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Green Finance / Treasury & Capital Markets
China’s green opportunities in wake of Trump Paris withdrawal
President Donald Trump announced that he will withdraw the US from the Paris climate accord, a move that could further strengthen China’s influence over climate and green issues.
Derrick Hong and David Wingrove 5 Jun 2017

President Donald Trump announced that he will withdraw the US from the Paris climate accord on Friday, a move that could further strengthen China’s influence over climate and green issues.

The move is reminiscent of Trump’s withdrawal from the Trans-Pacific Partnership (TPP) agreement in January earlier this year. China’s response was to fill void by pushing interconnectivity and globalization in the face of Trump’s protectionism. Similarly, as Trump reneges on the climate agreement, China is taking the lead in promoting climate action.

Currently, China, the US and the EU are the three economies which produce the most greenhouse gas emissions globally. In the wake of Trump’s withdrawal, it is likely that China and the EU will take the lead together in tackling climate change.

The EU has agreed to collaborate with China on a 10-million-euro project to promote bilateral emissions trading. The project is to start this year, financed under the EU Foreign Partnership Instrument. According to EU sources, the project will build on an existing cooperation project which started in 2014 and has supported the roll-out of seven pilot schemes across the country.

“China is sending an important signal as we embark on our journey to implement the new global climate change agreement: that emissions trading is a cost-effective way to cut greenhouse gas emissions. The world's second largest economy will be using emissions trading to reach its Paris pledge – and not in the distant future, but next year,” says commissioner Arias Canete, in a European Commission Statement.

“With more than a decade of experience with the EU emissions trading system, the EU is well placed to support China. Cooperation between the two largest emissions trading systems in the world will send a strong signal to other countries as they prepare to implement their Paris commitments,” says Canete.

The EU and China have also agreed to cooperate on the deployment of electric cars, energy-efficiency labelling and scientific research into green technology. They will also work on ways to spur the growth of renewable energy, such as boosting interconnected power networks.

China is now the largest green bond market in the world. In 2016, green bond issuance by Chinese firms accounted for over one third of the total global volume. According to China Central Depositary & Clearing, green bonds accounted for 2% of Chinese bond market in 2016, while globally the figure stood at just 0.2%.

Green finance has been a key focus of China’s finance industry. In 2016, China introduced the climate-related bond index and green bond index. “China will make efforts to develop green finance,” says Premier Li Keqiang in a government report in March.

According to the latest Asian Development Bank (ADB) forecasts, Asia will need to invest US$26 trillion from 2016 to 2030, or US$1.7 trillion annually, in order to maintain the region’s growth momentum, eradicate poverty and respond to climate change.

“ADB is assisting Asean+3 to explore options to promote the use of green bonds for infrastructure development, looking particularly on the experience of the PRC in promoting green finance,” says A. Noy Siackhachanh, senior advisor of the sustainable development & climate change department at the ADB, at The Asset’s 11th Asian Bond Markets Summit in Shanghai.

Another catalyst that bolsters China’s green finance industry is China’s One Belt, One Road initiative. A number of green projects are under construction under the Belt-Road. As recent examples, Denmark-based LM Wind Power has recently announced the addition of a new blade factory located in Baodi in northeastern China. Fujian Zhongmin Offshore Wind Power also recently issued a tender for 24 wind turbines for the second phase of the Putian Pinghai offshore wind project.

“We will see a large increase in interest in the green area and the new energy area. More foreign investors will pay attention to these areas,” says Bin Yu, head of research and development at Shenzhen Securities Information, in an interview with The Asset.

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