Is China greening the G20?

China is the host of this year's G20 summit. This more active role of China in global governance is a reflection of a changing world. The Hangzhou summit also reflects another significant change: Climate action and sustainable development are no longer considered side discussions, but are centrally on the G20 agenda. The G20, traditionally a forum to discuss financial stability and economic policy, are beginning to reflect the fact that unsustainable development and unmitigated climate change are huge risks to a stable and prosperous world economy.

China is feeling the impacts of pollution on its prosperity already and has therefore begun to change course. Renewable energies are growing rapidly, while coal consumption has peaked in 2013 and has been falling since. China is currently piloting seven sub-national emission trading schemes (ETS), and has announced the introduction of a national ETS in 2017, which would be the largest national carbon pricing initiative in the world. In Paris, China has committed to peak its CO2 emissions by around 2030. But China is likely to peak emissions between 2020 and 2025, with the current effort in curbing coal consumption and raising renewable energy use. China could reaffirm its commitment to this energy transition to show real climate leadership.

At the G20, the Chinese presidency has emphasized the United Nation's Agenda 2030 with the Sustainable Development Goals (SDGs) as well as the Paris Agreement. Most notably, they have pushed all G20 countries to ratify the Paris Agreement, so it can enter into force this year. The joint announcement to formally join the agreement by China and US is expected to be one of the major highlights around the Hangzhou summit.

But much more is needed, so that the world economy is transformed towards low emissions in line with keeping global temperature rise well below 2°C and aiming for only 1.5°C, as was agreed in Paris. In particular, the G20 can play a role in making sure that financial flows are shifted away from brown to green investments.

A first step would be to end the subsidies for polluting fuels. The G20 has agreed to phase out inefficient fossil fuel subsidies in 2009, but not much progress has been made since. As a way forward, it has been suggested that countries should review each other's existing fossil fuel subsidies and discuss how they could be reformed. China is pioneering this approach in a voluntary peer review with the United States. This is a model that the G20 should encourage other member countries to follow.

Within China, the debate on "green finance" - incentives and regulations that make it more attractive to invest in environmentally friendly projects - is quite advanced. Just a few days ago, People's bank of China, China Banking Regulatory Commission and 5 other ministry-level government agencies released new guidelines on green finance. This is part of China's efforts to curb pollution and develop in a more sustainable manner.  Compared to other G20 countries, including Germany, China is a frontrunner in this regard. The Chinese presidency has also put green finance on the G20 agenda for the first time, by establishing the Green Finance Study Group, chaired by the People's Bank of China and the Bank of England. After 4 meetings this year, the group has prepared a detailed report that will be discussed at the Hangzhou summit. But this is only the start of the discussion and future presidencies - in particular Germany next year - will need to ensure that the discussions lead to concrete measures to shift financial flows in a green direction.

In our view, two areas are particularly important. First, we need a clear definition of what "green" is.  A project that is just a bit "greener" than business as usual should not qualify, given the significant changes we need to make the global economy compatible with the Paris Agreement. Second, we need to grow green finance. It should not be a niche market; over time all finance needs to become green.

This is particularly true for infrastructure investments. China emphasizes infrastructure investments as a driver for growth and development and has started a series of initiatives such as co-founding the New Development Bank (also known as the BRICS bank), leading the new Asian Infrastructure and Investment Bank (AIIB) and promoting a vision of regional interconnected infrastructure development along the former silk road, through "The Belt and Road" initiative. However, not all infrastructure investment is necessarily sustainable, let alone green. This can also be a financial risk. If long-term decarbonisation is not factored into today’s investment decision, for example for a power plant, the risk is high that such infrastructure will have to be retired prematurely, stranding the asset. It is therefore necessary - both from a financial and an environmental standpoint - to develop social and environmental standards for international infrastructure investments. This also applies to the G20's numerous infrastructure initiatives. A discussion on green finance is not credible as long as there are no clear green standards to make infrastructure investments low-carbon, climate-resilient, non-polluting and high-quality.

- Financially supported by Stiftung Mercator. Responsibility for the contents rests with Germanwatch. -

- First published on: www.klimaretter.info -

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