Financial instruments to aid climate change fight

China will beef up efforts to tap the potential of financial instruments in promoting environmental protection work during the 14th Five-Year Plan (2021-25) period, with tackling climate change one of the priorities, according to the Ministry of Ecology and Environment.

"The country has made great achievements in applying such instruments in the past decade or so. There has been, for example, robust growth in green credit," Sun Shouliang, director of the ministry's comprehensive department, told a news conference on Wednesday.

The balance of the credit reached 15.9 trillion yuan ($2.5 trillion) last year, compared with 5.2 trillion yuan in 2013, he said. Last year, the balance of green credit in the clean energy industry surpassed 3 trillion yuan.

Sun said tax reductions and exemptions have been important tools in stepping up air pollution control.

In 2020, China's environmental protection tax receipts totaled 20.7 billion yuan, he said, while tax reductions and exemptions for emitters that achieved low emissions reached 10 billion yuan.

Sun said marked progress had been made in promoting a mechanism that protects river basins by compensating upstream areas for their environmental conservation efforts.

In a move to accelerate the establishment of the mechanism in the basins of the country's two main watercourses, he said the central authorities allocated 2 billion yuan to supplement compensation funds related to the Yangtze River last year, and 1 billion yuan for those related to the Yellow River.

He added that support has also been offered to other basins of cross-regional water bodies.

The Chishui River, a major tributary of the Yangtze that runs across the provinces of Yunnan, Guizhou and Sichuan in Southwest China, is an example.

The three provinces agreed in 2018 to contribute 200 million yuan a year to a fund dedicated to the river's conservation. Under the mechanism, as the region that will gain the least economic benefit from the joint environmental protection efforts, Yunnan will only contribute 10 percent of the fund. When it comes to distribution, however, it will get 30 percent.

In Zhaotong, the only city on the river in Yunnan, the local government has rolled out 11 pollution control projects with support from the compensation fund.

"Thanks to these projects, all areas in the Chishui basin have been preliminarily covered by disposal facilities for domestic waste and sewage," said Zhang Ning, deputy head of the city's environmental authority, adding that the facilities have greatly improved the living environment in the city's rural areas.

Pledging further efforts to improve the country's system for green financial instruments, Sun said, "Under the current circumstances, the role of the market mechanism in motivating environmental protection efforts will be increased."

Aside from rolling out a pilot program for financing aimed at mitigating climate change, the ministry will strive to introduce tax reductions and exemptions for companies that work on carbon capture, utilization and storage, and also improve the country's carbon trading program, which was launched last year.

A credit assessment system based on environmental protection performance will also be established to boost the development of green products, technologies and processes, Sun said.