Since May this year the Turnbull Government has been promoting its 2016 budget, representing its plans for a more diversified growth strategy in the post-mining-boom Australian economy. Over the weeks of the election campaign which will culminate on July 2, I have been keenly observing what the current Government and other parties have been promoting in regards to jobs and growth (especially those related to climate change). I have also been observing the potential for Australian economic expansion across the international horizon, looking at China in particular. Following this analysis it is very clear that it’s never been a better time for Australian companies to look to China for jobs and growth.
Australian companies/organisations that provide funding for (or invest in) emissions reductions will play an important part in China given that the Chinese Government may only be able to fund a maximum of 15% of the US$1 trillion required to meet its emissions reduction target. There is clearly work to be done from policy and framework perspectives in China to maximise the requisite private sector funding required to realise the emissions reductions China has pledged. However, based on my observations of the pace of change with respect to mitigating environmental issues in China, I have every confidence that the policy and framework issues will be promptly resolved.
If China is to achieve the emissions reductions outlined in its Intended Nationally Determined Contribution (INDC) submitted to the United Nations (UN) in the lead up to the Climate Change Conference in December last year, Chinese cities must transition to low carbon emission urban economies. In its INDC, China stated the intention to peak its carbon emissions by 2030 and reduce (CO2) emissions per unit of GDP by 60-65% from 2005 levels by 2030.
According to the ‘Green Finance for Low Carbon cities’ report, in order to reach its 2030 emissions reduction target, China will need to invest approximately US$1 trillion in low carbon buildings, green transport and clean energy over the next 5 years (2016-2020) – which are covered by China’s current Five Year Plan. The Paulson Institute published this report earlier this month following a collaborative research project by Bloomberg Philanthropies and the Green Finance Committee of China Society for Banking and Finance. It also states that Government finance may only be able to provide 10-15% of the US$1 trillion required to meet its target, meaning the development of green finance through feasible financial policy incentives and innovative products and mechanisms to overcome the barriers to accessing private capital is essential.
...there is enormous potential for jobs and growth including opportunities for Australian companies deployed on emission reduction projects in Chinese cities.
Cities in China contribute 70% of the country’s total energy related carbon emissions. Within the next 5 years, 60% of China’s population (845 million people) are expected to be living in cities – representing the largest urban population on Earth. By 2030, it is estimated that approximately 1 billion people (or one in eight of the world’s population) will live in cities in China. In order to meet China’s reduction targets, significant effort will be required to reduce emissions from infrastructure, industrial, transport and other sources in city areas. Therefore there is enormous potential for jobs and growth including opportunities for Australian companies deployed on emission reduction projects in Chinese cities.
The most significant low carbon transition opportunities in China are in the building, transport and energy sectors. The Chinese building sector is growing at an unprecedented pace to keep up with demand for housing and industry. Reducing emissions from buildings in China is dependent on two aspects:
- Encouraging developers to build green buildings in order to avoid carbon emissions that would otherwise be locked in for decades.
- Retrofitting energy saving measures in hundreds of millions of existing buildings in China.
Explosive growth in vehicle use and ownership have accompanied the rapid urbanisation of Chinese cities. This has resulted in dramatic increases in traffic congestion and air pollution – to such an extent that motorised transport is one of China’s fastest growing CO2 emission sources. In order to reduce emissions from transport while satisfying the growing demand for urban transport in China, the development of green infrastructure must be accelerated.
As part of this green infrastructure, China has identified opportunities for distributed solar to reduce CO2 emissions based on its flexibility. A number of the country’s cities have already implemented policies and financial incentives in order to become part of what is being called the ‘rooftop revolution’. As a result, the past three years have seen the capacity of distributed solar in China increase from 3.8 Gigawatts (GW) to 6.1 GW. According to the China National Energy Administration, between 15 and 20 GW of additional capacity is planned per year to 2020. Approximately $370 billion will need to be invested in this sector alone, covering a range of infrastructure over the next five years to accommodate increasing solar initiatives.
The ‘Green Finance for Low Carbon Cities’ report discusses five ways that the Australian and international private sectors can be encouraged to invest in China’s low carbon buildings, green transportation and clean energy. Not only could such investment facilitate a cleaner and more liveable environment in China, it is also likely to lead to significant growth in jobs and company profitability. The five ways that the Australian and international private sectors can be encouraged to provide capital are:
- Fully leveraging public funds – stablishing green building funds and insurance can leverage Government funds, provide guarantees for green projects and lower the total cost
- Provide diversified green financial instruments – integrating the use of green credit, green bonds, green funds, refinancing and other tools facilitates the securitization of long term and stable funding
- Establishing early warning and risk sharing mechanisms – stress tests and risk analyses can guide investors to allocate more resources to green and low carbon industries rather than carbon intensive industries
- Governments can encourage banks to grant more credit and lower the financing costs for green projects – this can be done by institutionalising subsidised credit for green projects and stimulating higher investment enthusiasm by providing tax incentives or credit-enhancement measures
- Defining standards and monitor the implementation of green projects – to ensure green urban development and transformation, a green financial system with a framework based on institutional innovation, product innovation, policy incentives and financial infrastructure. This will provide convenient and diversified financing for green buildings, green transportation and clean energy
After deciding that a market-based approach would assist in reducing emissions in line with its INDC, China will introduce a nationwide emissions trading scheme (ETS) in 2017. It is anticipated that the China ETS will be the largest of its type in the world, and will cover the main industrial activities of producing power, iron and steel chemicals, cement, paper and non-ferrous metals. The nationwide Chinese ETS will be informed by the seven existing regional schemes that commenced in 2013 in Beijing, Shanghai, Tianjin, Chongqing, the provinces of Guangdong and Hubei, and the special economic area of Shenzhen.
Those responsible for designing the carbon trading markets in Japan, South Korea and China reportedly met recently to explore linking their respective ETSs together in the future. Convened by the Asia Society Policy Institute, the Carbon Pricing Leadership Coalition and the World Bank Group’s Networked Carbon Markets Initiative, this meeting included discussions regarding how regional scale co-operation could reduce the cost of emissions management. Japan, China and the Republic of Korea account for more than 21% of global GDP and more than 30% of global emissions. According to the World Bank, linking these three major ETSs could facilitate a broader and more stable emissions reduction market, increase the resilience of each country’s ETS to market shocks, bolster regulatory certainty, and send a strong price signal to the private sector globally to increase their investment in the transition to a low carbon future. Expanding the availability of options to reduce emissions at lower cost could also encourage other countries to develop more ambitious emissions reduction goals.
Given the massive scale of the emissions reductions task China has underway, it is significant that the global market conditions for emissions reductions and economic growth appear better than at any other time. According to a press release from the International Energy Agency (IEA) in March this year, global energy related Carbon Dioxide (CO2) emissions – the largest source of greenhouse gas (GHG) emissions – were similar in 2014 and 2015. In addition, global GDP grew by 3.4% in 2014 and 3.1% in 2015. This essentially means that the fall in emissions did not come at the cost of economic growth. As a result international Governments and the global private sector have more incentive to facilitate, finance and promote the growth of emissions reductions technologies and infrastructure than at other any time.
You may be wondering how any of this relates to Australian companies, jobs and growth. I am a proud Australian scientist and entrepreneur who is in the very fortunate position of working with a number of fellow Australian entrepreneurs in the environmental technology space – including in the Chinese market. In working with these entrepreneurs I continue to be amazed by how innovative their technologies are and the size of the legacy they want to leave as a result of their work. I can certainly identify with that. Since commencing my PhD research in the early 2000s I have been fascinated by technology and what it offers us once we understand it and learn how to harness what it offers. This is what started me on my journey to identify scenarios where I could one day match world-leading Australian environmental technologies and international scenarios that require that technology. At this point of history, I consider myself very fortunate to be able to do this. I also consider the size of the opportunity that China currently represents to be a ‘once in a lifetime’ experience. Increasingly, Australian companies that I talk to are also reaching a similar conclusion.
In addition to working with world-leading Australian technologies, I regularly liaise with high-ranking Chinese Government and non-Government officials across a range of industries. In these meetings it is very clear to me that these officials appreciate the knowledge Australian companies possess in regards to best practice environmental management and protection, and the way international standards and codes of practice are embedded in our solutions. It is also clear that they too want to leave a legacy – one that results in a cleaner and more liveable environment not just in China but also across the world. These leaders also recognise that the time for action to reduce emissions and more broadly clean up the environment is now.
I would encourage any Australian entrepreneurs in the environmental technology or funding/investment spaces who are interested in reducing emissions and ultimately assisting China to clean up the environment to contact me to discuss further. I firmly believe that the current scale of the opportunity in China is unlikely to be seen again, and now is the time that businesses can make a truly remarkable difference. Based on the conversations I have with environmental technology providers in Australia, I am excited by the number who have identified and acted upon the opportunities that Chinese-Australian business relations present. It appears that they agree with me that it’s never been a better time for Australian companies to look to China for jobs and growth.