Responsible Investor

Green investments and China: the largest global market for renewable energy

From Europe to the US and China, governments and companies look at the opportunities of a green transition, made even more urgent by the economic challenges posed by Covid-19

The energy transition from fossil fuels to renewable and low-carbon resources is now a consolidated trend in industry and finance sectors in Europe, North America and, especially, Asia. Home to two of the most highly populated countries in the world (China and India), Asia is driving the entire global energy system.

China has made significant strides in this direction over recent years, quickly becoming the world’s largest market for installed renewable energy capacity and green investments. According to data from the International Renewable Energy Agency (IRENA), China and the United States were the two markets that recorded an outstanding growth of renewable energy in 2020. China added 136 gigawatts (GW) of renewable energy, of which 72 GW came from wind power and 49 GW from solar power; America, despite coming in second place, is far behind with 29 GW, an increase of 80 percent compared to 2019, of which 15 GW from solar power and 14 GW from wind power. IRENA data shows that China also prevailed in bioenergy capacity expansion, which increased by over 2 GW in 2020. Europe is the only other region to record an increase compared to 2019 (+1.2 GW in 2020).

China has announced its goal to achieve zero CO2 emissions by 2060 and continues to invest in the renewable energy sector, despite the Covid-19 crisis that has also had an impact on the Belt and Road Initiative (BRI). Based on a recent study by the IIGF Green BRI Center at the Central University of Finance and Economics (CUFE) in Beijing, total investment in the BRI in 2020 amounted to roughly 47 billion dollars, a decrease of 54 percent compared to 2019.

However, for the first time investments in renewable energy sources such as solar, wind and hydroelectric power were the most popular among foreign energy investments, reaching 57 percent in 2020 compared to 38 percent in 2019. According to data from the US Enterprise Public Policy Institute for the 2014-2020 period, Chinese green investment in renewable energy in Belt and Road projects increased by nearly 40 percent, surpassing investment in fossil fuel energy.

The financial and monetary sectors have also taken important steps in favour of renewable energy. Following the example set by other countries around the world, as well as the European Union, the People’s Bank of China (PBOC) has decided to adjust its monetary policy framework to include factors linked to climate change.

On the 20th of March 2021, PBOC Governor Yi Gang said that studies are currently underway in Beijing to assess the possibility of including climate change factors in the “stress tests” carried out by financial institutions. The Chinese Central Bank will also encourage financial institutions to extend credit support for controlling carbon emissions through the adoption of preferential interest rates, a special green finance lending facility, and an increased share of green bonds. The PBOC will also limit investment in carbon-intensive assets and incorporate climate risk factors into the risk management framework of the country’s foreign exchange reserves. The Bank is working with its European counterparts to harmonise taxonomies and plans to announce a common taxonomy in 2021.

On this front, the US is playing catch up with China. While Donald Trump’s administration slowed down renewable energy development in favour of fossil fuels, under the new administration led by President Joe Biden, America has re-joined the Paris Climate Agreement and has announced ambitious plans that include the radical development of electric mobility, renewable energy and power grids. On the 31st of March, President Joe Biden unveiled a 2.3 trillion dollar infrastructure plan to expand the renewable energy sector and the carbon neutral industry as a whole, to make the US carbon neutral by 2050. Biden’s plan includes a new tax credit to support the construction of high-voltage transmission lines, which allow the development of renewable energy even in remote areas, and proposes a 10-year extension of tax credits for companies in wind, solar and battery power sectors. The US president has also called on Congress to encourage motorists to buy electric vehicles by supporting tax incentives that currently amount to a maximum of 7,500 dollars per electric vehicle purchased.