Low carbon catalyst


Eco-friendly financial cooperation between China and ASEAN countries can promote their green development

Environmental cooperation is an essential part of the China-ASEAN comprehensive strategic partnership. China and the Association of Southeast Asian Nations have a long history of green and low-carbon development cooperation, backed by reality-based strategies.

The strategic and institutionalized model of ecological and low-carbon environment is an important feature of China-ASEAN cooperation. As early as 1997, China and ASEAN signed the Kyoto Protocol to control greenhouse gas emissions. Since the beginning of the 21st century, the two parties have continued to strengthen their exchanges and their cooperation in the ecological and environmental fields, successively signed the Bali roadmap and the Paris agreement, and signed several cooperation agreements on environmental protection and low-carbon development.

The first China-ASEAN Policy Dialogue on Environmental Cooperation was held in August 2004. The two sides have cooperated extensively in environmental education to raise public awareness and promote environmentally friendly technologies and cleaner production .

In 2007, the China-ASEAN Summit adopted the framework of the China-ASEAN Environmental Cooperation Strategy and Action Plan (2009-15), which is updated every five years to enhance cooperation. Last year marked the 30th anniversary of the establishment of China-ASEAN dialogue relations, and sustainable development has become the theme of the year of cooperation.

In May, China and ASEAN adopted a new round of five-year cooperation strategies and frameworks for action, focusing on environmental policy dialogue and capacity building, sustainable cities and ocean plastic reduction, climate change and air quality improvement, biodiversity conservation and ecosystem management.

At the specific operational level, the China-ASEAN Environmental Cooperation Center has been established to carry out practical cooperation. Since 2011, the China-ASEAN Environmental Cooperation Forum has held 10 consecutive sessions, focusing on discussions and collaboration on issues of greatest concern. The two sides have successively held more than 30 activities of the China-ASEAN Green Ambassador Program to build an information-sharing platform on China-ASEAN environmental cooperation and partnership for the development of environmentally friendly cities. In recent years, Chinese companies have actively helped ASEAN countries build high-quality clean energy projects. For example, by the end of 2020, Chinese-funded companies had completed 10 hydropower plants in Cambodia and they are operational.

Chinese-funded power plants accounted for about 80.3 percent of electricity on the grid in 2020, contributing to Cambodia’s low-carbon development.

However, cooperation between China and ASEAN is facing challenges due to the COVID-19 pandemic. The continued resurgence of the new coronavirus has hampered the implementation of development plans. Although containment measures have resulted in lower emissions and some improvement in air and water quality, these positive effects are likely to be short-lived. The pandemic has increased the burden of medical waste treatment in various countries. At the same time, countries’ green development plans in the energy sector are impacted by supply chain disruptions.

Emissions pressure from industrial development hinders the transformation of the energy structure. Some underdeveloped regions in China and developing countries in ASEAN face the challenge of matching energy demand with the green transition. ASEAN country governments are allowing their industrial sectors to make heavy use of fossil fuels during the recovery period, which may further hamper the implementation of the low-carbon development plan.

Lack of investment in technological research and development has led to backward industrial development. To achieve industrial development goals, it is important to accelerate the growth of new renewable energy, apply high-tech solutions that can improve energy efficiency, and increase investment in research and development. Total R&D expenditure in ASEAN as a whole is low, representing less than 1% of GDP.

In response to the above issues, China and ASEAN can further strengthen their cooperation in green finance.

They must meet the financial integration requirements of the Belt and Road Initiative at the macro level. ASEAN countries are key players in building the Belt and Road. Financial institutions will play a critical role in promoting the transition from brown to green investments and contributing to the low-carbon evolution. On the one hand, transition risks need to be managed flexibly as fossil fuel consumption continues to decline. On the other hand, financing mechanisms and innovative financing channels facilitate the construction of low-carbon infrastructure.

The financing gap for green technologies and industrial transition of ASEAN countries should be filled. Developing ASEAN economies have large financing gaps in various areas of the green transition, and green bonds and loans will become important conduits for these investments. While the United States and Europe remain the leaders in green bonds and loans, Chinese issuance continues to grow. China can encourage the active development of energy efficiency credit, green bonds and securitization of green credit assets, carry out prudent financing by pledging environmental rights and ecological compensation, set up green development funds in accordance to the law and explore innovative green financial products such as carbon finance, climate bonds, blue bonds, environmental pollution liability insurance and climate insurance.

Channels for financing low-carbon projects at home and abroad need to be expanded. By relaxing restrictions on the proportion of equity investments in domestic energy projects and introducing carbon emissions trading, a unified and open trading market is being established across the country and even in countries along the Belt and Road roads, and the vitality of green financing the market is stimulated.

In summary, green finance will help ASEAN and China solve related problems and facilitate their cooperation in green and low-carbon development.

Zhai Kun is a professor at the School of International Studies and a special fellow at the Institute of International and Strategic Studies, Peking University. Shi Youwei is a doctoral student at the Institute of Area Studies, Peking University.

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