China’s ambitious green targets at risk as local efforts lag

Green energy and infrastructure targets established at the highest levels of China’s government are failing to translate into real progress at the local level, says Greenpeace.

The Greenpeace East Asia report released this week highlights the gap between the decarbonisation targets coming from China’s top leadership and the continued dirty-recovery reality at the local level, finding that only 15 percent of municipal bonds issued since the COVID-19 outbreak went to sustainable and low-carbon projects [File: Qilai Shen/Bloomberg]
A previous version of this article misspelled the name of Liu Wenjie, a policy analyst with Greenpeace East Asia. This has been corrected.

Shenzhen, China – Efforts to stimulate the Chinese economy since last year have failed to move the needle on the country’s decarbonisation targets as rhetoric from the highest levels of government fails to translate into meaningful progress at the local level, a report released this week by Greenpeace East Asia warns.

The environmental activist group is urging Chinese authorities to deepen decarbonisation efforts at the local level if China is to meet its stated commitments for peaking greenhouse gas emissions by 2030 and reaching net zero emissions by 2060.

The Greenpeace East Asia report released on Monday in Beijing highlights the gap between the decarbonisation targets coming from China’s top leadership and the continued dirty-recovery reality at the local level, finding that only 15 percent of municipal bonds issued since the COVID-19 outbreak went to sustainable and low-carbon projects.

The failure to better align central government low-carbon aims with local government actions through the use of green finance and banking – using instruments such as green bonds, subsidies and loans – could spell the difference between a long, slow carbon plateau after 2030 or a faster reduction in carbon emissions after that point.

The Greenpeace report found that the lion’s share of COVID-relief bonds – some 90 percent – went to funding either general infrastructure projects or other traditional infrastructure, leaving greener transport, agriculture, forestry and waterways projects on the outside looking in.

“The first big lesson we can draw here is that local governments should prioritise decarbonisation when spending big government payouts,” Liu Wenjie, a policy analyst of Greenpeace East Asia, told Al Jazeera.

Smoke and exhaust rise from a large industrial complex surrounding Liuzhou Iron & Steel Co’s facility in Liuzhou, China in 2021 [File: Qilai Shen/Bloomberg]

Lacking an effective framework

Though a green-centred economic recovery has been prioritised at the national level – and within a handful of provinces where more funds are being ploughed into decarbonisation efforts – the lack of a system for monitoring financial flows at the project level and stricter standards for data gathering and disclosure of local spending in most areas undermines deeper green finance penetration, Liu said.

“A framework is needed to evaluate the effectiveness of fiscal spending by economic, social and environmental impacts and also to channel the financial resources efficiently through taxation, green bonds, green procurement and other instruments to boost green transition on the local level,” she said.

Ilaria Mazzocco, a senior research associate at the Paulson Institute in Chicago, told Al Jazeera, “It’s not surprising that some governments may not be taking strict or aggressive action on reducing emissions yet, because this is the time when you can still push through projects, and may be the last chance for some of these high emissions projects to get built.”

“I think they are waiting to see how committed the centre is,” she said. “For some local governments there will be a trade-off between growth and decarbonisation, and it is not irrational for local policymakers to want to actually understand what’s going to be prioritised at the centre.”

Wind turbines flank a coal-fired power plant on the outskirts of the new city area of Yumen in Gansu province, China in 2021 [File: Qilai Shen/Bloomberg]

Plans in the works

A major shift in spending priorities – and a better understanding by local officials of what those are, exactly – could potentially open the funding spigots for low-carbon projects, say experts.

China’s State Council has pledged to release an action plan for peaking China’s emissions before 2030 by the end of this year. The country’s development and planning body is spearheading the formulation of the plan.

Other important blueprints will be the 14th Five-Year Plan for energy, likely focused on coal, natural gas, oil and electricity consumption and what is now expected to be a stand-alone five-year renewable energy plan. Further plans from ministries like the Ministry of Ecology and Environment, plus more detailed provincial plans with directives on coal consumption and other targets based on the State Council’s aims, will follow.

Action plans like this have had a mixed track record in the past. One of the most successful was a major air pollution action plan launched in 2013 that helped reduce particulate matter and other air pollutants around major city regions such as Beijing, Shanghai and in South China’s Guangdong province.

“That’s what everyone wants to see exactly, what is emphasised, where resources are placed,” Mazzocco said. “For air pollution, there were a lot of resources, a lot of enforcement and it was clear that this was something that the central government was going to care about.”

How stringent and ambitious the forthcoming plans will be is still an open question, however.

“[With these plans] China’s central government should set up clear measurable targets for a carbon emissions cap, the energy mix, and a coal consumption cap for different provinces and establish periodic evaluation criteria,” said Zhang Kai, deputy programme director at Greenpeace East Asia.

Most coal-rich provinces still lack the green industrial chains and infrastructure to boost economic growth solely through green investment in the short term, Zhang said, adding that local officials are more familiar with traditional industry and the economic development and jobs they create.

“Policymakers need a development blueprint from low carbon development think-tanks and capacity building” in order to knock back those roadblocks, Zhang said.

While carbon emissions and coal consumption caps are expected in order to meet the 2030 and 2060 goals, Jonathan Ha, CEO of business intelligence company Seneca ESG, told Al Jazeera, he doesn’t expect the government to be too specific on the micro levels related to those caps, preferring to let market participants figure out the details themselves.

“We believe it will definitely help direct more funding to green projects but we are not overly optimistic either,” Ha said. “Green projects in many cases require long-term committed capital and there is actually a mismatch of asset-liability issues given the majority of green funding is still loans instead of bonds.”

Photovoltaic modules stand at a solar power plant co-owned by Longi Green Energy Technology Co and China Three Gorges Corp in 2020 [File: Qilai Shen/Bloomberg]

Deeper commitments to green finance

For several years, China’s central government – led by officials from the People’s Bank of China, the country’s central bank – has been touting green finance as one of the major remedies for tackling carbon emissions.

Green bonds have been widely promoted, but have increasingly come under scrutiny due to a lack of transparency about whether the money raised from these bonds goes to green projects in the end or just filters into general operating budgets for local governments and projects.

Most green municipal bonds are going towards public infrastructure projects, according to Li, though since the latest look into municipal bonds didn’t dive into the operation of the projects, she couldn’t say exactly how the funding was utilised overall.

“Measuring the effectiveness of ‘green bonds’ is still a difficult task not only because we lack data and information disclosure but also because developing the evaluation framework with appropriate indicators and quantitative methods is challenging,” Liu said.

Guidelines for information disclosures on green bonds have recently been released, but it will take some time for uptake and for the data to start being evaluated.

“The problem indeed persists given that the majority of attention is focused on the issuing phase, and there are very few previous track records for investors to refer to [about outcomes],” Ha said. “We believe that regulation and the adoption of technology can somehow ease the problem [and] some form of periodic mandatory disclosures on fund usage will definitely help.”

Liu said that pilot projects coordinated by the finance and development ministries in China have already shown that environment and ecology conservation projects that use municipal bonds can also be supported by green bonds, if eligible, and if done on a larger scale could encourage the creation of more green municipal bonds.

The next few years will be about creating the right types of incentives and laying out the institutions that will be directing decarbonisation, said Mazzocco.

“These are challenging things to put into place,” she said. “I don’t expect to see rapid decarbonisation over the next five years; this is going to be about laying the framework and then leaving some of the heavy lifting for the next five-year plan or even after 2030.”

Source: Al Jazeera