Beijing, July 17th, 2012-Chinese enterprises are confronted with challenges and opportunities brought by the introduction of carbon market to China and they ought to change the mindset to tackle the hurdle and develop low-carbon innovative products, an issue addressed by Mr. Wilson Tang the director of Climate Change Capital (UK)'s operations in China, Mr. Tang Renhu general manager of Sino Carbon Innovation & Investment Co., Ltd. (SCII) and Ms. Chen Yaqin head of department of sustainable carbon finance in China Industrial Bank Co., Ltd., in the 4th webcast of the China Social Investment Forum (China SIF).
China is on her way of establishing a substantial carbon market
The year 2012 has witnessed plenty of risks as well as opportunities on Chinese enterprises in terms of carbon trading issues. Globally, the first phase of Kyoto Protocol, a protocol to the United Nations Framework Convention on Climate Change (UNFCCC) aiming at mitigating global warming, will come to an end this year. In addition, the United Nations Durban Climate Change Conference, which was held around the end of 2011, did not produce a gratifying result as anticipated. In respect with Chinese domestic market, China National Development and Reform Commission (NDRC) published an announcement on pilot scheme of carbon emission rights trading at the end of 2011. Seven provincial cities and provinces including Beijing, Shanghai, Guangdong, Tianjin, Hubei, Shenzhen and Chongqing have been selected as the pilot. Faced with challenges provoked by stimulus issues both internationally and domestically, Chinese enterprises which are still under an exacerbating situation caused by 2008 subprime economic crisis, are trying hard to move forward in carbon market.
Considering the pilot scheme, Mr. Tang Renhu deemed that the seven provincial regions covered in the scheme have individual characteristics on energy consumption and financial practices, thereby they have to target the development in carbon cap-and-trade specifically and figured out a tailored way. For instance, metropolis like Beijing and Shanghai can adjust the industry structure to operate the city at a lower energy cost by this chance. Shenzhen city of Guangdong province can seize the opportunity to implement carbon financial innovation. Mr. Tang Renhu is cooperating with most of those pilot cities and provinces’ governments to make the plan of carbon emission rights trading in each city or province.
From the perspective of investors, Mr. Wison Tang proposed that the government and experts should jointly provide a policy or a programme to stabilize the price of carbon emission, thus protecting the market and investors. According to Ms. Chen Yaqin’s view, commercial banks are playing a significant role in facilitating price discovery and market liquidity, therefore financial institutions are supposed to be authorized more chances to participate in the process of establishing market principles and regulations.
Chinese enterprises should change the mindset of seller’s market
To date most of Chinese companies are inclined to sell their carbon caps by virtue of economic benefit. However Mr. Tang Renhu said that coal was the predominant resource of China’s energy consumption, and predictably carbon quota from western countries would pose Chinese companies a drawback if they still focus too much on selling and profiting. There would also be high return opportunities to explore as carbon market is an emerging market in China and rules of the game are still being formulated. To stimulate and implement innovation, investors can bring in advanced technology and management skills based on international best practices. Mr. Wilson Tang gave an example of Climate Change Capital’s project in Shenzhen, which brought in advanced waste landfills, leachate and waste management knowledge to improve the efficiency of methane collection. In addition commercial banks are thriving on innovating carbon derivative products based on Clean Development Mechanism (CDM). Ms. Chen pointed out that transaction management was so crucial that leveraging, derivatives and industrial transformation in carbon market should not be overlooked. For instance, CDM financing, trade matching and impawn of carbon assets have already enhanced companies’ initiatives to take part in carbon emission rights trading.
Chinese companies should focus more on domestic market
The market downturn in Europe has exposed carbon emission rights trading to increasingly more risks. The European Sovereign Debt Crisis (ESDC) has bashed hard the global financial market and caused another economic shrinking in addition to subprime financial crisis. From the perspective of protecting China’s energy safety, in accordance to Mr. Wilson Tang, Chinese corporations are not supposed to export overwhelming emission caps to European market. Speaking of the United States, the American Environmental Protection Agency (EPA) implemented further supervision on power plants which rely on coal for energy and the government is planning to shut down those plants gradually in 2015 and 2016. Mr. Tang Renhu extrapolated that the United States and European Union would create technological barriers once they accomplished emission targets.
In terms of establishment of domestic carbon market, measurements have been proactively exercised such as legislation of climate change, verification of supervision and research into emission standards. Ms. Chen stated that continuous research and development of carbon derivatives could promote the low-carbon market and provide more impetus for carbon finance industry.
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