WEBVTT - Kopi Time E061: Dr. Ma Jun on China’s climate change agenda 0:00:08.440 --> 0:00:12.260 Hi you're listening to copy time a podcast series on 0:00:12.260 --> 0:00:15.370 markets and economies from devious group research. I'm tomorrow. Big 0:00:15.370 --> 0:00:18.459 Chief economist. Welcome to our 61st episode. 0:00:18.940 --> 0:00:22.150 Today. We're going to go big on climate change and china. 0:00:22.640 --> 0:00:25.490 And to do that we have a very distinguished guest 0:00:25.489 --> 0:00:29.360 with us from Beijing Dr martin, President of the Institute 0:00:29.370 --> 0:00:33.050 of Finance and Sustainability, which is an institution based in Beijing. 0:00:33.440 --> 0:00:36.540 He is also the chairman of China Green Finance Committee. 0:00:36.550 --> 0:00:40.020 Special advisor to the Governor of People's Bank of China. 0:00:40.030 --> 0:00:43.440 Co chair of G 20 Sustainable Finance Working Group and 0:00:43.440 --> 0:00:46.659 co chair of the steering committee of Green Investment Principles 0:00:46.670 --> 0:00:47.959 for the Belt and Road. 0:00:48.440 --> 0:00:52.900 Uh june was also formerly chief economist of PBOC and 0:00:52.900 --> 0:00:55.970 member of PBOC monetary Policy committee. I personally had the 0:00:55.970 --> 0:00:59.230 pleasure of overlapping with him twice in my professional career, 0:00:59.230 --> 0:01:01.010 both in the I. M. F. And as well as 0:01:01.010 --> 0:01:03.260 when you both were economists at Deutsche Bank 0:01:03.740 --> 0:01:05.560 dr martin, Welcome to Coffee Time. 0:01:06.640 --> 0:01:10.330 Thank you very much for inviting me to join your forecast. 0:01:10.340 --> 0:01:12.930 Really glad to have you with us june um I 0:01:12.930 --> 0:01:15.670 will begin the discussion at the global level and maybe 0:01:15.670 --> 0:01:17.560 then we will then narrow it down to china. 0:01:17.940 --> 0:01:22.920 So last month, on august 9th uh the iPcc intergovernmental 0:01:22.920 --> 0:01:26.080 panel on climate Change, they released their first report. It 0:01:26.080 --> 0:01:28.880 was the first part of their six assessment report, so 0:01:28.880 --> 0:01:30.060 called the er six 0:01:30.640 --> 0:01:33.660 share with us, your key takeaways from it. 0:01:35.740 --> 0:01:38.940 The er six report by I. P. C. C. Essentially 0:01:38.940 --> 0:01:43.390 said that global temperature has risen 1.1 degree since the 0:01:43.390 --> 0:01:44.350 industrialization 0:01:45.140 --> 0:01:49.150 Against 1.5° target set by the Paris agreement? We're left 0:01:49.150 --> 0:01:51.560 with only 0.4°. 0:01:52.040 --> 0:01:55.850 This message reinforces urgency for the world to take actions 0:01:55.850 --> 0:01:57.350 and to mobilize finance 0:01:57.740 --> 0:02:01.380 to implement the paris agreement. I totally agree with the 0:02:01.390 --> 0:02:05.600 uh U. N. Secretary general who said that the report 0:02:05.600 --> 0:02:07.760 is a code red for humanity. 0:02:08.440 --> 0:02:12.459 The extreme weather events that we observe recently including floods 0:02:12.460 --> 0:02:13.860 in china and europe 0:02:14.240 --> 0:02:15.950 and the welfare in Greece. 0:02:16.440 --> 0:02:20.169 They're basically telling us that the catastrophic impact of climate 0:02:20.169 --> 0:02:23.250 change is already a fact rather than a projection. 0:02:24.040 --> 0:02:28.859 Therefore we need immediate and more ambitious actions. Specifically, 0:02:29.240 --> 0:02:33.079 we need more countries to explicitly commit to carbon neutrality 0:02:33.080 --> 0:02:33.560 goals 0:02:34.040 --> 0:02:36.860 Whether they are 2050 or 2060 0:02:37.240 --> 0:02:41.350 and we need concrete plans and roadmaps for implementing these pledges. 0:02:41.740 --> 0:02:44.799 Otherwise it will run the risk of doing too little 0:02:44.800 --> 0:02:45.549 and too late, 0:02:46.040 --> 0:02:50.050 which will lead us to the narrower option of disorderly 0:02:50.050 --> 0:02:51.350 transition in the longer term. 0:02:52.139 --> 0:02:55.410 But asia, I'm pretty glad that in the matter of 0:02:55.410 --> 0:02:58.959 just one year we have seen major economies like china, 0:02:58.970 --> 0:03:01.260 Japan Korea and Indonesia 0:03:01.639 --> 0:03:03.860 having announced a carbon neutrality goes, 0:03:04.340 --> 0:03:08.000 some smaller economies such as Kazakhstan recently also announced carbon 0:03:08.000 --> 0:03:10.760 neutrality goes, I think many others will follow. 0:03:11.440 --> 0:03:15.060 But after setting these net zero targets, we really need 0:03:15.060 --> 0:03:18.160 to agree on policy actions and quality on these actions. 0:03:18.639 --> 0:03:21.560 So what are these actions for example, we need to 0:03:21.560 --> 0:03:23.160 remove fossil fuel subsidies. 0:03:23.540 --> 0:03:27.760 I need to introduce uh emission trading systems or carbon taxation. 0:03:28.139 --> 0:03:31.150 And we need to define, what are the green activities 0:03:31.150 --> 0:03:32.250 and brown activities 0:03:32.639 --> 0:03:37.160 that uh, sustainable finance should either support or should avoid. 0:03:37.640 --> 0:03:41.790 And also we need to invest massively in technology, especially 0:03:41.790 --> 0:03:46.150 in areas such as hydrogen storage, c C U. S. 0:03:46.150 --> 0:03:47.960 Energy efficiency and so on so forth. 0:03:48.440 --> 0:03:52.440 And all major companies and the fine institutions in addition 0:03:52.440 --> 0:03:54.260 to the government's, they need to have plans 0:03:54.640 --> 0:03:55.960 and need to have actions 0:03:57.540 --> 0:04:01.930 june. How do you convince technology optimists that, you know, 0:04:01.930 --> 0:04:03.800 why do we have to go through all these painful 0:04:03.800 --> 0:04:04.950 transitional measures 0:04:05.340 --> 0:04:08.490 if we just wait a little longer and technology will 0:04:08.490 --> 0:04:11.400 come that will suck out all the carbon from the atmosphere. 0:04:11.410 --> 0:04:13.160 And we don't have to make all these adjustments. 0:04:14.440 --> 0:04:17.270 Of course there are lots of uncertainties around your pathway 0:04:17.270 --> 0:04:18.849 towards carbon neutrality. 0:04:19.240 --> 0:04:23.049 Um, I think what you're suggesting is probably taking chance. 0:04:23.440 --> 0:04:27.250 Um, just in case there's some breakthrough in technology 0:04:27.640 --> 0:04:30.270 happens and the world will be saved, but we cannot 0:04:30.270 --> 0:04:31.750 take chance. We need to 0:04:32.240 --> 0:04:37.070 use all possible means, including the existing technologies such as 0:04:37.070 --> 0:04:40.719 what we see in the solar, uh, you know, wind, um, 0:04:40.720 --> 0:04:45.250 and other energy efficiency sectors as well as the possible 0:04:45.250 --> 0:04:46.360 breakthrough in the future. 0:04:47.140 --> 0:04:50.080 So we? Re going to invest in both existing low 0:04:50.080 --> 0:04:54.070 carbon technology and apply them to all possible fields as 0:04:54.070 --> 0:04:57.360 well as investing massively in new technology 0:04:57.740 --> 0:05:00.120 that will help us and probably will be exceeding our 0:05:00.120 --> 0:05:00.650 target 0:05:01.040 --> 0:05:03.909 in the future in terms of the time that will 0:05:03.910 --> 0:05:04.659 meet the 0:05:05.140 --> 0:05:06.550 the carbon you try to pick up. 0:05:07.440 --> 0:05:10.330 All right, So that I think that's the ground for 0:05:10.339 --> 0:05:11.849 our pivot toward china. 0:05:12.339 --> 0:05:15.130 So as you pointed out earlier that it was, I 0:05:15.130 --> 0:05:18.460 think September 2020 when China announced its carbon neutrality, gold. 0:05:18.839 --> 0:05:21.950 um maybe you can give us a snapshot of china's 0:05:21.950 --> 0:05:25.890 policy to confront climate change and then maybe later we 0:05:25.890 --> 0:05:28.000 can talk about the magnitude of efforts that would be needed. 0:05:28.000 --> 0:05:29.960 But maybe first we just talk about the policy. 0:05:31.740 --> 0:05:34.659 Yeah, as you said that china announced its coming neutrality 0:05:34.660 --> 0:05:36.060 go in september last year. 0:05:36.440 --> 0:05:40.300 And since then, lots of regions and sectors and companies 0:05:40.300 --> 0:05:43.960 began to develop their roadmaps for implementation. 0:05:44.440 --> 0:05:48.840 I myself with leading the team uh to help chongqing municipality, 0:05:48.850 --> 0:05:51.849 which is one of the provincial level city 0:05:52.240 --> 0:05:55.530 to draft this roadmap. And uh we're going to publish 0:05:55.529 --> 0:05:58.150 this chunking roadmap in just a few days, 0:05:58.740 --> 0:06:04.080 I've seen companies such as a major power producers announcing 0:06:04.080 --> 0:06:08.060 targets like by 2030 you will achieve 75% renewable. 0:06:08.540 --> 0:06:12.159 And the major steel company like a baosteel announcing the 0:06:12.160 --> 0:06:15.400 target of 2050 carbon neutrality, which is 10 years ahead 0:06:15.400 --> 0:06:18.330 of the national target. So these are all quite encouraging 0:06:18.339 --> 0:06:22.780 and I expect some regions, especially those in coastal areas 0:06:22.790 --> 0:06:26.739 announcing carbon neutrality goes, that's 10 years or five years 0:06:26.740 --> 0:06:27.460 ahead of the 0:06:27.740 --> 0:06:28.760 national targets. 0:06:29.140 --> 0:06:32.260 That's the actions that's been taken already. 0:06:32.740 --> 0:06:35.510 But at the national level, uh the N. D. R. C. 0:06:35.510 --> 0:06:39.760 Which is the old planning agency now, it's called National reform. 0:06:40.339 --> 0:06:43.550 Uh And Development Commission is working on what we call 0:06:43.550 --> 0:06:46.159 one plus N roadmap meaning 0:06:46.540 --> 0:06:49.909 uh in all major sectors including the energy which is 0:06:49.910 --> 0:06:54.660 center and the building sector, the manufacturing sector, 0:06:55.040 --> 0:06:58.300 uh and transportation sector, they all need a specific role 0:06:58.300 --> 0:06:59.560 maps to implement it 0:06:59.940 --> 0:07:01.460 the carbon neutrality pledge. 0:07:02.240 --> 0:07:04.970 As for policies, a couple of things are in place 0:07:04.970 --> 0:07:08.230 and many more are being discussed and planned. For example, 0:07:08.230 --> 0:07:11.400 we have a national emission trading system already which was 0:07:11.400 --> 0:07:13.360 up and running just last month 0:07:13.840 --> 0:07:18.510 and some experts are talking about the possibility of imposing 0:07:18.510 --> 0:07:19.560 carbon taxation 0:07:19.940 --> 0:07:23.260 On smaller companies which are not covered by the 80s 0:07:23.840 --> 0:07:30.160 and the energy level or to policy building related policies 0:07:30.160 --> 0:07:33.850 are all being designed. I think the sector policies will 0:07:33.850 --> 0:07:38.030 drive a lot of demand change um in the specific sectors. 0:07:38.040 --> 0:07:40.330 And finally green finance, which is the field. I mean 0:07:40.340 --> 0:07:43.460 working on for many years, we're trying to 0:07:43.840 --> 0:07:48.270 raise as much as a few 100 trillion RMB in 0:07:48.270 --> 0:07:52.110 the coming three decades to support the carbon neutrality go 0:07:52.120 --> 0:07:56.320 by lowering the funding costs for green and possibly increasing 0:07:56.320 --> 0:07:57.360 funding costs for Brown. 0:07:59.140 --> 0:07:59.920 You 0:07:59.920 --> 0:08:03.410 mentioned about magnitudes in fact, Yeah, I have a couple 0:08:03.410 --> 0:08:06.460 of estimates uh from different studies, 0:08:06.940 --> 0:08:09.900 one of which is an earlier study back end of 0:08:09.900 --> 0:08:12.550 last year saying that china will need to invest in 0:08:12.940 --> 0:08:14.560 130 trillion R&B 0:08:14.940 --> 0:08:18.560 for green and low carbon sector because of carbon neutrality. 0:08:18.940 --> 0:08:23.070 But as I said, they were publishing our new estimates 0:08:23.070 --> 0:08:26.850 soon and my new estimated were likely to be closer 0:08:26.860 --> 0:08:27.960 to 500 trillion 0:08:28.540 --> 0:08:30.960 because the 0:08:31.440 --> 0:08:35.439 definition of these low carbon green investments are quite different 0:08:35.440 --> 0:08:39.150 in different studies, but our with a broader sort of 0:08:39.150 --> 0:08:42.960 our coverage will be much higher than earlier estimates. 0:08:43.740 --> 0:08:47.670 These are exceptionally large numbers june, we are basically talking 0:08:47.670 --> 0:08:48.150 about 0:08:48.540 --> 0:08:50.360 five times China's current GDP. 0:08:52.140 --> 0:08:56.340 Uh, yeah, but we're talking about next three or four decades. Um, 0:08:56.350 --> 0:08:59.550 you're talking about the one annual GDP number, 0:09:01.440 --> 0:09:05.390 right. But we're still talking about, you know, substantial percentage 0:09:05.390 --> 0:09:08.880 of GDP in mid single digit, perhaps toward green initiatives 0:09:08.880 --> 0:09:09.860 on an animal basis. 0:09:10.640 --> 0:09:14.600 Indeed, based on the smaller number 130 something trillion, that's 0:09:14.600 --> 0:09:16.660 about 2.5% annual GDP 0:09:17.040 --> 0:09:18.860 For the coming three decades 0:09:19.240 --> 0:09:22.660 Based on larger numbers closer to 10% of GDP every year. 0:09:23.640 --> 0:09:26.060 That's needed for green and low carbon investments. 0:09:26.640 --> 0:09:30.520 I think that is going to be a very influential 0:09:30.520 --> 0:09:32.450 sort of set of analysis for the rest of the 0:09:32.450 --> 0:09:35.050 world to understand that if you seriously want to go 0:09:35.059 --> 0:09:39.760 and embrace the transition, how much costs it will entail 0:09:39.770 --> 0:09:42.189 and how to think in terms of, you know, financing 0:09:42.190 --> 0:09:43.650 and finding revenues for that. 0:09:43.940 --> 0:09:46.400 So, yeah, that's, that's a good system. So, you mentioned 0:09:46.400 --> 0:09:48.050 the emission trading system june, 0:09:48.240 --> 0:09:52.020 so maybe walk us through how that is working in 0:09:52.020 --> 0:09:55.860 china and how dissimilar or similar it is to the 0:09:55.870 --> 0:09:57.559 european emission trading system. 0:09:59.040 --> 0:10:03.310 China started its experiment on emission trading system back as 0:10:03.309 --> 0:10:06.140 early as in 2012, 0:10:07.140 --> 0:10:09.360 So we had seven regional 0:10:09.740 --> 0:10:13.260 um, imaging trading systems, but now China is launching its 0:10:13.260 --> 0:10:13.960 national 0:10:14.340 --> 0:10:16.260 system that's based in shanghai 0:10:16.640 --> 0:10:20.410 and as I said, it was the trading started in 0:10:20.410 --> 0:10:22.460 july this month this year. 0:10:22.840 --> 0:10:25.860 Um and now the national system is covering 0:10:26.440 --> 0:10:31.400 Um a total emission of 4.5 billion tons of co 0:10:31.400 --> 0:10:33.550 two per year, which makes it the largest, 0:10:33.940 --> 0:10:36.060 the main trading market in the world. 0:10:36.440 --> 0:10:40.100 But still the current trading is only covering the thermal 0:10:40.100 --> 0:10:42.350 power sector for the shanghai market 0:10:42.840 --> 0:10:47.000 And these are 2300 companies. But in the coming few 0:10:47.000 --> 0:10:49.650 years the government is planning to expand 0:10:50.040 --> 0:10:55.180 the coverage to many more sectors including steel, cement, aluminum, 0:10:55.190 --> 0:11:00.110 petrochemical paper, airlines and so on. So by then it's 0:11:00.110 --> 0:11:02.700 going to be even bigger than the current size in 0:11:02.700 --> 0:11:04.050 terms of coverage of a carbon 0:11:04.840 --> 0:11:07.310 um it's similar to the european E. T. S in 0:11:07.309 --> 0:11:10.150 the sense that it is also a cap and trade system, 0:11:10.540 --> 0:11:14.310 but of course the carbon pricing china is now still 0:11:14.309 --> 0:11:14.859 lower 0:11:15.240 --> 0:11:18.050 At the 50 something RBB put on. But a lot 0:11:18.050 --> 0:11:21.550 of experts, including myself are expecting to go up in 0:11:21.550 --> 0:11:22.949 the coming years and decades. 0:11:23.640 --> 0:11:27.940 Um the current national trading system is not yet involving 0:11:27.940 --> 0:11:29.850 financial investors, which will draw back 0:11:30.340 --> 0:11:33.000 and there was no derivatives such as, you know, forwards 0:11:33.000 --> 0:11:34.449 and futures and options, 0:11:34.940 --> 0:11:39.100 but all these are recommendations we're making uh, for the 0:11:39.100 --> 0:11:41.750 regulator to change in the future. I think, 0:11:42.140 --> 0:11:45.290 uh, these functions will be added in the, not very 0:11:45.290 --> 0:11:46.059 distant future. 0:11:47.140 --> 0:11:50.780 Um, there's another element of the chinese carbon market, which 0:11:50.780 --> 0:11:55.850 is called CCR, there's china certified emission reduction, which provides 0:11:55.850 --> 0:11:57.160 a offsetting mechanism 0:11:57.540 --> 0:11:59.970 that's similar to a CBM or we can call the 0:11:59.970 --> 0:12:01.350 chinese version of C D M, 0:12:02.040 --> 0:12:05.560 the emitters uh, covered by the national market or the 0:12:05.559 --> 0:12:09.150 compliance market can by CCR as a carbon offset 0:12:09.540 --> 0:12:12.150 and international airlines can also by CCR 0:12:12.540 --> 0:12:14.250 using the cosy agreement. 0:12:14.940 --> 0:12:17.760 Um, but the CCR is not yet open to financial 0:12:17.760 --> 0:12:20.370 investors and I think that's possible in the future. When 0:12:20.370 --> 0:12:21.059 we moved to, 0:12:21.440 --> 0:12:23.449 you know, refining these policies. 0:12:24.640 --> 0:12:28.130 So john I recently had a discussion with Professor David 0:12:28.130 --> 0:12:31.559 Carbon David victor at University of California SAn Diego 0:12:31.940 --> 0:12:34.550 and he has written quite a bit of work on 0:12:34.550 --> 0:12:37.300 emission trading system. And he sort of walked us through 0:12:37.300 --> 0:12:38.660 how in the case of europe, 0:12:39.040 --> 0:12:41.500 it initially did not work very well because the expectation 0:12:41.500 --> 0:12:44.970 was market based solutions would be saving the day, but 0:12:44.970 --> 0:12:47.370 then they basically need a lot of top down intervention 0:12:47.370 --> 0:12:50.260 coming at the european union level and then companies sort 0:12:50.260 --> 0:12:53.040 of fell in line. So would you say that the 0:12:53.050 --> 0:12:55.360 emission trading system that china is doing is also going 0:12:55.360 --> 0:12:57.170 to be sort of the latter part of what the 0:12:57.170 --> 0:12:58.059 Europeans have done, which is 0:12:58.340 --> 0:13:00.660 more of a top down signal and the companies will 0:13:00.660 --> 0:13:01.460 have to sort of follow 0:13:02.640 --> 0:13:06.189 uh currently the main market in china or what I 0:13:06.190 --> 0:13:09.750 call the national market is a top down driven 0:13:10.140 --> 0:13:13.460 or top down design the market, but 0:13:13.940 --> 0:13:17.970 we still have options of, you know, developing alternatives. For example, 0:13:17.980 --> 0:13:22.190 Mark Carney has set up this task force on voluntary 0:13:22.190 --> 0:13:23.059 carbon market 0:13:23.440 --> 0:13:28.860 and my colleagues are involved in uh studying there 0:13:29.240 --> 0:13:32.880 standards and I personally believe that the china should also 0:13:32.880 --> 0:13:33.460 consider 0:13:33.840 --> 0:13:38.550 developing a voluntary carbon market using the international 0:13:39.040 --> 0:13:41.350 uh TsV CM standards. 0:13:41.840 --> 0:13:45.559 And we also have discussions with Guangdong and Hong kong 0:13:45.940 --> 0:13:47.760 um to uh 0:13:48.240 --> 0:13:53.360 uh sort of looking to the option of developing a 0:13:53.740 --> 0:13:54.960 unified 0:13:55.440 --> 0:13:59.890 regional market which is unifying the Guangdong carbon market with 0:13:59.900 --> 0:14:00.750 the potential 0:14:01.140 --> 0:14:03.660 treating magnetism Hong kong and 0:14:04.040 --> 0:14:04.660 adding 0:14:05.040 --> 0:14:08.970 to the unified market a carbon connecting mechanism which will 0:14:08.970 --> 0:14:11.850 allow for investors to enter the chinese carbon market. 0:14:12.240 --> 0:14:15.060 So all these are discussions that's going on too, 0:14:15.540 --> 0:14:20.109 uh sort of supplement the top down approach for carbon 0:14:20.120 --> 0:14:21.660 emission trading in china 0:14:22.740 --> 0:14:26.330 probably keeps you very, very busy june. Let's talk about 0:14:26.340 --> 0:14:30.850 green finance, You have been the pioneer in developing the 0:14:30.850 --> 0:14:34.570 Green finance policy framework in china during 2014 17 when 0:14:34.570 --> 0:14:36.260 you were PBS system, economist, 0:14:36.740 --> 0:14:40.580 how does green financial system work and how would china mobilize? 0:14:40.590 --> 0:14:42.900 I mean you mentioned this extremely large numbers earlier that 0:14:42.900 --> 0:14:45.860 how would the financing for all that we mobilized 0:14:47.240 --> 0:14:51.020 in the past few years. China developed a framework of 0:14:51.030 --> 0:14:54.560 green financial system which I think can be 0:14:55.140 --> 0:14:59.250 So describe with four pillars. One is a taxonomy 0:14:59.640 --> 0:15:02.490 which means that we need to have a few documents 0:15:02.490 --> 0:15:04.460 to define what other green activities 0:15:04.840 --> 0:15:07.450 that the green loans, green bonds, green foster support 0:15:07.940 --> 0:15:10.080 and so far we have three taxonomy is in china, 0:15:10.080 --> 0:15:13.020 one for green landing, one for green bonds and one 0:15:13.020 --> 0:15:14.060 for green projects 0:15:14.640 --> 0:15:17.510 and second pillars disclosure. We want to make sure that 0:15:17.520 --> 0:15:22.560 the issuers will disclose enough information including environmental crime information 0:15:22.560 --> 0:15:23.360 to the investors 0:15:23.840 --> 0:15:27.760 so that the green money will target especially for green projects. 0:15:28.440 --> 0:15:32.650 The third thing is about incentives for some green projects. 0:15:32.650 --> 0:15:34.260 They have environmental benefits. 0:15:34.640 --> 0:15:37.060 For example you can reduce carbon, reduce pollution 0:15:37.440 --> 0:15:40.560 but the beneficiaries are not paying them, 0:15:40.940 --> 0:15:43.730 that's why their returns are not high enough to attract 0:15:43.730 --> 0:15:44.450 private capital. 0:15:44.840 --> 0:15:47.740 So for these projects we need incentives to enhance the 0:15:47.740 --> 0:15:48.260 return 0:15:48.740 --> 0:15:52.790 um under that pillar in china we introduce the instruments 0:15:52.790 --> 0:15:54.950 such as the PBOC re landing facility, 0:15:55.340 --> 0:15:58.300 that's a central bank offering cheap financing to the project 0:15:58.300 --> 0:15:59.260 through commercial banks 0:15:59.640 --> 0:16:03.960 and also local banks are local governments offering interest subsidies 0:16:03.960 --> 0:16:08.050 and guarantees to reduce either funding costs or risks for 0:16:08.050 --> 0:16:08.850 these projects. 0:16:09.640 --> 0:16:11.960 And the final pillar is what we call the sweet 0:16:11.960 --> 0:16:12.850 top products 0:16:13.240 --> 0:16:16.260 because different kind of green 0:16:16.640 --> 0:16:20.860 activities will require different types of financing and financial services. 0:16:21.340 --> 0:16:24.620 So we need to have loans and bonds and private 0:16:24.620 --> 0:16:25.260 equity 0:16:25.640 --> 0:16:28.630 and the insurance products and so on, all serving for 0:16:28.630 --> 0:16:29.560 the green economy 0:16:30.240 --> 0:16:33.570 and within that space um China has developed the largest 0:16:33.570 --> 0:16:34.950 green lending market already 0:16:35.440 --> 0:16:37.540 uh in the world and we now have a second 0:16:37.540 --> 0:16:38.950 largest green bond market, 0:16:39.440 --> 0:16:43.720 but in terms of DsG products were still lagging behind O. E. C. D. 0:16:43.720 --> 0:16:45.470 Country in terms of proportion 0:16:45.840 --> 0:16:49.350 of after management products, you know labeled as S. E. S. G. 0:16:51.440 --> 0:16:55.050 Um but that's not enough in the past four or 0:16:55.050 --> 0:17:00.710 five years. Uh this framework was serving not um sort 0:17:00.710 --> 0:17:03.560 of mostly for carbon neutrality. That's why I recently 0:17:03.940 --> 0:17:07.680 a lot of uh discussions are concentrated on how to 0:17:07.680 --> 0:17:08.460 further improve 0:17:08.940 --> 0:17:10.950 the green financial system here in china 0:17:11.440 --> 0:17:13.560 to achieve carbon neutrality 0:17:13.940 --> 0:17:17.110 and a couple of actions are now being taken. One 0:17:17.109 --> 0:17:20.800 is to modify the taxonomy to ensure that the green 0:17:20.800 --> 0:17:21.460 projects 0:17:21.940 --> 0:17:27.220 uh not only addressing pollution, biodiversity issue but also clearly 0:17:27.220 --> 0:17:27.850 addressing 0:17:28.240 --> 0:17:29.560 the carbon issue. 0:17:30.040 --> 0:17:34.480 And secondly enhancing the disclosure requirements um to make sure 0:17:34.480 --> 0:17:38.179 that the companies and the issues and fine institutions will 0:17:38.180 --> 0:17:39.960 disclose carbon related information 0:17:40.440 --> 0:17:42.940 and un incentives. I think the Central bank will put 0:17:42.940 --> 0:17:43.950 out a bigger 0:17:44.440 --> 0:17:48.459 um you know relearning facility and other related instruments to 0:17:48.460 --> 0:17:49.170 support 0:17:49.740 --> 0:17:52.810 um green projects. And on the product side a lot 0:17:52.810 --> 0:17:57.859 of experiments on carbon uh related financial products, for example, 0:17:58.340 --> 0:18:02.270 the interest of a longer bond could be linked 0:18:02.640 --> 0:18:05.159 to the carbon intensity of the project. 0:18:05.640 --> 0:18:09.490 If the company reduced the carbon intensity more aggressively than 0:18:09.490 --> 0:18:11.960 the company will enjoy lower funding costs. 0:18:14.540 --> 0:18:16.600 I mean june I mean of course on paper, that's 0:18:16.609 --> 0:18:18.350 exactly the way things should be. 0:18:18.740 --> 0:18:21.240 Um but what we have seen in practice around the 0:18:21.240 --> 0:18:24.340 world in recent years is that as governments become very 0:18:24.340 --> 0:18:27.470 enthusiastic supporter of green financing, you see a lot of 0:18:27.470 --> 0:18:30.860 greenwashing uh so how are you going to sort of 0:18:31.240 --> 0:18:34.080 deal with the issue of people try to just do 0:18:34.080 --> 0:18:37.700 some box ticking exercise and hope to get preferential treatment 0:18:37.700 --> 0:18:39.540 because they're just doing the box checking but they're not 0:18:39.540 --> 0:18:41.770 being serious enough for substantive enough, 0:18:43.440 --> 0:18:47.990 there's a couple of safeguards against going washing. One is taxonomy. 0:18:48.000 --> 0:18:52.040 That's why I keep emphasizing the importance of that in 0:18:52.050 --> 0:18:53.850 all conversations and green finance, 0:18:54.240 --> 0:18:57.070 you need to define what is green and what is 0:18:57.080 --> 0:19:02.429 not green officially. Rather than allowing the individual issuers to 0:19:02.430 --> 0:19:06.179 define by themselves. That's why in china we started with 0:19:06.180 --> 0:19:06.960 top down 0:19:07.340 --> 0:19:09.770 taxonomy. Um for example, 0:19:10.140 --> 0:19:14.960 the landing related taxonomy was developed by the banking regulator. 0:19:15.440 --> 0:19:19.270 The first version of the china. Green bond taxonomy 0:19:19.640 --> 0:19:23.540 was published by Green Finance Committee that I chair. And 0:19:23.540 --> 0:19:26.770 now the second version is directly by the central bank itself. 0:19:27.240 --> 0:19:29.820 So this is the first sort of a line of defense, 0:19:29.859 --> 0:19:32.670 making sure the definition of green is clear 0:19:33.340 --> 0:19:36.060 and the second line of defense is verification 0:19:36.540 --> 0:19:39.770 for the banks we have regulators 0:19:40.240 --> 0:19:42.939 um are saying to them that they were going to 0:19:42.950 --> 0:19:43.450 audit 0:19:43.840 --> 0:19:46.300 the greenness of your projects. Of course they're not auditing 0:19:46.300 --> 0:19:49.500 every single project, but it's a threat that you may 0:19:49.500 --> 0:19:54.780 be audited for certain, you know, long transactions that claim 0:19:54.780 --> 0:19:57.130 to be green but not actually green. So the long 0:19:57.130 --> 0:19:58.060 documentation 0:19:58.540 --> 0:20:01.979 and the evidence of supporting their environmental benefits need to 0:20:01.980 --> 0:20:02.459 be there 0:20:02.840 --> 0:20:04.270 to prepare for auditing 0:20:04.840 --> 0:20:08.459 And also for green bonds. A large number, I think 0:20:08.460 --> 0:20:10.859 more than 60, of the green bonds have 0:20:11.340 --> 0:20:14.760 the verification services from the party 0:20:15.240 --> 0:20:18.490 um, accepted those which are pure green, you know, like 0:20:18.500 --> 0:20:20.670 renewable energy and the subway. You can 0:20:21.040 --> 0:20:23.730 See them as green, you know, by your eye, but 0:20:23.740 --> 0:20:26.950 most of other projects require 3rd party verification. 0:20:27.440 --> 0:20:30.770 Of course the market itself is a mechanism because 0:20:31.140 --> 0:20:32.460 investors 0:20:32.840 --> 0:20:35.980 and investment banking and this will begin to see what 0:20:35.980 --> 0:20:37.460 is truly agreement with another green 0:20:37.840 --> 0:20:40.830 and the market, we're reacted by, you know, staying away 0:20:40.830 --> 0:20:44.890 with non green companies or non green products even though 0:20:44.890 --> 0:20:45.850 they claim to be green. 0:20:47.140 --> 0:20:50.120 Yeah, I'm looking forward to, you know, spreads beginning to 0:20:50.119 --> 0:20:54.510 reflect the market's trust or lack thereof on so called 0:20:54.520 --> 0:20:56.790 green products and yeah, you're right, that would be a 0:20:56.790 --> 0:21:01.410