This is part of a series of blogs about net zero investment in different regions of the world outside of UK and EU. We explore how different countries are approaching the net zero transition and the investment markets that exist to support this. Here, Randall Ramsahai focuses on China.
China is the world’s largest annual emitter of greenhouse gases and has held this top spot since 2006 when it overtook the US. It’s one of the few major economies that has not yet reached peak planned emissions. Fossil fuels continue to be the backbone of its energy sources. Emissions from China stood at about 30% of global emissions in 2023 and was almost triple that of the US, which stood second on the list.
At the end of 2021, prior to COP26, China published its latest NDCs, confirming an interim target of reaching peak CO2 emissions before 2030 and achieving net-zero emissions before 2060. The next round of NDCs, covering climate goals through 2035, were due to be submitted to the UN by February 2025. China’s updated NDC has not yet been published (as of 20 June 2025).
Responsible for a large proportion of emissions growth since the Paris agreement in 2015, the world will be looking to China to put forward even more ambitious targets. With such large influence on global greenhouse gas emissions, we take a closer look at its progress thus far.
The main sectors contributing to China’s rise in emissions over the last two decades were the power generation sector, industrial processing and transport. These are the sectors where China will need to focus on reducing emissions to achieve its net zero goals.
Within the power generation sector, coal fired power plants generated 60% of total electricity output in the first half of 2024. China uses more coal than the rest of the world combined, and coal is expected to continue to play a crucial role for its future energy security. The next major source of emissions is from industrial processing and combustion. China produces more than half the world’s steel and cement and this sector in isolation produces more CO2 emissions than the total EU CO2 emissions.
As a result, China is expected to continue to produce significant greenhouse emissions from the industrial and power generation sectors. Several policy announcements in February 2024 by the Chinese government confirm that CCUS (carbon dioxide capture, utilisation and storage) technology will be used as part of its net-zero transition plans to reduce emissions in these sectors.
Although China has a heavy reliance on fossil fuels, major developments have been made with regard to green technology. In 2023 China was the leading country for installed renewable energy capacity with more than three times the generating capacity of second-place US. China accounted for more than 80% of the world's solar cell exports in 2021 and more than 50% of lithium ion batteries in 2023.
The sustainable investment market in China is dominated by green credit (loans) and green bonds. Most green investments are held by domestic investors.
Green credit is the earliest form of green investment available in China and accounts for the majority of its available green financing. As at the end of 2023, the total outstanding green loan balance reached USD$4.3 trillion and represents 13% of total outstanding loan balance. Proceeds from green loans have predominantly been used for infrastructure upgrades and clean energy projects.
China’s first green bond was issued in 2015 by the People’s Bank of China. The country has since become the largest green bond issuance market in the world. In 2023, it issued USD$131 billion of labelled green bonds (about 1% of its overall bond market) and was second only to the US in terms of cumulative issuances. Most proceeds from green bonds are used to fund renewable energy projects such as solar and wind power generating capacity, and low carbon transport such as electric vehicles and transit systems.
China has emerged as one of the leading issuers of sustainability linked bonds (SLB) with its first SLB issued in 2018 by Beijing Infrastructure Investment Co. A total of USD$5.7 billion was issued in 2023 and places China third behind Italy and Chile for SLB volumes. SLBs have been issued from a range of sectors including industrials, financials and utilities. While SLBs have historically focused mainly on renewable energy and sustainable finance targets, an increasing number of deals do not include any specific emission reduction targets.
Another form of finance suitable for China’s high emission sectors is transition bonds. However, up until the first half of 2022, total cumulative issuances remained relatively small at USD$2.1 billion with about a 40% decline in issuances in 2023. Issuers are mainly dominated by high emission sectors such as steel, chemicals and electricity.
Other notable segments available include green funds and green index funds with total assets under management as at the end of 2022 of USD$126 billion and USD$19 billion respectively.
China also launched an Emission Trading System in 2021, which became the world’s largest by covered emissions. Like the EU, the long-term goal of this system is to provide an incentive to emission intensive sectors to reduce emissions. However, as of 2023, the scheme only covered the power generation sector. Industries responsible for 60% of the country’s emissions were not yet included.
China has been looking to harmonise its regulations with international standards to foster further growth. Some of the changes implemented to progress this include:
China’s pathway to net zero seems very ambitious given historic adoption of green technology has not been widespread and its continued reliance on fossil fuels. To finance its transition to net zero, China has developed a multi-tiered green investment market, which covers a wide range of investment products suitable for both traditional green projects as well as transition funding for hard to abate sectors.
However, green assets under management still represent a relatively small portion of the estimated USD$26trillion in green investments needed by 2050. To increase the scale of its green investment market, China has continued to develop more innovative green finance products and better align its green market policies with international standards.
What are your thoughts on the points raised in this article? What do you think about how equipped global investment markets are to support the transition to net zero?
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