How China can transform to a low-carbon economy

China should be critical of the economic impact before creating energy shift policies.

As the largest emitter globally, China will need to make crucial and sufficient policymaking to transition into a low-carbon economy in order to achieve a CO2 emissions peak before 2030 and carbon neutrality before 2060.

A report from ADB found that the Chinese market alone is inconsistent in providing resources to allow a seamless energy transition. Thus, macroeconomic policy tools are in place to mobilize a low-carbon transition on high-carbon-emitting industries.

Efforts in that policy framework should also address issues in inflation prospects, job losses and devaluation of financial assets. But accompanying them are new ideas and business opportunities available.

Generally, the government of the People’s Republic of China (PRC) should set the direction for transition for high-carbon industries with the promotion of fiscal obligations and establishment of macro-regulations for carbon-reliant industries. Policies, training, and management must be concise and constant in practice on both the national and local levels.

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The brief also provided macroeconomics policy tools for carbon transition as a response to market failures, such as overinvestment in the brownfield sector and underinvestment of green-based innovation. All tools aim to prompt policy action.

The first step is to remain critical of the economic impact before creating the policies. Many issues like the change in inflation outlooks, the value of financial assets, job losses and opening for clean energy businesses have to be heavily considered to ensure a supportive consensus and resilient performance of clean energy in China.

Otherwise, an uneven transition could cause a decline in the gross domestic product (GDP) and nearly 60 million jobs in the nation.

The next step is where the macroeconomic policy tools are applied. Policies should apply to all sectors involved in energy transition. Industrial policies must bring guidance and measures to low-carbon transition.

Fiscal policies should fund and incentivize industries for their participation in the transition. Price policies can apply protections by pricing carbon emissions. And macro-regulations shall set environmental standards for industries to act on.

The report also indicated several signs of the PRC veering towards a mobilized low-carbon transition, such as the European Union’s Green Deal Industrial Plan allocating $265.75b for industrial greening and the People’s Bank of China launching the Refinancing Loan for Cleaner and More Efficient Utilization of Coal. With incessant policy promotion, China’s economy can achieve low-carbonisation.