Low-carbon catalyst

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

Environmental cooperation is a critical part of the China-ASEAN comprehensive strategic partnership. China and the Association of Southeast Asian Nations have a long history of ecological and low-carbon development cooperation, which is supported through strategies focused on reality.

The strategic and institutionalized pattern in the ecological and low-carbon environment is a significant feature of the cooperation between China and ASEAN. 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 sides have continuously strengthened exchanges and cooperation in the ecological and environmental fields, signed the Bali Road Map and the Paris Agreement successively, and passed several cooperation agreements on environmental protection and low-carbon development.

The first China-ASEAN policy dialogue on environmental cooperation took place in August 2004.The two sides cooperated substantially on environmental education to raise public awareness, and to promote environmentally sound technologies and cleaner production.

In 2007, the China-ASEAN Summit passed the Framework of 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 establishing 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 action frameworks, 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 was 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 most concern. The two sides have successively organized more than 30 China-ASEAN green ambassador program activities to build a China-ASEAN environmental cooperation information sharing platform and an eco-friendly city development partnership. In recent years, Chinese companies have actively assisted ASEAN countries in building high-quality clean energy projects. For example, by the end of 2020, Chinese-funded enterprises had completed 10 hydropower stations in Cambodia and they are operational.

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

However, the cooperation between China and ASEAN faces challenges because of the COVID-19 pandemic. The continued reappearance of the novel coronavirus has hindered the implementation of development plans. While the lockdown measures have resulted in a drop in emissions and some air and water quality improvement, 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.

The emissions pressure of industrial development hinders the transformation of the energy structure. Some underdeveloped regions in China and developing countries in ASEAN are facing the challenge of matching energy demand with the green transition. Governments of ASEAN countries are allowing their industrial sectors to use fossil fuels heavily during the recovery period, which may further impede the implementation of the low-carbon development plan.

The lack of investment in technology research and development has led to backward industrial development. To meet the 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. The total R&D expenditure in ASEAN as a whole is low, accounting for less than 1 percent of GDP.

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

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

The financing gap for ASEAN countries' green technology and industry transition should be filled. ASEAN developing economies have significant funding gaps in various fields of green transition, and green bonds and loans will become important intermediate channels for such investments. While the United States and Europe remain leaders in green bonds and loans, Chinese issuance continues to expand. 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 following the law, and explore innovative green financial products such as carbon finance, climate bonds, blue bonds, environmental pollution liability insurance and climate insurance.

The financing channels for low-carbon projects at home and abroad need to be broadened. By relaxing the restrictions on the proportion of equity investment in domestic power 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 routes, and the vitality of the green financing market is stimulated.

To sum up, green financing will help ASEAN and China solve related problems and facilitate their green and low-carbon development cooperation.

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

Contact the editor at editor@chinawatch.cn