Tag: Climate Change and Disaster Risk Management

Transition Finance is Critical to Address Climate Change

Transition finance provides financial services to high carbon-emitting industries. Photo: Ludvig Hedenborg

Transition finance, which provides financing to high carbon-emitting industries, should be part of a broad range of innovative financing options to address climate change.

Addressing climate change and taking action on its impacts and effects remain an urgent concern worldwide. There has been strong consensus that the financial sector should go beyond supporting purely green activities to effectively transform the existing carbon emitters. Realization of transition finance is crucial in the efforts to combat climate change.

Transition finance is a concept where financial services are provided to high carbon-emitting industries – such as coal-fired power generation, steel, cement, chemical, paper making, aviation and construction – to fund the transition to decarbonization.

The transition finance concept emerged from the understanding that effective decarbonization of the entire global economy will require much more than green finance. Green finance and sustainable finance – as they are currently defined – have focused largely on supporting activities that involve minimum pollution and carbon emissions. However, a much larger amount of financing is required in carbon-intensive sectors that need to decarbonize, and to eventually achieve net zero emissions.

The key challenge to transition finance is the lack of private sector financing for decarbonization activities due to various barriers, including: the lack of a clear definition of transition activities, which may lead to investor fears that their participation may be seen as “green washing,” or claiming to invest in an eco-friendly business that isn’t; lack of disclosure; which may encourage false transition activities; the lack of financial instruments that provide incentives better performance of emission reductions; and the lack of demonstration projects that show successful decarbonization is achievable in most of the high-emitting sectors.

To address these issues, and to effectively mobilize private investment in transition activities, a transition finance framework needs to be established. To make transition finance feasible, this policy framework should consider the following elements: identification of transition activities; disclosure and reporting; financing tools; incentives, and mitigating social impact.

First, there needs to be a credible approach to identifying and labeling transition activities. Any activity supporting a credible transition towards net-zero greenhouse gas emissions should be considered as transitional. One way to identify transition activities is to develop a “transition finance taxonomy” in which specific transition activities are presented with descriptions of technical pathways and emission reduction targets. This is being done in the European Union and some pilot regions in the People’s Republic of China, focusing on industries such as steel, cement, petrochemical, and agriculture industry.

The transition finance concept emerged from the understanding that effective decarbonization of the entire global economy will require much more than green finance.

The identification approaches should be flexible and dynamic, and serve to reduce the cost of market participants and mitigate risks.

Second, good reporting practices are also necessary to help prevent transition activities that convey a false impression or support an unsubstantiated claim on sustainability, where firms may claim to invest in emission reduction activities but are in fact involved in projects that lock-in high carbon emissions– a behavior often termed as greenwashing.

Third, a toolbox of financial instruments should be developed to support transition activities. This can include debt instruments such as transition and sustainability-linked loans and bonds. For example, if the fundraiser of a project can deliver stronger-than-expected emission reduction performance, investors will charge a lower interest rate. The toolbox can also include equity-related instruments, such as the transition funds launched in Europe. Additionally, existing instruments such as private equity, venture capital funds, buyout funds, and mezzanine financing facilities can also be adapted to facilitate transition activities. De-risking facilities should also be developed to help lower the perceived risks of transition.

Fourth, fiscal subsidies, tax incentives, and green finance-related incentives such as central bank financing facilities should be considered to support transition finance and enhance the bankability of transition projects.

Fifth, socioeconomic costs, such as unemployment, energy shortages, and inflation, need to be accounted for and disclosed during the design of transition activities. To mitigate these costs, assessing employment implications thoroughly and including mitigation measures in transition plans, such as employee training and reskilling programs, are crucial to realize “just transition.” Efforts are also encouraged to integrate such social elements (e.g., employment performance) in the key performance indicator design of sustainability-linked products.

Asia and the Pacific should take the following steps to promote transition finance:

First, regulators and financial institutions in the region should clarify the eligibility criteria for transition activities, which could be in the form of transition taxonomy, to lower the cost for banks and investors. This will guide companies to adopt the best technical pathways for transition.

Second, demonstration projects should be developed to highlight the feasibility of transition finance, which is new to most in the financial sector. Concrete examples are needed to counter the perception of high costs and risks. These could include transition project in coal-fired power generation, steel, cement, and petrochemicals.

Last, Asia and the Pacific should consider launching its own transition funds. Transition funds can be launched by either governments or international organizations, such as multilateral development banks and other international financial institutions, or through international collaboration among different countries to reduce the funding costs and risks for these transactions, and help attract private sector investment.

A broad range of activities, with innovative financing options, are needed to address climate change. Transition finance is an important part of that equation.

This blog post is based on information shared at East Asia Forum 2022.

Authors
Ma Jun

Ma Jun

President, Institute of Finance and Sustainability (based in Beijing)

Akiko Terada-Hagiwara

Akiko Terada-Hagiwara

Principal Economist, East Asia Department, ADB

This blog is reproduced from Asian Development Blog.

Developing a Climate-Friendly Cooling Sector through Market and Financing Innovation

An effective way to improve efficiency and save energy is to integrate solar photovoltaic energy, thermal storage, and cooling. Photo credit: ADB.

In the People’s Republic of China, advanced technology and innovative financing schemes make the city-scale deployment of green cooling solutions possible.

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Overview

As a substitute for ozone-depleting substances, hydrofluorocarbons (HFCs) are widely used as refrigerants for refrigeration and refrigeration systems. Although they are believed to have negligible impact on the ozone layer, HFCs have global warming potential several thousand times that of carbon dioxide (CO2) and are the fastest growing greenhouse gases (GHGs), increasing 10% every year.

Refrigeration and air conditioning systems also consume enormous amounts of fossil fuel-powered electricity. 

A warming planet and rising incomes are increasing the demand for cooling exponentially. However, many cities in the world lack advanced technical solutions and effective financing mechanisms to attract investment in highly efficient and climate-friendly refrigeration and/or cooling systems and services.

In the People’s Republic of China (PRC), a project supported by the Asian Development Bank (ADB) helped the city of Ningbo in Zhejiang province develop climate-friendly solutions and innovative business models and financing mechanisms to reduce GHG emissions and improve energy efficiency in the cooling sector. Solutions include an internet-based platform to enable the sharing of underutilized refrigeration and/or cooling resources.

Lessons and recommendations from the project can help other cities reduce their carbon footprint and build a climate-friendly, energy-efficient, and smart cooling sector.

This case study is adapted from the project’s completion report and other documents.

Project information

52249-003: Developing a Climate-Friendly Cooling Sector through Market and Financing Innovation in the People’s Republic of China

Project snapshot

      • Approval date: 7 December 2018
      • Closing date: 31 August 2021
      • Total project cost: $500,000
      • Executing agency: Ningbo Municipal Government
      • Implementing agency: Ningbo Municipal Government
      • Financing: Asian Development Bank

Context

The PRC is the world’s largest user of HFCs, and it recognizes the urgent need to reduce HFCs as part of climate mitigation measures. In 2016, the PRC adopted the Kigali Amendment to the Montreal Protocol, committing to reach peak consumption and production of HFCs by 2024 and an 80% reduction by 2045.

As one of the most important energy production and manufacturing bases in the PRC, Ningbo presents a unique opportunity to showcase advanced solutions and innovative financing mechanisms for city-scale sustainable cooling. 

Ningbo is a dynamic city of 7.6 million people with a developed industrial economy and high energy demand. It is located in the Yangtze River Delta on the east coast and has the largest shipping port in the country.

Challenges

Although the PRC has made many efforts to improve energy efficiency in the industrial, commercial, and residential sectors, the potential for energy savings and GHGs reductions in the refrigeration and/or cooling sector is far from being tapped.

Insufficient information on advanced cooling-related technologies and lack of accessible and affordable financing have also made customers prioritize less-efficient solutions in the refrigeration/cooling systems. 

A 2018 survey by the Ningbo Development and Reform Commission on the refrigeration and/or cooling systems in cold storage and/or refrigerated warehouses, food services, supermarkets, and hotels revealed that many refrigeration systems installed 20 to 30 years ago are still in operation. The energy efficiency of these legacy systems can be greatly improved.

The traditional way of doing small and isolated energy-saving projects, however, makes it difficult to attract investment in more efficient systems and services. 

Implementing a large-scale cooling initiative at the city level could create opportunities for energy efficiency improvements in all sectors related to cooling—from cold storage and refrigeration warehouses to food services, supermarkets, industrial production, and logistics transportation, and air conditioning in commercial, public, and residential buildings.

Solutions

The project in Ningbo assessed national policies on energy efficiency improvement and reduction of GHG emissions in the cooling sector, identified advanced refrigeration and/or cooling technologies and applications (e.g., using waste energy for cooling), developed viable business models and innovative financing mechanisms for the cooling initiative (i.e., sharing economy model, bulk procurement, “platform as a service” model ), and designed an “internet+ cooling” prototype for optimal resource utilization.

The project conducted customer surveys on cooling equipment, energy use, and the customers’ willingness to invest in energy efficiency and low-carbon measures. It created a database of viable retrofit projects to enable the city to aggregate these opportunities to achieve large-scale energy savings. It identified barriers in promoting green cooling, including hurdles to retrofitting inefficient cooling systems or adopting new technologies, which formed the basis for preparing policy recommendations.  It studied the feasibility of internet-enabled platforms to help achieve city-scale green cooling deployment through digitalization.  

The project prepared an internet+ cooling prototype implementation plan on how to design digital infrastructure, determine digital solutions, and establish new data-driven business models to support Ningbo in its transition to smart and climate-friendly cooling. It adopted the sharing economy concept for the cooling sector. For example, underutilized refrigerated spaces in cold storage and cold chain transportation equipment and vehicles may be shared by several facilities.

The internet+ concept and the sharing economy can provide several benefits, such as optimizing the utilization of resources, avoiding waste, saving energy, and reducing costs and emissions. 

Results

The project helped Ningbo create an integrated implementation model that scales climate-friendly cooling through financing and market innovation. This approach enables cities to simultaneously seize green cooling opportunities in multiple sectors, including industry, commercial, and the public sector. 

The Ningbo Development and Reform Commission has not only adopted the project’s climate-friendly and energy efficient cooling initiative but also prepared an investment proposal for ADB financing based on the findings of the project and submitted it to the National Development Reform Commission in October 2021. The PRC’s National Investment and Guaranty Corporation (I&G), the executive agency of the Air Quality Improvement in the Greater Beijing–Tianjin–Hebei Region—Green Financing Scale Up Project,  may also finance some cooling retrofit subprojects in Ningbo subject to further due diligence.

Lessons and Recommendations

The project focused on the key factors that were preventing adoption of cleaner cooling technologies. It assessed major policy gaps affecting refrigeration and cooling-related energy efficiency, identified advanced cooling technologies and applications, developed viable business models and innovative financing mechanisms, and designed an internet+ cooling prototype to promote optimal resource utilization.

Key recommendations based on the studies made by the project are the following:

  • Use economic incentives to enhance compliance with efficiency standards.  For example, Ningbo can establish an energy-saving credit system and a low-credit list for customers who use energy exceeding the per unit limit or use equipment that does not meet the new minimum energy efficiency standards. Customers on the low-credit list will be subject to a certain degree of financing and government procurement restrictions.
    Ningbo could adopt different policies for different types of projects. For projects that have good economic benefit, they can be promoted through commercialized methods, such as energy-savings performance contracts. For projects that have less obvious economic benefits but good social and climate benefits, the government could provide incentives and other resources. For high energy-consuming and less efficient equipment, a phaseout program should be developed.
  • Pay more attention to public institutions. Cooling energy use of public buildings, such as government agencies, schools, and hospitals in Ningbo accounts for more than 40% of total building energy consumption. Improving energy efficiency in cooling in the public sector can result in substantial energy savings and also set a model for energy conservation.
  • Establish a highly efficient cold chain logistics service sector. Set up a resource sharing platform to enable the dynamic flow of timely information between logistics companies, business customers, and ports; optimize the allocation of resources; and create a third-party cold chain storage and transportation service sector.
  • Promote the use of waste energy for cooling. As one of the country’s largest industrial bases, Ningbo has a huge amount of waste heat resources from industrial production. Fully utilizing the cold energy released by gasification of liquified natural gas alone can save about 290 gigawatt hours of electricity consumption (equivalent to 82,000 tons of standard coal) per year and reduce annual carbon dioxide emissions by 152,000 tons.
  • Support the integration of solar energy, thermal storage, and cooling. The PRC’s Installing Photovoltaic (PV) on the Roof of Whole Counties (i.e., cities, districts) initiative, which calls for the rapid deployment of distributed PVs, brings policy opportunities for Ningbo to actively seek the integration of PV, thermal storage, and cooling to achieve more economic and energy-saving benefits.
  • Innovate financing to enable city-scale deployment. Create a public–multilateral development bank–private partnership (PMPP) type of co-financing that uses multilateral development bank concessional loans and government fiscal funds as leverage to attract private/commercial capital. Ningbo can design two targeted financing schemes: green cooling revolving loans that mix higher commercial loan interest rates with lower concessional loan interest rates to reduce borrowing costs for small and medium-sized enterprises and a commercialization-driven type of financing that strengthens the integration of technology and finance.
    Ningbo can also promote performance-based loans and adopt de-risking mechanisms, such as on-bill financing, loan guarantees, and energy-savings insurance. Explore the combined use of these tools to reduce the shortcomings of relying on a single method.
    City-scale deployment requires seamless integration/aggregation of a large number of individual projects. Ningbo can create a special purpose vehicle (SPV)-type of company that will be responsible for all the work related to the deployment. This helps achieve the project scale that investors seek and standardizes the implementation to reduce transaction costs.
  • Build a digital platform-as-a-service model. Adopt digital and internet of things technologies to enhance retrofit services, financing, and sharing of resources. A digital platform could connect isolated information nodes and improve the flow and management of information among market participants. This could potentially create more market facilitation opportunities.
  • Strengthen the capacity building for green cooling.  Promote a better understanding of energy-efficient cooling technology and its long-term benefits among customers and build their capacity for increasing efficiency through operational improvements. Improve the technical capacity of financial institutions to support green cooling technology.
References

Asian Development Bank (ADB). Developing a Climate-Friendly Cooling Sector through Market and Financing Innovation in the People’s Republic of China.

ADB. 2022. Technical Assistance Completion Report: Developing a Climate-Friendly Cooling Sector through Market and Financing Innovation in the People’s Republic of China. Manila.

ADB. 2021. People’s Republic of China: Developing a Climate-Friendly Cooling Sector through Market and Financing Innovation. Consultant’s Report. Manila.

ADB. 2018. Technical Assistance to the People’s Republic of China for Developing a Climate-Friendly Cooling Sector through Market and Financing Innovation. Manila.

United Nations Environment Programme. 2016. The Kigali Amendment to the Montreal Protocol: Another Global Commitment to Stop Climate Change. Nairobi.

Author
Yun Zhou

Yun Zhou

Senior Environment Specialist, East Asia Department, ADB

This blog is reproduced from Development Asia.

Your Questions Answered: How Do We Achieve Decarbonization?

Bus rapid transit systems are an example of transportation options that help lower greenhouse gas emissions. Photo: ADB

Jonathan Walters, an economist and senior advisor for the infrastructure consulting firm Castalia and Akiko Terada-Hagiwara, an ADB Principal Economist, answer questions on how to work through the issues towards decarbonization in Asia and the Pacific.

Countries around the world are working to produce energy with low levels of greenhouse gas emissions but they face formidable obstacles.

Decarbonization is the process of transitioning an economy to energy sources that produce low levels of greenhouse gas emissions, and reduce the impact of climate change.

It is important because, in addition to the well-being of the planet and its inhabitants, a country’s competitiveness often depends on making the transition to the use of low-carbon technology. This is because decarbonization is increasingly driven by economics, and not only by environmental concerns. Low-carbon technologies overall, with some exceptions such as nuclear fusion, wave power, and green hydrogen among others, have been getting cheaper relative to other technologies.

This has profound implications for a country’s economic strategy and policies, and the countries that adapt the best will likely outcompete the others in the global marketplace and create more jobs.

This stands in sharp contrast to an earlier period when economic competitiveness and mitigating climate change were often in opposition to each other, and trade-offs frequently had to be made between those two objectives. Nowadays, pursuing climate change mitigation and pursuing competitiveness often both lead in the same direction.

The transition to decarbonization is often slowed by institutional inertia, weak regulation, uncertainties in planning, risk-aversion, lack of up-to-date knowledge about the economics of different technologies, carbon-intensive technologies locked in by long-term contracts, and monopoly power providing protection from competitive market forces.

Decarbonization strategies need to factor in how technologies work together. While some of the technologies are disruptively cheap, others are not. For example, variable renewable energies such as wind and solar are now cheap, while energy storage technologies which can cover the whole period in which the wind is not blowing or the sun not shining are still on the way down their cost curves.

Electrochemical battery storage is now cheap enough for a few hours of storage, but not for the whole time that variable renewables are not generating electricity.  For that, medium- to long-duration, storage technologies need to get cheaper. Examples of such technologies are green hydrogen, molten salts thermal storage, compressed air storage, pumped hydropower storage and other gravity-based storage.

Investment planning decisions therefore have to take into account the complexities and costs of the different technologies in use.

Countries can decarbonize more quickly by participating in international climate agreements, recognizing the differing responses of various sectors of the economy during the decarbonization process and by accessing low-cost financing.

International agreements about climate change, which require national commitments to decarbonization, can help. In some instances, it is the commitment to mutual international interest that can push forward the pursuit of national action in the face of what would otherwise be domestic obstacles.

Governments need to manage the politics of aligning national interest with international mutual interest, which can be complicated.

Countries’ decarbonization plans also need to reflect considerable difference between sectors of the economy. Just as technology costs decline at different speeds in the decarbonization process, the decarbonization potential also differs significantly across sectors. Energy decarbonization is now more advanced than transport decarbonization, for example, and transport more advanced than agriculture.

These also need to reflect the growing phenomenon of “sector coupling” when decarbonization progress in one sector depends on progress in another sector. For example, electric vehicles are more decarbonizing the more that the generation of electricity to fuel them is decarbonized. Similarly, growth in electricity demand from electric vehicles can create economies of scale in the generation of decarbonized electricity, thereby expanding that generation faster. Those two tendencies are obviously mutually reinforcing and appropriate policies can help to accelerate that process.

Countries need to have access to low-cost climate finance (such as the Green Climate Fund and Climate Investment Funds), and need well-coordinated strategies to maximize such financing for the highest priority uses. Such financing can be used to address the viability of those low-carbon technologies that are not yet the cheapest, or which face particular risks (sometimes as the first project in that technology in a given country), or face particular institutional obstacles.

Lower-cost “concessional” financing reduces the costs of decarbonizing technologies, and therefore can influence the choice between more- and less-carbon-intensive technologies in favor of the decarbonizing ones. 

Technologies are described as “disruptive” when they change the landscape of the industry or sector where they exist. This can in part be related to when their cost passes below a price point (the “tipping point”), which makes them spread very fast. Solar photovoltaics and cellphones are great examples of these.

Tipping points are central to the decarbonization processes, as they occur increasingly in technologies in the energy and transport sectors, which are together responsible for a very large proportion of greenhouse gas emissions. Predicting when tipping points might be reached is important to making the long-term investment and planning decisions that most infrastructure needs, but such predictions are inherently difficult to make.

Having maximum knowledge and awareness of technological development and changing economics therefore becomes vital.

In general, the private sector, with international experience, is better at this than the public sector. For the simple reason that technology disruption happens sooner in some countries than in others, and the private sector is much more likely to have experience in a range of countries than the public sector is (with the exception of public sector companies with extensive international experience—a relatively rare phenomenon).

Overall, countries need multifaceted strategies for decarbonization, and above all need to see the economic opportunities in decarbonization, while mitigating the costs. They also need to be aware of the increasingly complex global environment in which decarbonization strategies are being formulated. Countries’ future development prospects are very much at stake.

This blog post is based on information shared at East Asia Forum 2022.

Author
Jonathan Walters

Jonathan Walters

Senior Advisor, Castalia

Akiko Terada-Hagiwara

Akiko Terada-Hagiwara

Principal Economist, East Asia Department, ADB

This blog is reproduced from Asian Development Blog.

Using Green Development Interventions to Address Climate Change

The Huangshan Municipality in the PRC implements measures to mitigate the risks of climate change. Photo credit: Mingyuan Fan.

A comprehensive assessment of climate impacts helped tailor appropriate and impactful interventions in Huangshan city.

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Overview

An Asian Development Bank-funded project is helping the Huangshan municipality in the PRC tackle climate change impacts through ecological protection and green development measures, such as monitoring forest health, constructing wetlands, improving wastewater treatments, and promoting green agricultural practices.

The project uses climate risk modelling techniques to assess local conditions, thoroughly evaluates climate-related risks, and incorporates them into the project’s engineering design and technical road map. This localization of approaches is expected to activate appropriate and impactful measures that will engage stakeholders and make the project more effective and productive.

Project information

52026-001: Anhui Huangshan Xin’an River Ecological Protection and Green Development Project

Project snapshot

      • Approval date: 11 December 2019
      • Closing date: 30 December 2026
      • Total project cost: $214.38 million
      • Executing agency: Huangshan Municipal Government
      • Financing: Asian Development Bank, KfW Bankengruppe, Huangshan Municipal Government

Context

The PRC, a key emitter of greenhouse gas (GHG), is a signatory to the 2015 Paris Agreement on climate change, under the United Nations Framework Convention on Climate Change. In 2010, the PRC set to reduce carbon dioxide (CO2) emissions by 40%–45% by 2020 compared to 2005 levels. This was achieved but GHG emissions are projected to increase until at least 2030 under current policies. In 2020, the country announced it would become carbon neutral by 2060. To attain this goal, it needs to tackle the threat of climate change and create low-carbon cities with sustainable and competitive economies.

Low-carbon development has become a key component of the country’s approach to sustainable development. In 2017, Huangshan was designated as a pilot city for low carbon policy by the PRC government to actively address climate risks and explore low-carbon and green development paths tailored to the local situation.

The Huangshan municipal government sought to integrate climate change risk control measures in its tourism industry—a pillar of the local economy—in line with the aim to peak carbon emissions by 2030 and then decrease them.

Challenges

Huangshan has a subtropical, humid monsoonal climate with a rising annual mean temperature and increased rainfall that is becoming less evenly distributed in a year. The highest-level climate-related risks identified were in the areas of urban flooding and extreme heat. The municipality faces the risk of water scarcity, wildfires, cyclones, and landslides. 

More consideration needs to be given to water conservation for Huangshan to become resilient to increased drought hazards and prevent long-term water scarcity. Extreme weather phenomena, such as flooding, drought, or high temperatures, can also reduce labor productivity and damage production chains, slowing local economic growth. Other impacts include a reduction in both agricultural yields and availability of freshwater, associated public health consequences for the local population, and damage to species like the Huangshan pine tree. Climate change could also play a part in changes to the geographical distribution of species. For example, there are signs that warmer weather might lead to nematodes moving northwards (these worms naturally occur in soil and control soil insect pests). This would cause the spread of the pine wilt disease, resulting in death of more of Huangshan’s pine forests.

Solutions

The Anhui Huangshan Xin’an River Ecological Protection and Green Development Project is implementing an ecological protection and green development model designed for small and medium-sized cities or development areas. Through climate risk modelling, the project design considered Huangshan’s historical climate data, climate change trends and risks, and projected impacts. Risks were integrated into the engineering process, and a technical road map for the project was developed to mainstream the strategy and recommendations for tackling climate change impacts. Suitable mitigation and adaptation activities were identified by evaluating climate vulnerability and the costs of each option. These measures are elaborated on in the ongoing detailed design and construction stages of the project (Figure 1).

Figure 1: Climate Change Adaptation and Mitigation Measures under the Project

CO2 = carbon dioxide, GHG = greenhouse gas.
Source: Cities Development Initiative for Asia. 2020. Climate Change Adaptation and Mitigation: Risk Management through Integrated Project Design. Manila.

Mitigation activities are at the forefront of project design and promote efforts to reduce, avoid, or sequester GHG emissions. These are aimed at decoupling development from fossil fuel–based consumption and creating a city with high green coverage, large water surface, and a comfortable living environment. 

Some key climate mitigation measures included in the Huangshan project are:

In January 2019, Huangshan was declared an epidemic region for Bursaphelenchus xylophilus, the parasite that causes the deadly pine wilt disease, which is fatal for trees within 40 days of infection. The local practice is to burn infected dead pine trees to control the spread of pests and disease, which consequently increases CO2 into the atmosphere. The Huangshan project includes strengthened monitoring and disease prevention measures, which should effectively control the disease.

According to the Intergovernmental Panel on Climate Change 2007 report on Methane Emission from Wetlands, natural wetlands contribute between 20% and 39% of the global emissions of methane. So instead, wetlands will be created with greener features. Two plots of land along the Xin’an River in She County—one with an area of 6,000 square meters (m2) and another with 4,000 m2—will be developed as constructed wetlands under the Huangshan project. 

The project includes the use of both aerobic and anaerobic wastewater treatment systems.   Aerobic wastewater treatment systems generate CO2 as a by-product while anaerobic systems produce a mixture of methane and CO2. Under the sewerage improvement component of the project, 27,662 cubic meters per day of urban wastewater will be collected and transported to treatment plants, while 2,339 cubic meters per day of rural wastewater will be collected and treated in rural wastewater treatment stations.

Nitrogen fertilizer is currently applied in tea farms at a rate of 277 kilogram of nitrogen per hectare (ha) per year, with only 20% efficiency, and a substantial proportion of the fertilizers is eventually emitted into the ambient air in the form of nitrous oxide. To address this, the project promoted green agricultural practices that use a recommended formula of fertilizers according to soil testing and soil amelioration that will lessen emissions.

Expected Results

When the project is completed in 2026, its climate mitigation and other green initiatives will improve environmental conditions upstream and reduce, avoid, or sequester GHG emissions.

Better forest health 

Strengthened forest monitoring and disease prevention measures would reduce pine tree infection in the Huangshan area by 80%, which will then reduce the release of CO2 into the atmosphere. This could save an estimated 18,428 pine trees annually. In 2018, 80% of the trees that died. The carbon sequestered would amount to 18,557 tons of CO2. The pine forest disease prevention program is expected to provide carbon sequestration of close to 0.5 million tons of CO2 over 25 years.

Improved wetlands with green features

The variation in the quantity of the GHG release is largely due to differences in the nature of the emitting vegetation, including soil microbiota, which interfere with the production and consumption of methane. Thus, the wetlands to be constructed under the Huangshan project along the Xin’an River in She County will have greener features that are set to improve anaerobic conditions and reduce the release of methane.

Improved wastewater quality

Through improved water systems, total daily GHG emissions are predicted to fall by 5,026.5 tons of CO2 equivalent.

Improved agricultural practices and productivity

Environment-friendly practices in green tea farming are expected to improve the productivity of croplands, reduce nonpoint source pollution, and increase biodiversity and carbon sequestration. In addition, the 10% reduction in chemical fertilizer usage in around 4,500 ha of tea farms would reduce GHG emissions by 23,333 tons CO2equivalent per year.

References

Asian Development Bank (ADB). 2021. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of China for the Anhui Huangshan Xin’an River Ecological Protection and Green Development Project . Manila.

S. Fraser et al. 2017. Methodology Report: Updated for Think Hazard! Version 2. World Bank Global Facility for Disaster Reduction and Recovery: Washington, DC.

H. J. Laanbroek. 2010. Methane Emission from Natural Wetlands: Interplay between Emergent Macrophytes and Soil Microbial Processes. A Mini-Review. Annals of Botany. 105 (1). pp.141–153.

Author
Mingyuan Fan

Mingyuan Fan

Principal Water Resources Specialist, East Asia Department, ADB

This blog is reproduced from Development Asia.

Protecting the Yellow River Basin in the PRC

Water resources throughout the PRC are affected by the management of the country’s river basins.

With the right policies, the Yellow River can help the PRC achieve its goals for ecological sustainability and economic growth.

As the second largest river system in the PRC, the Yellow River transports more than 1.5 billion tons of sediment per year from its headwaters on the Tibetan Plateau to its estuaries on the Yellow Sea. The dynamics between water, land, soil and climate make it a unique, ecologically diverse, and fragile basin.

One of the most pressing environmental and socio-economic challenges surrounding the river is water scarcity. Today, the basin accounts for only 2% of the country’s total water but 26.5% of the national gross domestic product (GDP). Feeding a population of 420 million, it is vital for socio-economic development. People in the river basin depend directly on these water resources as a basis for their livelihoods, including for food production, hydropower, industry, and domestic supply.

In recent years, the river’s flow has greatly diminished, affecting the lives of millions. Land use changes have significantly contributed to ecological deterioration and ecosystem alteration. It is estimated that human activities, such as destruction of natural vegetation, have augmented natural soil erosion by about 40% in the basin.

Water-related disasters are another major issue in the basin. The July 2021 floods in Henan province – which sits in the middle course of the Yellow River – were triggered by a record-breaking rainfall over 24 hours, almost the equivalent of the annual average. Temperature in the basin increased faster than the global average. Climate models indicated that extreme events such as droughts and severe floods could become more frequent in certain areas of this region, with the probability of increasing in the future. Exacerbated by climate change, extreme weather events may threaten agriculture and animal husbandry, putting at risk both rural and urban livelihoods.

The lack of basin-wide planning is a key barrier to protecting the river’s environment. Addressing the challenges in the Yellow River basin requires a planning and management approach that spans the whole ecosystem. The basin should be treated as an ecological corridor: a clearly defined geographical space that is managed over the long-term to maintain or restore the ecosystem.

As part of this, nature-related aspects need to be an integral component of financial planning and fiscal policy reforms. Such investments must address nature’s complexity and maintain and restore biodiversity.

The Yellow River basin is a natural treasure to be preserved, a home to millions of people, and the foundation for economic progress.

River basins, such as the Yellow River, can help achieve the country’s targets for ecological sustainability and economic growth. Healthy ecological corridors improve biodiversity while enhancing food security, climate resilience, and disease resistance. There are four policy actions that are critical to achieving this.

First, ensuring that nature-based solutions (such as using constructed wetlands for wastewater treatment or ecological embankments to mitigate flood risks) are built into policies, planning and financial mechanisms. These measures can improve natural capital protection, restore fragile ecosystems, and foster sustainable agriculture, simultaneously building resilient and equitable rural economies for the most vulnerable communities.

Second, applying the gross ecosystem product (GEP), an accounting mechanism developed in the People’s Republic of China for valuing and pricing ecosystem goods and services, can improve ecological and spatial planning and inform decision-making.

Click here to see what's GEP.

Third, using governance and financing as incentive mechanisms, including eco-compensation and water funds, can expand natural capital investments by generating ecological benefits and economies of scale.

Fourth, integrating environment, social, and governance criteria into lending and investment decisions can increase private sector participation and private capital injections into projects to protect natural resources. Based on these criteria, investors can observe and evaluate the performance of enterprises based not only on their financial performance but also on their contribution in promoting sustainable development and fulfilling social responsibility.

The Yellow River basin is a natural treasure to be preserved, a home to millions of people, and the foundation for economic progress. Conceived as a single watershed, it can offer ecosystem services to people and nature and generate multiple benefits. Even though physical boundaries and human engineering have split the river into an upper, middle and a lower course, it is important to protect the entire basin as a single ecological unit from source to sea. Effective strategies for adaptation to climate change are essential for the sustainable development of water resources in the Yellow River.

Author
Silvia Cardascia

Silvia Cardascia

Water Resources Specialist, East Asia Department, ADB

This blog is reproduced from Asian Development Blog.

Paving the Way for Urban Mobility Transformation in Xiangtan

Scaling Natural Capital Investments in the Yellow River Ecological Corridor

How ADB Plans to Help the PRC Tackle Flood Risks

RKSI attended an inception TA workshop recently to see how ADB plans to help the PRC mitigate water disaster threats.

Asia’s Eating Habits are Changing and the Environmental Impact Could be Huge

These charts illustrate the environmental impact of agriculture in Asia and the need to move toward sustainable and healthy diets that are also environmentally friendly and affordable.

The critical role of agriculture to Asia and the Pacific’s development can hardly be overstated. In the 1960s, food supply was a severe problem with most economies in the region struggling to feed their growing population. Many economies depended on food aid, while shortages and speculation prompted food crises in a few others.

The adoption of green revolution technologies in the 1960s increased agriculture productivity and not only allowed the region to meet increasing food demand, but also release labor to contribute towards vibrant manufacturing and services sectors.

In 2018, daily calorie intake per capita in the region, which is now home to more than half of the world’s population, had increased from 1245 kilo calories (kcal) in 1961 to 1914 kcal. Despite this progress, different forms of undernourishment such as stunting and wasting of children persists, even as obesity is rising in many parts of the region.

Today agriculture in the region faces a different kind of food supply challenge. Higher incomes and increasingly urban lifestyles have changed the needs and preferences of consumers. Instead of a diet heavy on traditional staples such as rice and wheat, consumers today prefer a more diverse diet. Per capita consumption of rice has leveled off; while that of fruit, vegetables, eggs, dairy products, as well as meat and seafood is increasing.

Although the consumption of cereals in developing countries in Asia increased between 1961 and 2018, its overall share in the diet decreased. The share for meat and animal products increased from 1% to 4%. This represents a more than six-fold increase in protein intake from animal meat from 1.5 grams to 10 grams per person per day. Still, this is well below the 34.6 grams average in advanced economies outside of the region.

In the PRC daily calorie intake more than doubled between 1961 to 2018, reaching 3205 kcal in 2018. Cereals only make up 46% of the diet, while the share of meat and animal products increased from a mere 3% in 1961 to 21% in 2018. This represents a 20-fold increase in per capita intake from 1.1 grams in 1961 to 19.7 grams in 2018.

To meet these changing food preferences, agriculture in the region will have to reorient from a traditional focus on the production of food staples to high-value crops such as fruit and vegetables, as well as livestock and aquaculture. This will mean a more resource-intensive production as well as rising greenhouse gases. As figure 3 shows, animal-based products have a much larger resource footprint, especially with regard to greenhouse gas emissions and water use.

To reduce the environmental impact of agriculture, it is important to move toward sustainable and healthy diets that are also socially acceptable and economically accessible for all. Some ways to achieve this are to promote mostly plant-based diets, reduce red meat consumption, promote fish obtained from sustainable stocks, and reduce food loss and waste throughout the supply chain.

This blog post is based on data from the recently published Asian Development Outlook Update 2021 Theme Chapter, Transforming Agriculture in Asia.

Author
Manisha Pradhananga

Manisha Pradhananga

Economist, Economic Research and Regional Cooperation Department, ADB

Daryll Naval

Daryll Naval

Research Associate, Economic Research and Regional Cooperation Department, ADB

This blog is reproduced from Asian Development Blog.

How to Meet Climate Targets with Carbon Capture and Storage

The Asia and Pacific region is responsible for about half of global carbon emissions. Photo credit: ADB.

With the PRC and Indonesia as centers of excellence, a regional program demonstrates how the technology can reduce carbon intensity.

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Overview

The PRC and Indonesia produce copious amounts of carbon dioxide (CO2), mainly because their power generation systems are hugely dependent on fossil fuels. The two countries’ carbon emissions are among the highest in the world, and both are keen on becoming carbon neutral as part of their commitments to the Paris Agreement.

Since the turn of the millennium, the PRC and Indonesia have been exploring ways to decarbonize their economies. But much still needs to be done in terms of coordinating oversight for research and development and scaling up deployment of CO2 capture and storage (CCS) technologies.

In 2019, ADB completed a technical assistance to support the PRC and Indonesia in improving their capacity for CCS research and development. Financed by the ADB-administered Carbon Capture and Storage Fund under the Clean Energy Financing Partnership Facility, the CCS program’s objective is to create a stronger strategic architecture and more coordinated research and development for accelerating and scaling up CCS development and deployment, as well as dissemination of best practices on CCS in Asia. The project under review initially concentrated on PRC and Indonesia and later on expanded its activities to Bangladesh, India, Mongolia, and Viet Nam.

Project information

48282-001: Promoting Carbon Capture and Storage in the People’s Republic of China and Indonesia

Project snapshot

      • Approval date: August 2014
      • Closing date: August 2019
      • Total project cost: $3.3 million. Total financing from the Carbon Capture and Storage Fund under ADB’s Clean Energy Financing Partnership Facility
      • Executing agency: Asian Development Bank
      • Financing: 
        • Global Carbon Capture
        • Storage Institute, United Kingdom

Challenges

The PRC is among the world’s largest consumers of coal, accounting for over half of global consumption. Its power generation sector uses more than half of that coal to provide about 80% of the country’s electricity and emits over 4 gigatons of CO2 (GtCO2) per year, 95% from coal-fired power generation. Continued economic growth is projected to drive energy consumption surges for the next several decades. With primary energy coming from coal and the expectation that this reliance on coal will persist for decades to come, PRC will likely continue as one of the world’s largest CO2 emitters for some time. Therefore, wide deployment of CCS in PRC over the long term will be necessary to significantly reduce national emissions. The PRC has announced it would become carbon neutral by 2060 at the United Nations General Assembly in September 2020.

Similarly, Indonesia has a heavily fossil fuels-based economy, consuming coal, oil, and gas produced domestically plus imported petroleum. As the world’s largest coal exporter and a substantial liquefied natural gas exporter, the country is confronted by increasing CO2 emissions from growing domestic consumption of indigenous coal and fossil fuels. It has significant requirements for the deployment of large-scale, low-carbon technology in the long term. Moreover, the government has been increasingly vocal about climate change and its impacts on the developing world.

Both the PRC and Indonesia have been considering the creation of legal and regulatory frameworks for advancing CCS.

Context

The Asia and Pacific region is responsible for about half of global CO2 emissions. Primary energy demand in the region is expected to increase by about 24% by 2030. Despite the rapid increase in renewable energy supply, trends suggest that this increase in demand will still translate into increased consumption of fossil fuels and CO2 emissions in the region. The PRC and India accounted for 27% and 7% of the global CO2 emissions in 2017.

While experiencing rapid growth and development, Asia and Pacific remains one of the most vulnerable regions to climate change. It faces the risk of losing its development gains to climate change impacts if mitigation and adaptation actions are not put in place.

CCS is identified as one of the technologies and practices that can help meet climate targets. The International Energy Agency’s Carbon Capture and Storage Roadmap highlighted the significant role that CCS will need to play in achieving an atmospheric CO2 concentration stabilization of 450 ppm (parts per million) by 2050. CCS will provide about 14% of the total CO2 emissions reductions out to 2050. Achieving this contribution of emissions reductions will require an ambitious CCS growth-path, with 100 projects needed globally by 2020 and over 3,000 by 2050. In both 2020 and 2050, major developing countries, including Indonesia and the PRC, will need to contribute to CCS deployment.

Solutions

ADB’s technical assistance, approved in 2014, initiated a support program for CCS research and development (R&D) with the institutes in PRC and Indonesia serving as centers of excellence.

The CCS program was administered by ADB to assist in the establishment of the research centers in the PRC and in Indonesia. They are expected to act as local knowledge hubs in this emerging technology. The CCS centers are to implement R&D programs on CCS technologies in the region and organize activities to develop the capacity to enable widespread deployment in both countries and in the region.

Other program activities included conferences, workshops, dialogues, study visits, and other initiatives to foster regional cooperation, establish new partnerships with other institutes in and outside the region, and strengthen leadership in CCS-related capacity development.

Results

The CSS program established three research centers to improve R&D activity on CCS in Guangdong and Shanghai in the PRC and Bandung as well as Jakarta in Indonesia.

Under the CCS program, the activities of these research centers help the host countries adopt CCS technology, create necessary regulations, and obtain financial access for developing projects. They are also expected to foster regional cooperation on these aspects and build capacity in the PRC and Indonesia.

The program also started exploring CCS as a tool to reduce greenhouse gas emission for hard-to-decarbonize industries in the steel, cement, and petrochemical sectors. It produced a background study to help prepare industries for decarbonization by utilizing and not just storing captured carbon. The paper also investigates the financing requirements and mechanisms, as well as policy drivers and recommendations, to advance readiness to shift to a low-carbon era.

The CCS program bridged the gap between policy, technology, and finance mechanisms, and supported the development of demonstration of CCS projects in Indonesia. It expanded activities beyond the PRC and Indonesia and explored possibilities of implementing carbon capture, utilization, and storage in Bangladesh, India, Mongolia, and Viet Nam, creating an opportunity for further engaging these countries.

Lessons

The CSS program offers the following lessons:

Local knowledge and capacity building are important.

Support to research centers should include capacity building to ensure that they are well-equipped to successfully carry out studies and demonstration projects that will pave the way for the deployment of large-scale technologies. More experts are needed to enhance local capacities in developing and implementing demonstration projects, especially in countries that have indicated continued high dependence on fossil fuels to sustain their economic growth.

Ensure government and other stakeholders’ participation. 

Government involvement was found to be critical for the sustainable operation of the research centers, especially in the implementation of large-scale demonstration projects. Future programs supporting these centers should involve government and important stakeholders in their operation right from the start. Coordination with national and local governments, in addition to financial, technical, and administrative requirements, is critical in demonstrating large-scale projects.

Partnerships can be beneficial. 

Partnership with organizations from various disciplines have enhanced information and knowledge sharing, which is important in advancing R&D and deployment of technologies.

References

Asian Development Bank (ADB). Regional: Promoting Carbon Capture and Storage in the People’s Republic of China and Indonesia

ADB. 2019. Background Study on CCUS Readiness in Power, Iron and Steel, Cement and Petroleum Sectors. Manila.

Author
Kee-Yung Nam

Kee-Yung Nam

Principal Energy Economist, Sustainable Development and Climate Change Department, ADB

This blog is reproduced from Development Asia.

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