’s powerful National Development and Reform Commission (NDRC).

The report, authored by The Climate Group and the Research Centre for Climate and Energy Finance at the Chinese University of Finance, is to be presented to the NRDC, the Ministry of Finance and other top Chinese government entities later this month.

Shaping China’s Climate Finance Policy calls for a radical overhaul of China’s climate financing mechanisms, up to 5% of central and local government income channelled to climate funds as well as the setting up of a new, high-level Climate Change & Energy Agency and an International Climate Development Agency.

“A more sustainable, resource-efficient development path that addresses China’s social and environmental challenges is going to be the cornerstone of the new Chinese leadership’s growth strategy for the country. The next decade could see China driving a global Clean Revolution. We at The Climate Group are helping the Chinese government to accelerate necessary low carbon initiatives and address the country’s environmental challenges” said Changhua Wu, The Climate Group’s Greater China Director.

The report identifies a number of challenges regarding China’s climate policy and financing, such as the lack of a central management mechanism and a national strategy for meeting national climate objectives, as well as underdeveloped monitoring mechanisms and uncertainty about China’s overall international climate strategy.

It suggests a series of institutional reforms combined with new strategies to address those challenges:

  • China should set up a high-level Climate Change & Energy Agency under the direct supervision of the State Council, to consolidate national climate strategy and actions, including financing. 
  • A China-wide carbon market run by a national regulatory committee should be established over the medium term, building on the regional pilot schemes currently being established.
  • A new “climate change” category should be set-up in China’s national budget, managed by the Ministry of Finance. 
  • A national climate as well as an adaption fund should be set up to promote China’s participation in international climate processes, both as a contributor and a receiver of finance; the fund should be operated by institutions such as the China Development Bank.
  • New means for incentivizing the participation of commercial financial institutions are required.
  • The “green credit” business of China’s commercial banks should be expanded by creating mechanisms such as a green credit guarantee fund to provide first loss guarantee for banks using public money and interest subsidies for green financing. 
  • China should strengthen its “South-South” climate cooperation by allocating more state funds to the existing Chinese Cooperation Special fund established in 2011 and sourcing additional funding from international sources and private capital.

China has already made huge investments in renewable energy and clean technology: it was responsible for almost one-fifth of total global investment in renewables in 2011, spending $52 billion. According to China’s 12th Five-Year Plan (2011-2015), the country will spend more than $473 billion on clean energy investments over the next five years. China’s goal is to have 20% of its total energy demand sourced from renewable energy by 2020. Its solar industry is already thought to be worth $20 billion – up from virtually zero a few years ago. The country also invests heavily in innovation; Chinese R&D spending across all sectors tripled as a percentage of GDP over the past 15 years.

Read the English executive summary of the report now.

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