China and Governance of Climate Change Finance

China has achieved some important preliminary successes in its efforts at addressing climate change. The Chinese government considers climate change as a top item on its policy agenda and has put considerable resources into the green sectors. It is evidenced by the fact that China is now the world leader in clean energy investment, with investment of $54 billion in renewables in 2013 . It leads the world in terms of installed wind capacity and ranks the second in terms of installed photovoltaic power capacity in the world. 
Despite the successes, more climate actions are clearly needed. Just like many countries in the world, China is grappling with how to finance the transition to a sustainable, low carbon economy. This transition requires a shift of development model, which also requires substantive changes in the public and private financing system. 
Climate change mitigation and adaptation require proactive policies and government planning. Public sector interventions provide information, incentives, and an enabling environment for communities, households, and private firms to change their behaviors, their consumption and investment choices. Such interventions require the use of a range of policy levers: information, regulation, taxation, and public spending, where public expenditure is a crucial part of this set of levers. While it is clear that very sizeable public financial resources have been dedicated to climate change mitigation and adaptation in China, there are no estimates of the government’s overall climate expenditure. The lack of a clear picture of the climate-related public spending pattern makes it very difficult for the government to evaluate and inform the alignment of public spending with its climate-related priorities. 
Extensive review of the existing literature on the climate finance landscape in China indicates that there has not been any known systematic attempt to estimate the overall size and pattern of public climate expenditure. Against this backdrop, UNDP initiated the Climate Public Expenditure and Institutional Review (CPEIR) with the Research Institute for Fiscal Science (RIFS) under the Chinese Ministry of Finance, with the aim of assisting the Government of China in strengthening its understanding of public climate expenditure pattern and to ensure climate change priorities are integrated into budget formulation and implementation process. The research project  began in February 2014.

Key findings from China CPEIR


A key component of the first phase of CPEIR is the exercise of identifying the climate-relevance of over 800 items on the Chinese central government budget. Through this exercise, the report estimates the share of climate-relevant expenditure in the total central government budget for the year 2013 and 2014. The preliminary findings of the CPEIR show that 6.92% of total planned central budgetary expenditure (excluding budgetary expenditure on payment for the principal and interest of debt) in 2014 has high or medium climate relevance. As for 2013, 7.55% of central budgetary expenditure (excluding budgetary expenditure on payment for the principal and interest of debt) had high or medium climate relevance.

In the area of energy conservation and emission reduction, the government continues to intensify its efforts in this area, developing and implementing a series of policies and measures to promote energy conservation and emission reduction. During 2006-2012, the central government finance in this area totaled more than RMB 400 billion (USD 65.57 billion). 
National public expenditure for energy conservation and environmental protection was RMB 244.198 billion (USD 40.03 billion) in 2010. It was increased to RMB 296.346 billion (USD 48.58 billion) in 2012 and then declined to RMB 180.39 billion (USD 29.57 billion) in 2013. It went up to RMB 210.909 billion (USD 34.58 billion) in 2014. Central government expenditure on energy conservation and environmental protection increased significantly, from RMB 6.948 billion (USD 1.14 billion) in 2010 to RMB 29.067 billion (USD 4.77 billion) in 2014. Local government expenditure on energy conservation & environmental protection increased at the very beginning but then declined. It was RMB 237.25 billion (USD 38.89 billion) in 2010 and was increased to RMB 289.981 billion (USD 47.54 billion) in 2012. In 2013 it fell to RMB 156.596 billion (USD 25.67 billion). In 2014, the planned local government budget for energy conservation and environmental protection is RMB 181.842 billion (USD 29.81 billion).
Over the course of the past five years, the share of total national public expenditure for energy conservation and environmental protection was on an overall downward trajectory. It accounted for 2.72% of the total national budgetary expenditure in 2010 and 1.29% in 2013. The budget of 2014 is approximately 1.38% of the national budgetary expenditure.

Next steps:

Proposed Second Phase of CPEIR in China with the following outputs and activities;
Output 1: Pilot CPEIR in selected provinces
Output 2: Refinement of CPEIR methodology and analysis 
Output 3: Implementation of recommendations of the CPEIR in relation to integrating climate change priorities into budget formulation and execution, and formulating provincial adaptation plans