Description |
The proposed transaction technical assistance (TA) facility will provide project preparation, capacity building, and policy advisory assistance for a multiyear lending program spanning 2017 -2019, which aims at improving air quality and facilitate low-carbon development in the greater BTH region. Central topics for the lending program are (i) enhancing policy and regulation for advancing the government's air quality and sustainable development objectives, (ii) strengthening and deepening green finance, and (iii) promoting innovative low-emission technologies to transform industrial production towards clean production. The projects to be prepared comprise the (i) Emission Control and Pollution Reduction Fund of the China Energy Conservation and Environment Protection Group (CECEP); (ii) policy reforms and results-based program in up to two key provinces in the greater BTH region; and (iii) an additional financing for the China National Investment and Guaranty Corporation's Green Financing Platform Project. The loans to be prepared are likely to use the financial intermediation loan, policy-based, and results-based loan modalities and will all require similar policy analysis and technical, financial, economic, environment, poverty, social, governance, legal, and regulatory due diligence. ADB lending support each year will be mutually reinforcing and will be backed up by analytical, policy advisory, and capacity development nonlending work, many of which are already in progress. |
Project Rationale and Linkage to Country/Regional Strategy |
The greater Beijing- Tianjin - Hebei (BTH) region is one of the core industrial areas in the People's Republic of China (PRC). It generates nearly one-third of the PRC's gross domestic product and is home to 27% of the PRC's population. It consistently experiences poor air quality caused by the region's excessive reliance on coal in the energy mix, high concentration of energy and pollution-intensive industrial enterprises, large number of cars and vehicles, and weak environmental standards and governance. For the same reasons, the greater BTH region is also responsible for about 40% of the country's carbon dioxide (CO2) emissions, the most abundant greenhouse gas contributing to climate change. Air pollution emergencies are frequent occurrence in many cities of the region. Ambient air pollution poses severe health risks and contributes to about 1.2 to 2.0 million premature deaths annually in the PRC, of which a disproportionately large number of them in the greater BTH region. It also causes productivity losses for the national economy estimated to amount up to $300 billion per year.
The measures by the Government of the PRC detailed in its Comprehensive Action Plan for Air Pollution Prevention and Control (CAAP) 2013 2017, which when adopted in 2013 introduced stringent air quality measures. These measures were aimed at rolling back air pollution by setting specific emissions targets on sulfur dioxide, nitrogen oxide, particulate matter 2.5 micrometers (PM2.5) or less in diameter and volatile organic compounds nationally, and especially for the greater BTH region. To date, the government's actions have helped to improve air quality on average. The air quality in the region is still far below the national and the World Health Organization standards. Due to its important contribution to the country's CO2 emissions, the BTH region is a common top priority under both the air quality and climate change policy goals. The PRC's Thirteenth Five-Year Plan, 2016 2020 also reaffirmed the government's commitment to accelerate air quality improvement. It sets ambitious targets for air quality progress, requiring hundreds of cities to meet _good_ or _excellent_ standards 80% of the time and to reduce by 25% the number of polluted days, and to reduce by 18% the number of days when PM2.5 exceeds allowable limits. The plan includes, for the first time, a total energy consumption cap, set at 5 billion tons of carbon equivalent.
The CAAP and low-carbon development efforts are part of the government's wider goals. The 13th plan period marks the entry into the _new normal_ of transformative change in development strategy, which (i) shifts the drivers of growth from focusing on the quantity of inputs, including environmental inputs, to their efficiency; (ii) focuses on the transformation of industrial production methods, a fundamental restructuring of the energy sector; and (iii) cultivates new growth points and competitive advantages driven by advanced technologies. The government's goal is to attain an ecological civilization in line with the United Nations Sustainable Development Goals and the 2015 Paris Agreement. Key levers identified by the government to drive the PRC's green development are (i) advanced, innovative technologies, which will transform the industry to adopt clean production methods; (ii) green finance; and (iii) policy reforms. The PRC's high ambitions on advancing environmentally sustainable development will lead to an unprecedented demand for financing. The government's green financing task force estimated those needs to range between CNY14.5 trillion and CNY29.8 trillion up to 2020. The CAAP targets alone will require CNY1.8 trillion in investment, and CNY250 billion within the greater BTH region. In addition, about CNY6.6 trillion in investments will be required to meet low carbon and clean energy targets in the 13th plan, of which only 10% 15% can be realistically financed with public funds.
The speed of _greening_ of the economy has to overcome significant uncertainties, challenges, and barriers. The speed of this transformation will depend on the (i) policy framework the government sets, particularly in terms of regulations, their enforcement, and fiscal and financial support schemes for the private sector to invest in emission control and pollution-reduction projects; (ii) availability and scale of deployment of advanced technologies many emission reduction technologies have been pilot tested, but not demonstrated and deployed; and (iii) availability of adequate financing. In September 2016, the government established it's Guidelines for Establishing the Green Financial System, but major barriers persist. On the supply side, key challenges include (i) insufficient information flow on new technologies, (ii) lack of capacity on the side of financial intermediaries in appraising advanced technologies, and (iii) reluctance to invest in new project types. On the demand side, there is still a lack of sufficient, well-developed green projects.
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