By Nicholas Chan
Over the past year, China has made significant strides in green and low-carbon transformation. Standing at this starting point, I fully agree with Premier Li Qiang's assertion in the government work report at the Great Hall of the People to accelerate the comprehensive green transformation of economic and social development.
In the coming year, we must continue to inject strong green momentum into high-quality development. Hong Kong has great potential within the national green development framework and must leverage its professional expertise to serve national strategies while connecting global resources through its institutional advantages.
As an international financial center, Hong Kong boasts unique advantages, including a common law system, free capital movement, and a wealth of professional talent. Having conducted extensive research, Frank Chan and I jointly advocate for establishing a global carbon trading center and ecosystem in Hong Kong. This initiative aims to fully utilize Hong Kong's "one country, two systems" institutional advantages to create a carbon market hub that is based in Hong Kong, connects with the mainland, and radiates globally. This proposal has received support from over 30 representatives from the Hong Kong region of the National People's Congress, with hopes of becoming a collective proposal.
Hong Kong is poised to play a strategic role as a bridge between the mainland and international carbon markets, promoting cross-border carbon trading, mutual recognition of standards, and innovations in green finance. To achieve this, it is essential to establish a supportive system that integrates policy, technology, and the market.
Regarding the market, the International Carbon Action Partnership (ICAP) reported in 2024 that there are currently 36 operational carbon markets worldwide, covering 18% of global greenhouse gas emissions, involving economies that account for 58% of global GDP and 30% of the global population.
China's national carbon market achieved a record trading volume of 18.114 billion yuan last year, with a cumulative trading volume exceeding 43 billion yuan. As the European Union's carbon price surpassed 100 euros per ton in April 2024, China's national carbon market maintained a carbon price range of 97-106 yuan per ton in the fourth quarter, highlighting the potential for cross-market price differences and liquidity.
In this context, like I said, Hong Kong can leverage its position to become a green finance hub. If mainland companies are allowed to offset 3-5% of their carbon emission quotas with qualified carbon credits generated from the Hong Kong carbon market, it would create trillions of Hong Kong dollars in carbon credit demand, rapidly expanding Hong Kong's carbon market. Hong Kong can utilize its multi-currency settlement and rule of law advantages to establish a trading platform that connects China's and international carbon pricing systems, mitigating arbitrage risks through currency hedging and derivative product design, thus becoming a key node for global carbon asset cross-market allocation.
From a technological perspective, Hong Kong can promote the development of blockchain traceability systems and AI monitoring platforms. By working with fair and transparent global certification bodies, it can facilitate carbon accounting and auditing for green projects worldwide, preventing the redundant declaration of the same green project to different certification bodies, which could lead to inflated carbon credits, and addressing the ethical risks of "greenwashing" by companies exploiting standard discrepancies.
The legal framework is a crucial foundation of this support system. The EU's Carbon Border Adjustment Mechanism shifts the responsibility for consumption emissions, which should be borne by developed countries, onto those developing countries, increasing their burden of emission reductions and negatively impacting their exports, industrial transformation, and social welfare. Ignoring the differentiated demands of countries based on their development stages makes it difficult for the rules led by developed countries to gain widespread acceptance in the short term.
When standards are hard to unify, disputes are likely to occur more frequently. Asian and African countries, as emerging markets, are important suppliers of carbon credits and demanders of green technology.
As a regional dispute resolution center in the Asia-Pacific region, Hong Kong can rely on the Asian-African Legal Consultative Organization's Hong Kong Regional Arbitration Center to resolve conflicts. The Asian-African Legal Consultative Organization, rooted in the spirit of the 1956 Bandung Conference and supported by 49 Asian and African countries, possesses unique credibility among emerging market nations that play dual roles as suppliers of carbon credits and demanders of green technology.
The construction of a beautiful China is a mission that benefits both the present and future generations. By aligning with the national "3060" carbon peaking and carbon neutrality strategy and Hong Kong's goal of carbon neutrality by 2050, Hong Kong can assist in the national green transformation and the global carbon neutrality process, while also developing into a "super connector" for the country's green transformation and a global carbon trading center, validating the development wisdom that "Clean waters and green mountains are just as valuable as gold and silver."
The author is a lawyer and a Hong Kong deputy of the National People's Congress (NPC).
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