In September 2014, the Global Commission on the Economy and Climate published a landmark report claiming that climate mitigation and economic growth could be achieved together to create a “win-win” outcome. This conclusion inspired countries worldwide to navigate interconnected challenges—climate, economic, political, energy, and environmental—strengthening their confidence in a sustainable, resilient future. This “win-win” vision aligns with the direction that Energy Foundation China (EF China) has pursued for over a decade. From early support for market-driven carbon reduction strategies to current efforts focused on a systematic low-carbon transition under China's “dual-carbon” goals, EF China and its partners are dedicated to crafting a new growth story that synergizes emission reduction with sustainable development for the world, grounded in continuous reflection and exploration.

Driving Carbon Emission Reductions through Market Mechanisms

Since the start of economic reforms, China has experienced sustained, rapid growth, yet rising environmental pollution has become an increasingly pressing issue. In 1979, China introduced a pollution fee system to regulate corporate carbon emissions. While this economic measure marked an early step toward pollution control, a lack of rigid enforcement limited its effectiveness over time.

Internationally, in the late 20th century, many countries began adopting environmental taxation systems to internalize the social costs of pollution into production costs and market prices, aligning with the “polluter pays” principle. These taxes make pollution financially burdensome, incentivizing companies to adopt cleaner practices and fostering market competition toward sustainability. Given the urgent need for environmental protection, the transition of environmental “fee-to-tax” became a priority on the agenda.

In 2007, EF China and its partners spearheaded discussions and research on environmental tax legislation, with a particular focus on “carbon tax” frameworks. This effort resulted in the first comprehensive carbon tax proposal in China, sparking initial cross-sector discussions on “carbon pricing.” Subsequently, EF China continued to conduct extensive studies on critical topics such as environmental taxes, the impacts and challenges of pollution treatment reform, and macro-level green tax reform – providing technical support for developing effective environmental taxation mechanisms. In addition, given that environmental tax legislation involves multiple issues – taxation, finance, and the environment – EF China worked with its partners to facilitate dialogue among experts and policymakers from various fields, building a solid foundation for cross-sector cooperation.

After nearly a decade of ongoing discussion among government, think tanks, industry leaders, and other stakeholders, China enacted its first “green tax law” — the Environmental Protection Tax Law — at the end of 2016. This groundbreaking legislation transferred responsibility for pollution charges from environmental authorities to the tax department, replacing pollution discharge fees with environmental taxes on four types of pollutants: air and water pollutants, solid waste, and noise. Its implementation markedly accelerated pollution control efforts and strengthened sustainable development across industries.

As EF China continued to conduct research on environmental taxation frameworks, the concept of a “carbon market” gained traction internationally. A carbon market allows the trading of emission rights within a capped system, turning greenhouse gases like CO2 into limited, tradable resources. Successful models in the United States and Europe demonstrate that carbon markets not only encourage voluntary emission reductions by companies but also lower overall societal costs of emission reduction, facilitating the transition to cleaner energy sources. Recognizing these benefits, EF China and its partners began promoting the development of a carbon market in China in 2011, drawing extensively on international best practices. To support China in building a domestic carbon market, EF China invited officials from key departments and local governments to the United States and Canada for discussions on carbon market mechanisms. These exchanges were instrumental in building confidence among policymakers to advance domestic initiatives. EF China also supported the organization of multiple international seminars, inviting experienced practitioners from abroad to share their practical insights on carbon market development, expanding the focus of domestic dialogue from conceptual ideas to technical and operational details.

With a deeper understanding of the carbon market, on October 29, 2011, the National Development and Reform Commission (NDRC) issued the Notice on Carrying out the Pilot Scheme of Carbon Emissions Trading, designating Beijing, Tianjin, Shanghai, Chongqing, Hubei Province, Guangdong Province, and Shenzhen for carbon trading pilots. Since then, EF China and its research partners have actively supported studies on carbon trading management in key pilot areas – Beijing, Shanghai, Guangdong, and Tianjin – providing analytical and technical support for the development of carbon accounting and reporting standards, carbon allowance auction mechanisms, and market management frameworks.

The pilot experience and research analysis culminated in the official launch of China’s national carbon market in 2017. With the market established, focus shifted to implementing the overarching program and supporting measures. In 2018, EF China and its partners introduced the “Carbon Pricing Policy Roundtable,” a dialogue platform involving government officials and experts to facilitate multi-sector exchanges and build consensus. EF China also conducted systematic research on the top-level design of the carbon market, with analysis on cap setting, allowance allocation, and implementation paths, which was well-received by policymakers. Drawing on lessons from the EU, North America, and California, EF China supported research into the synergies between carbon trading and economic growth, which reinforced confidence in the co-development of the economy and carbon market. Moreover, EF China and its research team continued to address key issues, including carbon market entry standards for high-emission industries like power and steel, carbon quota allocation, and market liquidity improvement through carbon finance. These studies provided a scientific and technical foundation for the power sector’s entry into the carbon market in 2021 and established an analytical basis for future market expansions.

Exploring New Growth Paths that Synergize Emission Reduction and Sustainable Economic Development

Entering the second decade of the 21st century, an increasing number of countries are recognizing that reducing carbon emission can drive sustainable development, positioning it as a key driver in the global transition toward carbon neutrality.

EF China and its partners have worked together since 2017 to understand the synergies between emission reduction and economic growth, convening leading economists and climate experts worldwide to explore the integration of climate and economic objectives and pathways. Experts from both fields reached a consensus that “addressing climate change can drive sustainable growth, which, in turn, can accelerate emission reduction.” Their analyses and policy recommendations covered critical areas, such as incorporating climate targets into socioeconomic development plans and expanding infrastructure investment and financing for green, low-carbon transition. These insights have been shared with Chinese policymakers, providing a diverse array of references and solutions to shape a sustainable, carbon-neutral new growth model.

In 2020, China announced its “dual-carbon” goals (to peak CO2 emissions by 2030 and achieve carbon neutrality by 2060), emphasizing the integration of climate action and social development as a core principle guiding the country’s development across all sectors. To help China meet the “dual-carbon” goals, EF China has collaborated with leading researchers and experts to design a comprehensive macro-level policy framework. Notably, in 2022, EF China partnered with prominent economists Nicholas Stern, Chairman of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science (LSE), and Min Zhu, Vice-Chairman of China Center for International Economic Exchanges (CCIEE) and former Deputy Managing Director of the International Monetary Fund, to conduct a study on “paradigm shift” toward carbon neutrality. The study provided an in-depth analysis of carbon neutrality within the broader context of transitioning from an industrial to an ecological civilization. It proposed that a paradigm shift requires transformative changes in production purpose and methods, consumption models, lifestyles, and social organization—a fundamental rethinking of human development. This pioneering idea generated significant interest within both the climate and economics communities, both in China and abroad.

The low-carbon transition of high-emitting industries is essential for achieving the “dual-carbon” goals. However, high emitting industries sometimes find it hard to apply for bank financing, as banks prefer to invest in green (rather than brown) industries, leaving them with limited funding options. In response, transition finance has emerged as a vital mechanism to help high-emission enterprises obtain the funding needed to accelerate emission reductions. China’s progress in transition finance is still in its early stages. Since 2021, EF China and its research partners have drawn on international practices to study key areas and measures for advancing transition finance, including the development of guidelines for a transition finance taxonomy, carbon emission accounting of financial institutions regarding investment and financing activities, etc. These efforts have enriched discussions on transition finance and offered valuable insights for policy formulation by the People’s Bank of China (PBOC) and other regulatory bodies. Moreover, EF China has partnered with local governments, enterprises, and research institutions to conduct policy studies and pilot programs at the subnational level, covering sectors such as Shanghai’s shipping industry, Shanxi’s coking and non-ferrous metals, Guangdong’s ceramics, and Zhejiang’s textile and paper industries. EF China has also supported Chongqing in developing a transition finance standards system, offering valuable insights and references for policy development and implementation in other parts of China.

In building a new growth model that integrates low-carbon transition with sustainable development, many implementation efforts have unfolded at the subnational level. Since China introduced its “dual-carbon” goals, cities and provinces have focused on finding pathways for low-carbon transition locally. In 2021, EF China collaborated with local governments, research institutes, and industry partners across more than 10 provinces and municipalities to develop low-carbon strategies tailored to each region’s needs. This approach aimed to identity critical steps to empower the low-carbon transition through economic diversification, just transition, and climate finance. The joint efforts with local governments have set a synergistic path for sustainable, low-carbon growth. Examples of implementation include:

Inner Mongolia: As China's largest coal-producing region, Inner Mongolia faces dual challenges of emission reduction and economic development. In 2020, the region saw near-zero GDP growth and continued declines in its share of the national population and GDP, while maintaining some of the country’s highest energy consumption rates and CO2 emissions per RMB 10,000 of GDP. Since 2021, EF China has collaborated with national and local think tanks to help Inner Mongolia pursue a green, low-carbon development path – defining low-carbon development direction, outlining a transition roadmap with timelines, and identifying effective measures and key breakthroughs. These efforts culminated in a comprehensive transition plan that aligns with Inner Mongolia’s regional characteristics, balancing emission reduction targets with local economic needs, and providing scientific support for the region's “dual-carbon” goals. In addition, endowed with abundant wind and solar resources, Inner Mongolia holds the largest installed renewable energy capacity in China. Based on a technological roadmap for energy transition, EF China and its research team evaluated the status quo, potential, and incentives for low-carbon technologies like wind-solar hydrogen production, advancing new energy innovations and the green, low-carbon transformation of Inner Mongolia’s energy and industrial structures. Moreover, EF China also led capacity-building initiatives to enhance knowledge exchange among local government and industry representatives, covering critical topics such as the scientific setting of energy-saving and carbon-reduction targets, the building of a renewables-driven power system, and low-carbon pathways for heavy industries. With over 5,000 participants, these training sessions strengthened policy understanding and local technical competencies. Thanks to the persistent efforts of various stakeholders, Inner Mongolia reduced its energy intensity by over 12% over period 2021-2023, climbing from the bottom to a leading position nationwide. In the first half of 2024, Inner Mongolia’s GDP growth reached 6.2%, topping the nation, with new energy investments comprising 20.9% of regional growth—a testament to the success of synergizing emission reduction with sustainable development.

Guangdong: As China’s largest province by economy and population, Guangdong is considered comparable to the top ten economies globally when measured by GDP. Its path to achieving “dual-carbon” goals requires a comprehensive green transition of its economic and energy structures while maintaining steady growth. Since 2021, EF China has worked with local research institutions, government authorities, and key enterprises to provide analyses and recommendations to support the top-level design of Guangdong’s green, low-carbon development, focusing on critical areas such as carbon peaking and neutrality pathways, energy transition, energy savings and efficiency improvements, low-carbon infrastructure and technological innovation, development of energy-intensive sectors, pilot demonstrations, and investment and financing mechanisms. Based on this systematic research, EF China and its partners identified a potential pivotal breakthrough for Guangdong’s low-carbon transition: new types of energy storage. Together, they proposed a series of policy recommendations to enhance the adoption of new energy storage, including advancing storage technology development, optimizing the power market, and creating diverse implementation scenarios. These recommendations provided scientific backing for Guangdong’s energy storage industry plan, under which revenue from new energy storage is expected to reach RMB 1 trillion by 2027.

Ningbo: Located in China’s Yangtze River Delta region, Ningbo is an economic hub and key base for energy production and the new materials industry, with high reliance on fossil fuels. Since 2018, EF China has partnered with local experts to conduct research and design projects focused on enhancing energy efficiency and promoting green financing in Ningbo’s refrigeration industry, a major energy consumer in the city. The research findings were well-received by the Asian Development Bank (ADB), which recognized the importance of a low-carbon transition in Ningbo. In 2024, ADB approved the first RMB 200 million green loan to Ningbo, supporting a local project for green and low-carbon urban development, which is expected to reduce 750,000 tons of CO2-equivalent emissions per year. Following this, EF China and ADB formalized a strategic cooperation agreement to support Ningbo’s ongoing low-carbon transition and sustainable development. This partnership includes identifying and designing green, low-carbon projects, fostering capacity-building in technological innovation and climate finance, and enhancing regional cooperation and knowledge exchange on climate mitigation and finance. EF China’s work in Ningbo has pioneered a model for systematically supporting local green and low-carbon development by leveraging a diverse range of funding sources, including philanthropic grants, local finance departments, multilateral development banks, and local commercial banks.

Research and practice demonstrate that low-carbon and sustainable development can create synergies on the path to global carbon neutrality. “This will require a systematic transformation across society, including an economic performance evaluation system based on natural capital, a green, low-carbon tax and finance mechanism, incentives for sustainable infrastructure and zero-carbon innovation, and a fair social transition program. We look forward to collaborating with an expanding group of partners on this journey and contributing to a ‘win-win’ outcome for China and the world across climate, environment, energy, society, and sustainable development,” said Xuan Du, Director of EF China’s Low Carbon Economic Growth Program.