China Leads an Asian Rush to Carbon Neutrality — and Potentially More Green Bonds

Mere weeks after Beijing’s pledge, Japan and South Korea follow suit. Decarbonizing these industrialized economies could demand trillions in investment and debt.

By Adam Aston


Estimated reading time: 4 minutes, 17 seconds

In recent weeks, three of the world’s largest economies unveiled plans to achieve carbon neutrality. In late September, China set the pace by announcing it would be carbon neutral by 2060. Japan followed on October 25, targeting 2050. And South Korea matched Japan’s pledge two days later.

The announcements address a huge wedge of global emissions. China is the world’s largest CO2 emitter, while Japan and South Korea rank sixth and eighth, respectively. They join the EU, the world’s third largest source of CO2, in aiming for net-zero carbon by mid-century.

To be sure, details of these new transition plans remain scant, as little has been revealed on process or funding. And it’s hard to overstate the challenges each will face in reaching their goals:

  • South Korea, for instance, gets just 5% of its electricity from renewables today, according to the Financial Times (FT), the lowest of any OECD country.
  • Japan’s reliance on fossil fuels has actually risen in recent years, following the nation-wide shutdown of nuclear reactors after the Fukushima disaster.
  • China’s challenge may be the biggest one: It emits more CO2 than the US (the number two source) and the EU combined and continues to build and export thermal coal plants. For China to hit its 2060 target may require an investment of over $5 trillion, estimates Wood MacKenzie.

Yet in direction and potential impact, the announcements mark a critical convergence of national policy, by pairing pandemic stimulus spending with programs that help achieve net-zero emissions. The moves put to rest earlier concerns that key economies might abandon green goals and affirm an ethos of ‘build back better’ that’s taking hold in most of the world’s big economies and emitters.

A boost for green bonds?

This spate of announcements adds a tailwind to the global green bonds market. In Europe, the EU has unveiled plans to accelerate decarbonization via stimulus spending, potentially adding some $267 billion in new green bond issuances (See “Growing greener bonds,” Oct. 2, 2020). In November, the U.K. government announced plans to issue its first sovereign green bonds.

Yet in Asia, the market has been quieter through the first half of 2020, as the drag of recession and falling revenues caused many governments to slow down green issuances. In Asia-Pacific in the second quarter, green bond issuances fell to a three year low, as new debt was shifted to social bonds aimed at shoring up public health needs and bridging economic inequalities, according to a recent analysis by S&P Global.

S&P reported that in the quarter ending June 30, the nine most active green-bond issuing markets in Asia-Pacific raised US$5.2 billion, or 10% of total global issuances, per data from Climate Bonds Initiative, a U.K. nonprofit organization. The second quarter saw less than a third of the US’ $16.5 billion booked a year earlier. (See chart, “Issuance of green bonds in select Asia-Pacific markets”, below.)

Source: S&P Global via Climate Bonds Initiative

Looking at the recent commitments of China, Japan, and South Korea — East Asia’s three largest issuers of green bonds (see chart, “Green bond sales in Asia, 2019”, bottom) — it’s easy to speculate that any regional slowdown in green bonds will be temporary.

After all, each has a long track record of relying on a mix of centrally planned industrial- and economic policy and heavy infrastructure investment to advance national economic goals.

Energy, buildings, and transport tend to be the top three uses of proceeds from green bonds, according to the Climate Bonds Initiative, all of which can boost economic performance over the long run by, for example: Replacing fossil energy infrastructure with more efficient, lower-cost renewables; modernizing buildings to make them more efficient and resilient; and electrifying transportation systems, from replacing vehicles to building out recharging infrastructure.

East Asia’s shift toward greener recovery priorities suggests restoring long term economic health can only succeed if policies also work to avoid environmental disaster. A recent Climate Bonds Initiative report, Sustainable Debt: Global State of the Market H1 2020, underscores this linkage:


Beyond stimulus measures, however, there is a clear need to ‘think bigger’ if we are to achieve the structural transformation required to align economic health with social and environmental health. One might argue the existing set up has fuelled success so far; in some ways this might be true, but a system that leads to its own destruction ultimately cannot be considered successful.

Further reading: Released Oct. 29, 2020 by the Climate Bonds Initiative, China’s Green Bond Issuance and Investment Opportunity Report offers a detailed look at the financing needs for China’s green commitments. Assessing China’s latest Five-Year Plan, as well as key province-level efforts, CBI estimates that China will require annual investment in clean energy systems, infrastructure upgrades, and other green programs of RMB3tn – RMB4tn ($424bn – $566bn) by 2030, prior to any additional funding for its 2060 carbon-neutrality pledge, which wasn’t covered. “Green bonds are an ideal financing tool to support the required investment,” the report notes.


Adam Aston is a senior writer, editor, and content consultant specializing in energy and climate. Find him on LinkedIn and Twitter.

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