Orange News: As the world grapples with the effects of climate change, it is imperative that all countries take action to combat this global crisis. Hong Kong, as a key player in the global financial services industry and an important economic hub in Asia, has a responsibility to take a leading role in mitigating and adapting to the impacts of climate change.
Specifically, we recommend that the Hong Kong government take several steps to promote a just transition to a low-carbon economy. These steps include providing clarity on the $240 billion budget allocated for climate change mitigation and adaptation measures, incorporating the objective of reducing economic risks associated with the global transition to net zero into fiscal policy, and increasing the participation of Hong Kong’s financial services sector in energy transition.
Firstly, it is essential that the Hong Kong government provide greater clarity on the $240 billion budget allocated for climate change mitigation and adaptation measures. While the size of the expenditure was noted in the ‘Policy Measures’ publication which accompanied the October 2022 Policy Address, it is important that the budget provides a breakdown of this total by year and activity. In addition, we recommend that the budget advise measures in the next three years to accelerate action on climate change. This will provide a clear roadmap for action and help to ensure that the budget is used effectively to combat the impacts of climate change.
Secondly, we recommend that the Hong Kong government incorporate the objective of reducing economic risks associated with the global transition to net zero into fiscal policy. This will help to anticipate changes in Hong Kong’s economy, including the reduction of discretionary high-carbon activities such as using cruise ships and taking long-distance air travel for vacations. It will also help to increase the role of the financial services sector in funding the transition to a low-carbon economy in Asia-Pacific and in carbon markets. The European Union has already announced a ‘Carbon Border Adjustment Mechanism’ (CBAM) to charge imports for the difference between the carbon price in the European Union and the carbon price in the country from which goods are imported. Hong Kong needs to identify its position to make sure it is in the best interest of the city, including reducing the risk of Hong Kong’s exports being subject to CBAM charges by the European Union and by other jurisdictions which may adopt CBAM type policies. Additionally, considering linking to China’s National Carbon Trading scheme will have long-term benefits in aligning with China’s Emissions Trading Scheme and minimising the risk that changes in China’s National Carbon Trading Scheme will disrupt Hong Kong’s economy.
Thirdly, we recommend that the Hong Kong government increase the participation of the financial services sector in energy transition. Financial services are one of the most economically important sectors of Hong Kong’s economy, accounting for 23.4% of its GDP in 2020 and providing over 276,000 jobs. The COVID-19 pandemic has weakened economies and caused travel restrictions that have impeded Hong Kong’s ability to serve the region. As we emerge from the pandemic, it is important to rebuild. Hong Kong should therefore seek a more prominent role in facilitating just energy transition partnerships, which can both boost Hong Kong’s financial services industry and aid regional decarbonisation.
Hong Kong should therefore seek a more prominent role in facilitating Just Energy Transition Partnerships (JETP). This can both boost Hong Kong’s Financial Services and aid regional decarbonisation.
What is JETP? A JETP is a financing mechanism that supports countries’ self-defined pathways for moving from coal to low-carbon electricity production. South Africa signed the first JETP of US$8.5 billion in November 2021, and Indonesia signed the second for US$20.0 billion in November 2022. We believe there are discussions on JETPs for Vietnam and India, with more to follow.
The Hong Kong government and the Hong Kong Monetary Authority (HKMA) can play a significant role in this area. Their involvement will make it easier for the Hong Kong Financial Services sector to participate in the deals. Additionally, their negotiating power as government agencies can reduce the risk of default and better manage recovery when there is a default. Furthermore, the HKMA should be able to borrow at a lower cost than its on-lending to the JETP, thus providing a margin that covers both its administrative costs and taking some ‘first loss’ risk, so projects with off-take contracts that are not quite commercially bankable can be efficiently brought into the scheme.
In conclusion, Hong Kong’s efforts to combat climate change are important not only for its own citizens but also for the region and the world. As a global financial center and a leader in innovation, Hong Kong has the potential to play a significant role in achieving the goal of Net Zero emissions. The government needs to provide a clear breakdown of the $240 billion budget and advise measures in the next three years to accelerate action on climate change.
By taking these actions, Hong Kong can not only reduce the impact of climate change but also lead the transition to a sustainable future for itself and the region.
Originally published on Orange News on 20 Feb 2023. Written by Lawrence Iu.
