The synergistic logic of low-carbon technology innovation and carbon finance
Preface:
Low-carbon technological innovation is the key to achieving both economic and social development and the "dual carbon" goal, and carbon finance provides financial guarantee for low-carbon economic activities and sustainable opportunities for low-carbon technological innovation. Under the background that digital technology represented by AI continues to drive the high-quality development of the financial industry, the diversification of carbon financial services provides effective resource support for the cultivation of low-carbon technology enterprises, low-carbon technology research and development, and the transformation of low-carbon achievements, and the efficient synergy between low-carbon technology innovation and carbon finance will promote the more sustainable development of low-carbon society in line with the wave of digital economy.
Carbon finance catalyzes the continuous development of low-carbon technological innovation
In September 2020, General Secretary Xi Jinping proposed at the general debate of the 75th session of the United Nations General Assembly that "China's carbon dioxide emissions should peak before 2030 and strive to achieve carbon neutrality before 2060". In October 2021, the Opinions of the Central Committee of the Communist Party of China and the State Council on Complete, Accurate, and Comprehensive Implementation of the New Development Concept and Doing a Good Job in Carbon Peaking and Carbon Neutrality and the Action Plan for Peaking Carbon Emissions before 2030 clarified the work arrangements for China's comprehensive promotion of the "dual carbon" goal.
Low-carbon technological innovation is the key to achieving both economic and social development and the "dual carbon" goal. In August 2022, the Ministry of Science and Technology and other nine departments jointly issued the Implementation Plan for Science and Technology to Support Carbon Peaking and Carbon Neutrality (2022-2030), which further strengthened the top-level design and clarified the question of what is the direction of "dual carbon" innovation supported by science and technology. At the level of technological breakthroughs, it focuses on low-carbon energy transformation technology, low-carbon and zero-carbon reengineering technology for industrial processes, low-carbon and zero-carbon transformation technology for construction and transportation, and carbon-negative and non-carbon dioxide greenhouse gas emission reduction technology; at the level of industrial assistance and industry development, it focuses on innovative exploration in the construction of carbon monitoring (MRV) system, industrial disruptive low-carbon technology, low-carbon zero-carbon application demonstration, and talent project cultivation; at the level of enterprise cultivation and international cooperation, focus on accelerating the incubation of green and low-carbon technology enterprises, Strengthen international cooperation on low-carbon science and technology innovation. For example, Shanghai highlights the low-carbon leadership of energy and relies on the construction of international financial centers to carry out in-depth financial carbon reduction; Guangdong Province explores a new path in line with Guangdong's development reality around the construction of a green and low-carbon circular economic system and green financial service system.
As a branch of green finance, the development of carbon finance is gradually formed with the continuous improvement of the carbon market. In a broad sense, according to the positioning of the four dimensions of the carbon financial system in the 2015 working paper "Building China's Green Financial System" in People's Bank of China, and the relevant elaboration in China's top-level green finance document "Guiding Opinions on Building a Green Financial System", carbon finance mainly consists of carbon emission trading markets, various carbon financial products and their derivatives. In a narrow sense, the Carbon Financial Products standard issued by the China Securities Regulatory Commission in April 2022 for the first time clarifies the positioning of the carbon financial system at the national level, that is, only involves various types of carbon financial products.
In terms of macro development, China established a green finance development system earlier in China, forming a "1+N" policy framework, and local governments have carried out active exploration and practice in green finance to help alleviate poverty and the "dual carbon" goal. Internationally, since 2017, China has actively participated in the co-construction of sustainable finance-related research systems, policy standard formulation and international platform cooperation, and led the completion of the G20 Sustainable Finance Roadmap, the first sustainable finance framework document of the G20, in 2021. Since 2022, the focus of international cooperation has been further focused on the formulation of a transitional finance policy framework and the promotion of green financing in developing countries, and the implementation of net-zero commitments by financial institutions and the guidance of market funds to support an orderly low-carbon transition.
In terms of local exploration, in April 2023, Shandong Province released the "Three-Year Action Plan for the Development of Carbon Finance in Shandong Province (2023-2025)" focusing on the construction of a financial service system for comprehensive green and low-carbon transformation of the economy and society, which has strong practical reference significance. As a major industrial province, Shandong has heavy carbon reduction tasks and large financing needs. Through the short-term rapid promotion of the construction of carbon financial system, the formation of transition finance standards and incentive mechanisms, the innovative application of carbon financial products such as carbon credits, carbon bonds, and carbon funds, and the focus on green and low-carbon investment and financing issues such as "what to invest", "how to invest" and "who will invest", it provides new practical ideas for finance to help the research and development of green and low-carbon technologies and the green and low-carbon transformation of enterprises. Previously, the Wuhan Action Plan for Building a National Carbon Finance Center was issued in June 2022, emphasizing the practice of carbon emission allowance registration and settlement, regional carbon emission trading market construction, carbon finance product innovation and supply, etc., providing new ideas for the construction of a green financial system based on carbon finance.
In essence, consolidating the synergistic relationship between low-carbon technological innovation and carbon finance is to industrialize low-carbon-related scientific and technological achievements in a timely manner, give full play to the role of finance in supporting low-carbon technological innovation and industrial development, and at the same time provide a strong starting point for finance to support the transformation and development of the real economy.
At present, China's financial technology development has fully entered the new stage of "accumulation of momentum" 4.0, and financial innovation empowered by the application of digital technologies such as AI has become an important development trend. Technology drives financial development, and financial development further provides financial resource support for the cultivation of low-carbon technology enterprises, low-carbon technology research and development and industrialization application, and gradually forms a virtuous circle of "technology-industry-finance". On the one hand, industrialization is the key to the formation of productivity of low-carbon technologies, and only through industrialization can various low-carbon technologies be widely used and form a scale in various fields, promote sustainable social development and catalyze the emergence of new technologies. On the other hand, we should give full play to the multi-dimensional support of finance for the development of low-carbon technologies and low-carbon enterprises, and promote the development of low-carbon industries through effective allocation of capital resources.
Focus on carbon finance and focus on stimulating the vitality of low-carbon technology innovation
Compared with green energy financing, carbon market financing faces the practical challenges of narrow financing channels and lack of funding sources. Enriching the product types and business models of the carbon finance market is the key to expanding funding sources and stimulating the vitality of low-carbon technology innovation.
Expand carbon financing channels and explore the application of carbon removal (CDR) technology. CO2 removal technology is a method of capturing carbon dioxide directly or indirectly from the atmosphere and storing it permanently, and the application of CDR has been launched abroad with the finalization of the full implementation rules of the Paris Agreement at the United Nations Climate Change Conference (COP26) in November 2021. In the field of carbon finance, financial services company Stripe, together with companies such as Alphabet and Meta, established the Frontier Fund to buy carbon removal credits from small businesses; four companies, including JPMorgan Chase, will invest $100 million in carbon reduction credits in the next few years to alleviate the high cost of carbon capture technology due to lack of financing in the carbon removal market. Since there is still a huge gap between the cost of using the technology of carbon capture of US$800/ton compared with the large-scale economic application of US$100/ton, it is necessary to continue to strengthen the diversified capital investment of the carbon financing market and promote the commercialization of CDR. Carbon financing for CDR technology is inseparable from carbon measurement and related trust assessment, and the research and construction of monitoring, reporting and verification (MRV) technical systems need to be in the forefront.
Enrich carbon support tools and explore the commercialization of carbon dioxide capture, utilization and storage (CCUS) technology. CCUS is an important carbon negative and carbon reduction strategic reserve technology, which requires a commercial model to achieve, and the commercialization ratio of more than 300 projects carrying out CCUS around the world accounts for only about 10%. Since 2021, China has successively deployed CCUS technology routes, industrial development, investment and financing support, etc. in a number of policy documents, and the central bank has launched low-cost funds such as "structural relending tools" and "carbon emission reduction support tools" to encourage technological innovation. However, due to the fact that the whole industry chain has not yet been formed, the policy scattering is difficult to form a system, and the main reliance on green capital support, the development and commercialization process of CCUS is still slow. Therefore, it is still necessary to increase the application of investment and financing support tools for CCUS in the carbon market, set up CCUS carbon funds based on project-specific, encourage technological innovation and project operation, and promote the improvement of the industrial system and the commercialization of the industry.
Expand the scope of carbon trading, accelerate the low-carbon transformation of traditional enterprises and the cultivation of green and low-carbon technology enterprises. Carbon trading is the trading of carbon dioxide emission rights through market mechanisms, and the resulting carbon assets, including carbon credits and carbon allowances, will become part of the company's "core" assets in the future. The trading of various carbon financial derivatives and carbon emission rights will revitalize the capital needs of enterprises in the low-carbon transition and promote the development of low-carbon technologies. At the same time, the price discovery function of the market is conducive to promoting the formation of China's carbon pricing mechanism and guiding the continuous improvement of the development of the carbon market. When carbon emission allowances become an important resource for most enterprises to participate in market competition, the application of innovative tools such as carbon credits in carbon finance will further prosper, promoting the benign interaction between carbon finance and low-carbon development.
Strengthen the application of carbon accounts and promote the full matching of the supply of financial resources with the needs of low-carbon transformation. On the demand side, enterprises should establish carbon accounts and carry out operation and management, build standardized standard accounts that carry enterprise economic data, carbon emission data, and evaluation result data, and realize information sharing and data connection with government platforms by entrusting third-party professional institutions to verify and issue enterprise verification results and carbon credit reports. Promote key industries and fields such as construction and transportation, and expand the support of carbon finance for low-carbon transformation.
Improve the function of the carbon market, and form a benign mechanism for low cost, high efficiency, clear property rights, and promote emission reduction. The carbon market naturally has the functions of resource allocation and price discovery, and studies and applies carbon futures, carbon options, carbon swaps and other financial instruments that help serve risk management, reduce transaction costs, improve market liquidity, and promote the function of the carbon market; explore the expansion of trading varieties, trading entities, and trading methods in the environmental rights and interests trading market, as well as financial innovation cooperation with financial institutions and financial service platforms under regulatory requirements; explore cross-border facilitation of carbon trading and pilot foreign exchange transactions, and introduce overseas traders in the carbon market.
Low-carbon technology innovation, and the future outlook of carbon finance development
To do a good job in the coordination between low-carbon technology innovation and carbon finance, it is necessary to fully leverage the financial ecology and various relevant subjects, and tilt resources to low-carbon technology research and development, low-carbon business incubation, and low-carbon industry transformation; it is necessary to "promote implementation with demand", match the needs of low-carbon technology innovation, carbon market development, and the realization of the "dual carbon" goal with financial resources, and promote the implementation of financial policies, financial products and financial services.
Under the background of the rapid development of the digital economy, technology enterprises play a more important role, facing the pressure of carbon neutrality in themselves and upstream and downstream in their development, which not only has challenges but also opportunities. On the one hand, accelerate the construction of a clean energy and low-carbon system, achieve carbon neutrality with energy-saving management, energy-saving technology, improve the procurement and utilization of renewable energy, explore carbon sinks and other methods, and deeply integrate artificial intelligence, big data, 5G and other technologies with low-carbon industries, incubate low-carbon technologies, and explore digital carbon neutral applications. For example, Tencent has carried out a number of low-carbon technology applications in promoting glacier protection, water-saving and drought-resistant rice, virtual power plants, and energy digitalization, while building a "carbon base" platform serving carbon inclusion and MRV, a "carbon Live" platform that connects low-carbon technologies, and an "exploration plan" that supports and incubates the development of low-carbon technology projects. On the other hand, private capital participates in the investment and incubation of green and low-carbon technologies. According to research data from the National Development and Reform Commission's Price Monitoring Center, the annual funding gap will exceed 2.5 trillion yuan to achieve carbon peak in 2030, and catalytic social capital will play a greater leverage.
Financial institutions will more widely participate in low-carbon transformation and carbon market construction, improve capital supply and market vitality, and promote the improvement of carbon accounting and environmental information disclosure mechanisms. At the beginning of 2023, the PBOC clearly extended the implementation of carbon emission reduction support tools until the end of 2024, further expanding the breadth and depth of participation of financial institutions, and then Guangdong, Zhejiang and Fujian provinces completed the launch of the first batch of carbon emission reduction support tools for local legal person financial institutions. From the perspective of implementation effect, a total of more than 300 billion yuan of re-loans have been issued, supporting commercial banks to invest more than 500 billion yuan, and reducing carbon emissions by 100 million tons in 2022. In this process, financial institutions will voluntarily support green and low-carbon financing in a market-oriented manner, and in the future, explore more complete data and information integration and disclosure mechanisms such as carbon footprint, loan project interest rates, emission reductions, etc., and promote the continuous improvement of the financial support low-carbon transformation system in practice.
Explore ways for multi-level and diversified carbon finance to support low-carbon development. Coordinate the relationship between the national and local carbon markets, support and cooperate with the construction of the national carbon market product system and carbon emission rights trading platform and other related construction by building regional carbon market trading centers; explore financial support mechanisms for realizing the value of ecological products, and promote the improvement of ecological carbon sink capacity in forests, oceans, farmlands and other fields; explore the supplementary role of CCER and other certified voluntary emission reduction mechanisms in carbon emission allowances, and encourage more green transition enterprises and financial institutions to invest in low-carbon technology innovation and low-carbon investment and financing practices.
Relying on international experience related to the development of carbon finance, we will continue to promote international cooperation in low-carbon technology innovation. At the level of institutional development, explore the innovative application of financial products of financial institutions abroad, encourage science and technology enterprises to actively participate in international low-carbon science and technology innovation cooperation, and promote the deep integration of digital technology represented by AI and carbon finance; at the level of financial cooperation, give full play to China's advantages of research leadership, standard formulation and international cooperation in the G20 sustainable finance policy system, actively participate in climate and environmental information disclosure, carbon financial instrument development, At the regional construction level, taking the construction of international green finance and global sustainable finance centers in core cities such as Beijing, Shanghai and Shenzhen as an opportunity, and taking the construction of international science and technology innovation centers as the starting point, actively participate in the construction of the international carbon market and international low-carbon science and technology innovation cooperation.
【Extended case】"AI and sustainable development": Application of AI in low-carbon technology and carbon finance
As an important digital technology tool, AI has a wide range of application prospects in low-carbon technologies. For example, in the area of carbon capture and storage (CCS) technology, NVIDIA introduced the Fourier Neural Operator (FNO) architecture of AI-driven technology, which increased the speed of CCS modeling by 700,000 times. The FNO architecture can more accurately predict pressure build-up and CO2 saturation, with exponentially improved accuracy and less training data than other models, helping CCS engineers quickly select the best injection point, determine the optimal well spacing and depth, and determine the optimal injection pressure and rate to capture carbon.
Engineers can visualize and optimize the entire inspection process with Nvidia Omniverse. The FNO model can also be used in web applications to provide real-time simulations for carbon capture and storage projects. It can be seen that AI can achieve various tasks that are critical to CCS decision-making, including not only the optimization and management of CCS technology, innovative CCS technology, but also help government departments and enterprises better evaluate the effect of CCUS policies, predict market demand and development trends, and provide a basis for making more effective policy and investment decisions.
In addition, the industry is also exploring the application of AI in carbon finance, such as the newly established Asia Carbon Institute (ACI) in Singapore, which uses AI technology to improve the efficiency of verification and audit processes and the transparency of carbon credits in scenarios such as registration and certification of carbon trading markets. Kathrin Schwan, managing director of Accenture's Data & AI Network, said: "AI is key to unlocking transparent carbon markets and promoting trust and informed decision-making among participants." Through continuous monitoring and real-time insights, AI helps ensure that markets operate with integrity, ultimately facilitating the efficient allocation of investments.
*This article was originally published in the August 2023 issue of Digital Economy Journal, with content adjustments.
This article is from the WeChat public account"Tencent Research Institute" (ID: cyberlawrc), author: Chen Liyuan, Hu Xiaomeng, 36Kr published with permission.
