Please enter keywords
Financing Green and Low-Carbon Transition: Incentives, Constraints, and Risk-Prevention

Financing China’s low carbon transition is one of the main priorities for the Chinese government during the 14th Five Year Plan period (2021–2025). CF40 held its 389th biweekly roundtable on October 23 to discuss a practical roadmap for tasks ahead and to review the research project Financing Green and Low Carbon Transition: Incentives, Constraints, and Risk-Prevention, led by Wang Xin, CF40 member and Director-General of PBC's research bureau.

In his presentation, Wang Xin stressed the urgency of green and low-carbon development in China and the importance of financial support. The project focuses on the mechanisms that incentivize or constrain the role of finance in China’s transition to a low-carbon society and how to prevent climate-related financial risks.

Wang expounded on the mechanisms in question in several aspects: the standards of green and transitional finance, carbon accounting, and climate and environmental information disclosure; the formation of a reasonable carbon price (with a focus on carbon tax and carbon market coordination); the incorporation of green finance elements into the rating of financial institutions; and fiscal and financial policy incentives.

In terms of prevention of climate-related financial risks, Wang proposed to use macro stress tests for the analysis of these risks and provided a brief account of the framework put forward by the research team to describe how changes in climate-related variables such as carbon pricing would impact macroeconomic variables and, in turn, affect different sectors and financial institutions under various scenarios.

Commenting on the presentation, Liu Mingkang, former chairman of the China Banking Regulatory Commission, noted several practical issues facing carbon accounting, such as the lack of accurate and agreed-upon accounting methods for different types of financial assets, the absence of business-level data, fraudulent carbon reporting, and the lack of transparency, and stressed the urgency for better carbon accounting and reporting.

The importance of putting in place various standards for carbon accounting was echoed in the following comment from Chen Wenhui, CF40 advisor and vice chairman of the National Council for Social Security Fund of China. He also emphasized the role of market in China’s low-carbon transition, the need for a more active carbon emission trading market, and more certainty in policy directions.

The seminar was moderated by CF40 secretary-general Wang Haiming.