The best way China can tackle carbon and smog is to cut back on coal. Beijing's pledges at the Paris climate summit show the will to change, even though coal is plentiful and inexpensive. But alternatives could be a hard sell for investors.
China's Paris targets will cost up to $6.2 trillion. That is a big sum: for comparison, the entire Shanghai Composite stock index is worth $4.2 trillion. The International Energy Agency reckons about half needs to go on building up alternative fuels like solar, wind, hydro and nuclear power, and on improving grids and power plants. In other words, fighting coal will require roughly $200 billion a year for 15 years.
Most has to come from the private sector. The state can fund just 15 per cent of green investment over the next five years, the central bank reckons. Rich countries promised $100 billion a year to help poorer ones hit green goals, but that will hardly cover it. So China plans a "green finance" drive to lure outside capital from both home and abroad. Schemes like a national carbon market aim to foster efficiency and direct cash towards carbon sinks and renewable energy. New instruments such as green bonds are designed to help mobilise funds.
This will be a slog. Transparency will be a major hurdle. It is vital in any market but doubly so for planet-friendly finance: investors and authorities want reliable data both on finances and on sustainability. That has been tricky for green bonds and carbon markets worldwide. China's challenge is greater: It has struggled to implement rigorous reporting and standards for existing markets, including pilot carbon-trading schemes. The energy sector has proved particularly scandal-ridden.
What's more, investors prize predictability. But if growth keeps waning, China's leaders may be tempted to sacrifice green goals for a stronger economy, as they have done before. State backing is little comfort because even officially sanctioned green endeavors have been known to fail, such as Suntech, a solar star that went bankrupt.
The danger is green investors see better returns elsewhere. Then the Middle Kingdom will be tempted to fall back on cheap, dirty coal.
