China’s Decarbonisation: Assessing UK-China Opportunities

A new report by Asia House explores four key areas where the UK and China can cooperate on decarbonisation.

EXECUTIVE SUMMARY

Global climate change risks are growing and will increasingly feed into broader financial stability risks across economies. This report presents four key recommendations for UK-China coordination on decarbonisation, in order to help mitigate against climate impacts.

The two countries should elevate their cooperation on greater use of green finance, including by the further de-risking of  green projects through blended finance. This includes new green financing tools and products with a focus on scalable solutions across asset classes. The two countries’ financial systems’ depth (in the case of the UK) and liberalisation (in China’s case) ideally situates them. Additionally, linking emissions trading systems (ETS) would accelerate cooperation between jurisdictions and the growth of international carbon markets. Improvement of price discovery mechanisms is key. The outlook comprises a myriad of risks. These include a continued lack of investable projects to facilitate reduction in CO2 emissions, waning political will and resources at a time when emerging and developing countries,  which are most vulnerable to climate change, are coping with economic scarring from COVID-19.

Key takeaways

• Global climate change risks are becoming increasingly multifaceted. Climate risks now feed into broader financial stability risks across economies.
• This report presents four key recommendations for UK-China coordination on decarbonisation. Both countries should elevate cooperation on expanding the use of green finance.
• The UK’s tackling of the climate crisis, and bolstering of green finance, is supported by the Chancellor’s announcement that the government plans to situate the UK as the world’s first net zero aligned financial centre.
• Risk-sharing facilities and use of blended finance to de-risk green projects are key. This includes new green financing tools and products.
• Both countries can share expertise and build capacity in third countries to identify and develop sustainable projects.
• Increased financing for environmental innovation within existing initiatives (such as the £200 million Newton Fund) is important, particularly for research at the intersection of environmental technology, energy and urbanisation.
• When it comes to green finance, the UK and China can drive a global green innovation agenda. Forums such as the Clean Energy Ministerial can be instrumental in achieving this.
• The global uptake of shared priority technologies, such as in hydrogen power, need greater global support: global demand for hydrogen needs to more than double from its existing level by 2030 if the world is to attain climate goals.
• The outlook comprises a myriad of risks. These include a shortfall in blended finance to yield investable projects and a lack of political will amid COVID-19 economic scarring.

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