Enhanced government policies are essential for the prosperous growth of Hong Kong's carbon marketplace, according to the Chief Sustainability Officer at HKEX.

Hong Kong's Carbon Market: A Look at the Challenges and Opportunities

Hong Kong, a financial powerhouse and the largest offshore renminbi clearing center, finds itself at a crossroads in its efforts to combat climate change. The city's voluntary carbon market, while promising, has seen limited carbon transactions, with the lack of links with China's carbon market being a significant contributing factor.

Paul Chow, from Hong Kong Exchanges and Clearing Limited, emphasizes the importance of government policy in incentivizing environmental, social, and governance (ESG)-related initiatives. China, with its ambitious climate goals, provides a compelling example. The country has vowed to peak carbon emissions by 2030 and achieve net zero by 2060, as part of its current Nationally Determined Contributions (NDCs).

China's efforts extend beyond its mandatory carbon market, the National Emissions Trading System (ETS), which covers about 60% of the nation's emissions. The country also operates a voluntary carbon market, the China Certified Emission Reduction (CCER) scheme, launched in 2024. Moreover, renewables in China contributed close to half of total power generation by mid-2024.

In contrast, Hong Kong has pledged to halve emissions by 2035 and achieve net zero by 2050, but has not set interim or nearer-term climate goals. Experts, including Christine Loh and Ruth Shapiro, agree that stronger government policies are necessary to drive Hong Kong's sustainability agenda.

Loh suggests that clearer direction from the Hong Kong government would help stimulate the market and direct capital to sustainability initiatives. She also proposes setting nearer-term climate goals to help retrofit property with more energy-efficient features in Hong Kong.

HKEX has been advocating the importance of carbon credits to the government and informing listed companies on the topic. However, the Hong Kong government has not done enough to inform businesses on the potential uses of carbon credits, which leaves uncertainty and impedes the progress of the city's carbon credit market.

Singapore, unlike Hong Kong, has a carbon tax and a mandatory carbon market, which has encouraged more serious ESG initiatives. Singapore introduced its carbon tax primarily to finance other climate and environmental programs rather than solely for emission reduction goals, a strategy characterized as fiscal and environmental policy rather than pure climate policy. Hong Kong plans to implement a similar carbon tax law by 2026.

Loh believes that aligning Hong Kong's policies with China's ambitious plans could help the city become a gateway for international companies to access China. She also highlights that awareness of green financing in China remains relatively low, but many China-based businesses view Hong Kong as the first choice for sourcing professional services in sustainability.

In 2023, Hong Kong issued US$18.2 billion in green bonds, making it the fifth largest sustainable debt issuer globally. If Hong Kong can overcome the challenges in its carbon market, it could potentially reap significant benefits, both environmentally and economically.

However, the road to decarbonisation is not without its challenges. The potential superseding of expensive US chips by cheaper alternatives, as demonstrated by China's AI model DeepSeek R1, raises concerns about the global tech industry. Nonetheless, with the right policies and leadership, Hong Kong can position itself as a key player in the global fight against climate change.

Enhanced government policies are essential for the prosperous growth of Hong Kong's carbon marketplace, according to the Chief Sustainability Officer at HKEX.