By Zhang Wei, Caijing
According to Deborah Lehr, technology is currently at the center of bilateral relations, but technology competition should not prevent win-win cooperation on climate issues. The United States and China should work together to reduce tariffs on environmental goods and services and to cut emissions in a joint or complementary way, especially by cooperating on carbon markets.
In 2015, the Paris Agreement set the goal of achieving net-zero in the second half of this century, and hundreds of countries around the world have now set the goal of achieving net-zero by 2050.
In September 2020, Chinese President Xi Jinping proposed at the 75th session of the UN General Assembly that “China will increase its nationally determined contributions and adopt stronger policies and measures to achieve carbon peak by 2030 and carbon neutrality by 2060.”
What is China’s role in achieving the low carbon goal at the global level? What kind of growth opportunities does low carbon present? How can private capital be leveraged to meet the huge financing need? What kind of technological innovation and industrial and economic revolution can carbon neutrality bring? How to prevent competition from limiting technological progress? What is the role of fintech in green finance? With these questions, Caijing recently interviewed Deborah Lehr, Vice Chairman and Executive Director of the Paulson Institute.
According to her bio, Deborah assists PI Chairman Hank Paulson in the area of US-China relations and is responsible for strategic planning across the Paulson Institute’s business segments and major projects, including the Green Finance Center. In addition, she has worked in the public, private, and nonprofit sectors, with a focus on China, the United States, and emerging markets, including the Middle East. She served as an advisor to Mr. Paulson during his tenure as CEO and Chairman of Goldman Sachs and helped create and launch the US-China Strategic Economic Dialogue after Mr. Paulson became US Treasury Secretary.
Deborah told Caijing that as climate investment becomes a mainstream business for financial institutions, coupled with corporate commitment to net-zero transition, banks and companies will increase green investments significantly, resulting in a climate investment boom and China will be at the center of it. In achieving its goals, China will need to adopt world-class standards, policies, and regulations.
She pointed out that at present, climate change and technology competition are deeply intertwined. And while technology is at the center of bilateral relations, technology competition should not prevent win-win cooperation on climate issues. In this regard, the United States and China should work together to reduce tariffs on environmental goods and services and to curb emissions in a joint or complementary way, especially by cooperating on carbon markets.
In addition, Deborah believes that avoiding the risk of “greenwashing” is particularly important in achieving climate goals and that fintech will help provide better guidance and greater transparency to investors seeking to make green investments.
Unlocking low-carbon business opportunities: China should adopt world-class standards
Caijing: The 2015 Paris Agreement set the goal of achieving net-zero emissions in the second half of this century. Now hundreds of countries around the world have committed to achieving this goal by 2050. What kind of development opportunities have been ushered in globally under the low-carbon goal? What is the value of investment in tackling climate change?
Deborah: The Paris Agreement helped create the political will necessary to generate action around climate change. The next big challenge, however, is finding ways to fund the implementation of these commitments. Public funds are only able to cover a small portion of the costs, so attracting private sector financing is essential. Governments need to develop regulatory frameworks, policies, and incentives to unleash investment capital to help meet these goals.
This is starting to happen as financial institutions mainstream their climate-related investing—and with corporations making their own commitments to transition to carbon neutrality. The result is likely to be a boom in climate-related investing, given the intention of these banks and firms to increase their green investments.
The world’s climate goals are expected to open up some $23 trillion in opportunities for climate investments between now and 2030, according to the IFC. Climate investing is now extending far beyond traditional areas like renewables and infrastructure to food, technology, and automobiles. A prime example is Tesla—its stock surged 740 percent in 2020, and its market cap is now larger than General Motors due to the demand for products contributing to the carbon transition.
Caijing: What is China’s role in the business opportunities brought on by the low-carbon transition? How does China leverage this to achieve its low-carbon goals?
Deborah: China is going to be at the heart of this climate business boom. The country began to prioritize green development back in 2015 and is now playing a lead role in promoting green finance and green fintech. China is the world’s largest carbon emitter, which presents both an enormous challenge and a real opportunity to develop and innovate green business solutions. Take the business of environmental goods and services, which China has started to open further to foreign firms. A recent study by Goldman Sachs estimates a $16 trillion opportunity in environmental goods and services in the Chinese market, which could create up to 40 million jobs by 2060.
China is the world’s largest carbon emitter, which presents both an enormous challenge and a real opportunity to develop and innovate green business solutions.
To achieve this, however, will require China to adopt world-class standards, policies, and regulations. China took an important step in removing coal-fired power plants, for example, from qualifying for green bonds, but coal still qualifies as a green investment in some other contexts, which is a marked difference from global standards. The launch of China’s national carbon exchange presents another significant opportunity—especially for green offsets. Yet to promote real change, it is important that the standards be high, transparent, and well enforced.
Achieving green win-win: Technology competition should not impede cooperation
Caijing: Yi Gang, governor of the People’s Bank of China, said at the China Development Forum on March 20 that two tasks are particularly urgent for carbon neutrality: first, achieving carbon neutrality requires huge investments, and the financial system should be guided to provide the required investment and financing support in a market-oriented manner. Globally, how motivated is the private sector to participate? Which type of institutions will have greater business opportunities?
Deborah: Governor Yi Gang is correct. Achieving the world’s net-zero commitments will require trillions of dollars. And governments cannot meet these financial demands alone. The private sector must play a key role. And I think there is no question that it will play that role.
Today, a least one-fifth of the world’s largest public companies have made net zero commitments. It’s clearer than ever that the world is transitioning to a low-carbon future. So if private firms—and countries, for that matter—don’t want to get left behind, they will need to make the investments necessary to put them on a more sustainable path. This will be easier for some companies, relative to others. Firms that are providing environmental goods and services, for example, are poised to benefit from this transition. So, too, will tech and financial institutions that are making climate-focused investments.
Caijing: In your opinion, what kind of technological innovation and industrial and economic revolution has carbon neutrality brought about?
Deborah: The “climate industrial revolution” is just beginning, in my view. Renewable energy technologies was one of the first. In less than a decade, the economics have been fundamentally reshaped. Solar costs have fallen over 80 percent. Offshore and onshore wind costs have been cut in half. These low and falling costs are making renewables cost-competitive with the cheapest fossil fuels. There’s a similar trend with batteries and electric vehicles, which will be crucial for their scaling and widespread adoption. There will be many more new technologies and solutions developed in the years ahead, especially with the significant financing that is being unlocked to promote climate innovation.
Caijing: The research and development and commercialization of new technologies related to climate change are critical to achieving carbon neutrality, and it is in all of our interests to support these technologies on the ground. But how can we ensure healthy competition to drive down costs and further prevent competition from limiting technological progress?
Deborah: This is an issue that merits attention. Climate change is often thought of as a natural area for cooperation between the US and China, but it’s also potentially an area of intense competition. Climate change is deeply intertwined with technology competition. And it is technology that is one of the core irritants in the bilateral relationship. While it is important to protect national security, at the same time, certain technologies hold great potential for addressing some of the challenges in climate change. And China is a natural testing ground for some of these innovations. The US and China should be working together to reduce tariffs on environmental goods and services, and work in joint or complementary ways to curb emissions—especially with regard to carbon markets.
Climate change is often thought of as a natural area for cooperation between the US and China, but it’s also potentially an area of intense competition.
Preventing the risk of “greenwashing:” Fintech enhances transparency
Caijing: What attempts and new breakthroughs have been made by fintech in its application in green finance? What fundamental problems have fintech solved for green finance?
Deborah: Fintech is one of the keys to unlocking green finance at the scale needed to meet the world’s climate goals. At a basic level, financial technologies—from blockchain to AI and machine learning—are powerful tools for collecting and analyzing environmental data, providing more accurate information on green investing, increasing efficiency, lowering costs, and reaching those outside the banking system to provide access to capital. It can help provide better guidance and more transparency for investors who are seeking to make green investments.
Caijing: Can you give an example?
Deborah: Fintech also can have a practical element as well. In a recent study conducted by the Paulson Institute and the Institute of Finance and Sustainability, Huadian Corporation, the third-largest power generation company in the world and one of the top five state-owned power generation companies in China, launched its Carbon Emissions Management System in August 2019 in preparation for the launch of China’s long-awaited national carbon market.
The system uses big data to support carbon emissions-related work across all levels at Huadian—from executive management at headquarters to the staff levels of its second and third-tier subsidiaries across the country. It manages carbon emissions data of all 30 directly affiliated units and more than 110 thermal power generation companies of Huadian. It addresses the company’s needs in terms of carbon emissions data management, China Certified Emissions Reductions (CCER) project management, carbon allowance compliance, and carbon trading. It complies with the existing, though disparate, rules of the pilot carbon markets and is designed to meet the national carbon market registration and trading system requirements. The upshot is a powerful system that expedites the company’s green and low-carbon transition through fintech solutions, providing an example for others in the power generation industry.
Caijing: Investors are profit-seeking, and there are risks in investment. What are the main risks of green investment? Can the development of fintech avoid such risks?
Deborah: One of the big challenges in green investing is greenwashing—when investments are erroneously labeled green without verification. The central risk is that investors can be misled into investing in things that either don’t help—or worse, hurt—the environment. And there are serious reputational risks associated with greenwashing. Fintech can help alleviate this problem insofar as it creates better, more rigorous analytical work, which can discern real green investments from those that are simply greenwashed.
This article originally appeared in Caijing on July 29, 2021.