The Workshop on China's Road to Net Zero: Mitigation Policy and Climate Finance, which took place on December 7, 2023, at Tsinghua University, was a significant event that convened leading experts from the International Monetary Fund (IMF) and all around China. This collaborative forum was aimed at discussing critical aspects of China's contribution to global climate action and the innovative approaches needed to enhance the country's zero-carbon financial framework. The workshop was hosted by IMF and Tsinghua University PBC School of Finance, and co-organized by the Global Economic Governance 50 Forum.

The meeting site

At the opening ceremony, Peng Gang, Vice President of Tsinghua University and Li Bo, Deputy Managing Director of the IMF delivered speeches respectively. Zhou Xiaochuan, Vice Chairman of the Boao Forum for Asia and former Governor of the People's Bank of China, delivered a keynote speech. The opening ceremony was presided over by Ms. Zhang Xiaoyan, Associate Dean and Professor of Finance at Tsinghua University PBC School of Finance.

PENG Gang

In his speech, Peng Gang pointed out the field of zero-carbon finance witnessed rapid development of international cooperation and competition. He highlighted Tsinghua University's commitment as a world-class institution with distinctive Chinese characteristics to fully implement the nation's major strategic goals of achieving carbon peak and carbon neutrality. Peng underscored the university's responsibility to lead in innovation, particularly in addressing global climate change and achieving breakthroughs in the fundamental theories and crucial technologies related to carbon neutrality. Peng Gang also acknowledged the substantial efforts of Tsinghua University's PBC School of Finance in contributing to these goals. He noted that the school has conducted significant and solid work in areas crucial for supporting carbon peak and neutrality goals, including financial support mechanisms and fostering scientific research and international collaboration in zero-carbon finance. Furthermore, Peng stressed Tsinghua University's encouragement and support for the PBC School of Finance to engage in international, high-level academic and policy research activities and to facilitate multidimensional academic exchanges focused on zero-carbon finance.

LI Bo

Li Bo, in his address, identified three priority areas crucial for the world to achieve its emission reduction targets by 2030: first, the gradual replacement of fossil energy, which requires policies based on carbon pricing; second, promoting climate finance; and third, technology innovation and popularization. He noted that China is increasing its investment in renewable energy and is a leader in clean energy and technological innovation. The country also stands as the largest issuer of green financing, demonstrating its commitment to supporting sustainable development. Furthermore, Li Bo mentioned the extensive collaboration between China and the European Union in establishing a framework for sustainable financing, including the development of a common classification law and the adoption of stricter principles for green debt. He emphasized the need for further efforts to leverage the market's role in capital allocation and to continue the economic rebalancing towards a more sustainable model. Li Bo stressed that international cooperation is imperative in addressing the climate challenge.

ZHOU Xiaochuan

In his keynote speech, Zhou Xiaochuan pointed out that incentives and carbon market mechanisms are the main paths to achieving net zero goals, and that engineering decarbonization is needed. Specifically, it can be divided into three aspects: technology engineering, market engineering and financial engineering. Zhou Xiaochuan used the power industry as an example to demonstrate how these aspects of engineering can work together to achieve net-zero goals. He discussed the role of the power market, grid capacity, supporting energy storage, and capacity pricing in driving emissions reductions through engineering solutions, market mechanisms, and incentive signals. Furthermore, he cautioned the financial sector about the risks associated with stranded assets in climate change financing. Zhou suggested that various types of market-provided price signals and insurance products can effectively address and mitigate the stranded asset problem arising from transitional investments.

Vitor GASPAR

During Plenary Session I of the workshop, several guest speakers delivered keynote speeches focusing on the "Aggregate and Structural Challenges of Climate Finance". Vitor Gaspar, the Director of Fiscal Affairs Department at the IMF, provided a comprehensive overview of the current global climate trends and policies, setting the stage for a deeper discussion on the financial complexities associated with climate change mitigation. Gaspar delved into the trilemma faced by nations when addressing climate change issues, which encompasses: financial and debt sustainability, fiscal expenditure pressure and tax red lines. Gaspar highlighted the need for global incentives (such as global incentives funds) to encourage national action. Furthermore, he advocated for the use of carbon taxes as an effective tool for reducing emissions. Gaspar suggested that revenues from these taxes could be shared based on a multilateral framework, ensuring that the burden and benefits of climate action are distributed equitably among nations.

LU Shize

Lu Shize, the Deputy Director General of the Department of Climate Change at the Ministry of Ecology and Environment, provided an insightful overview of the progress in China's carbon market construction. He outlined two main components of China's carbon market: the mandatory carbon emission trading market and the voluntary emission reduction trading market. The former one is positioned as a policy tool specifically aimed at controlling greenhouse gas emissions. It primarily targets key carbon-emitting industries such as electricity, building materials, non-ferrous metals, and steel. At present, three systems including quota management, data quality management and trading supervision have been established to make sure the responsibility of emission reduction is pass through to enterprises via the market mechanisms, forming a carbon price signal in line with the current reality in China. The voluntary emission reduction trading market will encourage a wider range of industries and enterprises to participate in emission reduction. Currently, it focuses on supporting four major areas: forestry carbon sink, methane emission reduction, renewable energy, and energy conservation and efficiency improvement.

Fabio Massimo NATALUCCI

Fabio Massimo Natalucci, Deputy Director of Monetary and Capital Markets Department of IMF, discussed the significant scale of private sector financing necessary for climate initiatives, the structural issues which increased the cost of capital particularly in emerging markets, and the investment barriers caused by data deficiency, the changing role of intermediaries, and the positive correlation between corporate ratings and ESG ratings. Natalucci proposed several recommendations for emerging markets to address these challenges, including strengthening the incremental use of finance, further bridging the gap between public and private sector perceptions, clarifying the role of private sector funds, and promoting the maximization of utility..

DU Xiangwan

Du Xiangwan, former Associate Dean and academician of the Chinese Academy of Engineering, deputy director of the National Energy Expert Advisory Committee and consultant of the National Climate Change Expert Committee, noted that China has made important and pragmatic contributions to the global response to climate change.  Regarding the path of mitigation, he pointed out that firstly, coal should be used cleanly and efficiently, while coal-fired power should be improved in flexibility and participate in deep peak regulation. Fossil energy and non-fossil energy should be coordinated and complementary to achieve safe carbon reduction. At the same time, he also emphasized that the energy in the central and eastern regions of China should improve the self-sufficiency rate, and the energy should come from the "side". The western region should make use of abundant renewable energy to develop the economy. Through smart energy, energy storage, renewable energy, re-electrification, flexibility of the user side and other means, we should achieve the integration and development of urban and rural energy, and move towards non-fossil energy.

CHEN Shiyi

Chen Shiyi, a distinguished professor at Fudan University and director of the Green Finance Research Center, highlighted the dual focus of climate finance on mitigation and adaptation, and the difficulties lie in the establishment of boundaries, the coordination of goals and tasks, the use of tools and methods, the establishment of support scope, and the green and digital innovation of finance.. To address these challenges, Chen Shiyi offered suggestions across three sectors including policy-making, financial institutions and enterprises.

Plenary Session II then shifted the focus to “Competition, Cooperation, and Governance for International Zero-Carbon Financial Development”.

JU Jiandong

Ju Jiandong, Professor of Tsinghua University PBC School of Finance, presided over the second and third sessions.

James ROAF

James Roaf, Assistant Deputy Director of the IMF's Fiscal Affairs Department, discussed the expansive financing needs for climate response in his keynote address on "the Climate Response Policy and Financing Gap." The financing needs will further expand to six times the current size, including a doubling of private sector investment. The biggest challenge is the increase in carbon pricing and carbon subsidies. The power sector plays an important role in reducing emissions, which can be managed through such measures as issuing permits to pollulate and promoting fossil fuel switching. In addition, for companies and products that are struggling to make a profit, it’s important to ensure that pricing signals are accurately transmitted. Roaf noted that a 1 percent drop in GDP over the next decade from a well-designed, progressive abatement policy is relatively small compared to the costs of inaction. However, the acceptability of such policies is crucial and should not be underestimated. It requires a sophisticated allocation mechanism to ensure that vulnerable individuals adversely affected by these changes are properly compensated.

WANG Xin

Wang Xin, Director of the Research Bureau of the People's Bank of China, provided his commentary on James Roaf's keynote speech. Wang Xin emphasized that carbon pricing is the most basic and effective tool to combat climate change. He advocated for emerging market economies and developing countries to develop carbon markets and consider the reasonable coordination between carbon market mechanisms and carbon tax tools. He acknowledged that due to issues in carbon accounting, information disclosure, and market mechanisms, the carbon pricing mechanism in developing countries is often not perfect. He stressed the importance of non-price tools in addressing climate change, which should be given due consideration alongside pricing strategies. Wang Xin pointed out that a key component of the global response to climate change is the research, application, and popularization of green and low-carbon technologies. However, he noted the worrying trend of geo-economic camps, including restrictions on important minerals related to new energy and green technologies, which deserve attention. He highlighted that in supporting the development of green technologies, governments, capital markets, and commercial banks can all play a significant role.  Wang Xin criticized the current generalized concept of ESG (Environmental, Social, and Governance) and suggested the need for a more nuanced approach to distinguished between climate, nature, and other sustainable development issues for in-depth analysis and targeted measures.

Plenary Session III then shifted focus to the “Macro-management Framework and Policies of Zero-carbon Finance in China”.

ZHU Min

Zhu Min, Vice Chairman of the China Center for International Economic Exchanges, former Deputy Managing Director of IMF and former deputy governor of the People's Bank of China, delivered a keynote speech on the construction of "China's Zero-carbon Finance Macro-management Framework and Policies", emphasizing that finance has assumed a very important strategic task in the process of achieving carbon neutrality. First of all, starting from the achievements and experience of China's green finance, it was pointed out that green is a relatively broad concept, which is to solve the problems of the past, while zero-carbon finance is oriented to the future, which requires a conceptual breakthrough. When the economy moves towards carbon neutrality, finance should also move towards zero-carbon finance. There is still a gap between green and zero-carbon finance, and a comprehensive and holistic policy framework and mechanism need to be built to link future needs with the current situation. Then, He introduces the macro-management framework and policies of zero-carbon finance in China, including blueprint design, coordination mechanism and benchmark system, as well as the construction of fiscal and financial incentive mechanisms to support the development of zero-carbon finance, capital regulatory framework from Basel III to BIS-ESG, and information disclosure system in line with China's practice, etc. Since carbon neutrality is ultimately a global issue, it is important to ensure that these elements can be linked to international standards. In addition, we need to build an ecosystem of zero-carbon financial market, including credit, bonds, insurance, financial derivatives, etc., and bring all the relevant institutions into that ecosystem to make this market more international, which is the most important part of the whole work. Finally, he pointed out that we should actively participate in the international cooperation and competition of zero-carbon finance and promote the construction of international zero-carbon financial governance mechanism.

Krishna SRINIVASAN

Krishna Srinivasan, Director of the Asia and Pacific Department of the IMF, opens discussion and delivers views in conjunction with Zhu's keynote speech. He argued that China is in the process of achieving net zero and needs to rebalance its economy and effectively decarbonize. At the same time, actions are needed to reform the carbon trading market, including increasing carbon pricing, accelerating the reform of the power sector, strengthening fiscal risk management, and establishing a market-led climate change financing ecosystem. In addition, climate-related risks need to be integrated into regulation, more information disclosure, and more climate adaptation and response measures are needed. He believes that climate change is a global issue with externality, and most countries are not doing enough to cooperate, so we need more joint efforts to deal with the problems brought about by climate change.

In the plenary Session IV, guests delivered keynote speeches on "Fiscal Policy, Structural Monetary Policy and Capital Regulation to Support Zero-carbon Finance". Fabio Massimo Natalucci, Deputy Director of the IMF's Monetary and Capital Markets Department, was the host.

LI Quan

Li Quan, Director and Professor of the Institute of Finance, School of Finance, Nankai University, made a speech on "China's Experience of Fiscal and Financial Coordination Policies to Support the Development of Zero-carbon Finance", respectively from the four parts of the internal logic, phased characteristics, mechanism of action and effectiveness measurement of fiscal and financial coordination to support the development of zero-carbon finance, and gave conclusions and policy suggestions.

ZHANG Bei

Zhang Bei, Deputy Director and Senior Economist of the Research Bureau of the People's Bank of China, made the speech on "Research on Structural Monetary Policy to Support the Development of Zero-carbon Finance", which was divided into three parts: overview of monetary policy to support green and low-carbon development, empirical analysis of the effect of carbon emission reduction support tools, and analysis of the linkage effect of structural monetary policy and carbon market.

LIU Liya

Liu Liya, Assistant to the President and Professor of Shanghai University of Finance and Economics, focused on the capital regulatory framework to support zero-carbon finance, and launched forward-looking reports from four aspects: green defects of capital regulation, green supporting factors, climate risk stress testing, and climate risk information disclosure.

Later, during the roundtable discussion, several guests had a wonderful discussion on "the Coordination and Implementation of China's Zero-carbon Finance Policy Framework".

In Plenary Session V, guests delivered keynote speeches on "Zero-carbon Financial Innovation and Market, Information Disclosure and Risk Management".

QI Xiang

Qi Xiang, Director of the Regulation Department of the State Administration of Financial Regulation, presided over the session.

ZHANG Xiaoyan

Zhang Xiaoyan, Associate Dean and Professor of Finance at Tsinghua University PBC School of Finance delivered a speech on "China's Practice of Zero-Carbon Investment and Financing Market". The speech focused on China's zero-carbon investment and financing system, which includes three major structures: financing, investment and trading. She mentioned that the green stocks provides relatively low returns, and there is still room for the continued construction of the carbon market. Zhang pointed to information disclosure, investor awareness and financial instrument innovation as challenges for zero-carbon finance in China, and proposed policy recommendations to address these challenges.

TAN Congyan

Tan Congyan, Associate Dean of China Institute of Finance and Capital Markets, addressed the crucial task of "Building a Zero-Carbon Financial Information Disclosure System". Tan emphasized the importance of clearly defining the overall objectives and guiding principles for constructing a zero-carbon financial information disclosure system. He advocated for learning from international best practices and experiences in zero-carbon information disclosure. Tan stressed the necessity of concerted efforts between the government and the market to advance the construction of the system step by step. 

JIN Qinglu

Jin Qinglu, Dean and Professor of the School of Accounting, Shanghai University of Finance and Economics, delivered a presentation on "China's Zero-Carbon Information Disclosure System: Current Situation, Demands, and Prospects". Jin emphasized that an effective information disclosure system is fundamental to the functioning and integrity of the capital market, guiding investments and decision-making towards zero-carbon transition objectives. Jin pointed out the need for enhanced technical support in the zero-carbon market. He suggested leveraging advanced technologies like blockchain and large language models to address the challenges of accurate carbon emission accounting. He also emphasized the coordination between government and market, the construction of macro management framework, and the use of technology to facilitate zero-carbon financial information disclosure.

Plenary Session VI continued with keynote speeches on "Climate Finance and Green Technology Popularization under the Belt and Road Initiative."

ZHANG Yongsheng

Zhang Yongsheng, Director of the Research Institute for Eco-civilization at the Chinese Academy of Social Sciences, presided over the session.

Eric BERGLOF

Eric Berglof, chief economist of the Asian Infrastructure Investment Bank, addressed the topic of "Climate Finance and Green Technology under the BRI." Berglof discussed the role and distinction between the Asian Infrastructure Investment Bank and the Belt and Road Initiative on the international stage He discussed the drivers and obstacles of climate finance, citing the trend towards smaller projects and higher environmental standards, as well as China's leading position in green technology and finance. He highlighted the collaboration between MDBS and the commitment and role of the Asian Infrastructure Investment Bank in advancing climate finance.

WANG Yiming

Wang Yiming, vice chairman of the China Center for International Economic Exchanges, noted that the concept of green development has been integrated into the Belt and Road initiative. However, the task of reducing carbon emissions in co-building countries is immensely challenging. He highlighted that there is a substantial funding gap that needs to be addressed to meet the carbon emission reduction targets effectively. Wang discussed the distribution, cost and fund diversification of international climate finance. Furthermore, Wang proposed several recommendations to promote international cooperation of climate finance under the Belt and Road Initiative, including strengthening green financial mechanisms, innovating green products and services, exploring international carbon trading linkages and leveraging multilateral development finance, etc.

JIANG Kequn

Jiang Kejun, a Senior Research Fellow at the Energy Research Institute of the Chinese Academy of Macroeconomic Research, delivered a presentation titled "For Our Sustainable Future." Jiang highlighted the advancements in technology related to climate change and response. He reported an increasing number of concrete cooperation projects promoting emission reduction under the Paris Agreement  are discussed at the UN climate Conference. Jiang elaborated on the future of China's energy transformation, indicating a shift towards more sustainable and renewable energy sources. He looked forward to the development in various sectors such as solar power, wind power, electric transportation, and electric ships, suggesting these areas will see significant growth and innovation. Jiang pointed out that there will be significant changes in the overall industrial structure, as well as in sectors such as construction, manufacturing, and agriculture as they adapt to more sustainable practices and technologies.

Abebe Aemro SELASSIE

Abebe Aemro Selassie, Director of the IMF's Africa Department, focused on the significant climate challenges confronting sub-Saharan Africa in his remarks. Selassie noted that sub-Saharan Africa is particularly vulnerable to climate change and is generally ill-prepared to handle its impacts. Despite being significantly affected by climate change, the region contributes the least to global warming, highlighting a disparity between the causes and consequences of climate change. Selassie emphasized that Africa requires substantial financial support to address its growing population needs, as well as the development of new energy sources green infrastructure, and low-carbon extraction methods, etc.

CHAI Qimin

Chai Qimin, Director of the Strategic Planning Research Department and Research Fellow of the National Center for Strategic Research and International Cooperation on climate Change, provided insights on "Global Climate Finance and Its Implication under the BRI". Chai began by noting the severity of the climate challenge, highlighting that global temperatures have already risen by more than 1.1 degrees Celsius. He provided a detailed introduction to the current state of climate investment and financing.He stressed the importance of financial mechanisms, loss and damage funds, and climate governance as outlined in the Paris Agreement. Chai suggested that countries along the Belt and Road should integrate green transformation strategies into their development plans, focusing on transparency, fair transformation, and innovative mechanisms.

At the closing ceremony of the workshop, Li Bo and Zhu Min delivered their reflective speeches, summarizing key insights and perspectives.

Li Bo shared his feelings about attending the conference. Li Bo emphasized that China's decarbonization process is crucial for the global community and that China's leadership is vital for achieving the net-zero goal under the Paris Agreement. He acknowledged the numerous challenges in achieving net-zero and stressed the need for strict policies, closer coordination, and effective implementation. Li Bo highlighted carbon pricing as an effective mechanism due to its incentive-compatible nature and fairness. Climate finance thrives in an enabling policy environment, with carbon pricing being central to climate policy. Finally, Li Bo discussed the need to support climate finance growth with other policies and capacities and to establish an ecosystem that aids developing countries in increasing their financing to address climate change.

In his concluding remarks, Zhu Min viewed carbon neutrality from the lens of traditional economic theory, describing it as a public good and a public service provided by the government to address the climate crisis and solve governmental and market failures. He pondered on the fundamental question of how new public services can cope with and solve past failures, including those related to government, market, and public goods. Zhu Min stressed that the next 30 to 40 years are critical for everyone concerning carbon neutrality and the broader climate crisis. He conceptualized a three-dimensional space that encompasses economic theory, macro policies, consumer behavior, production functions, finance, and more. This space represents unlimited opportunities for all stakeholders involved in addressing climate change.