Why are Hong Kong’s vital low-carbon policies missing from the budget?

In the coming weeks, Financial Secretary Paul Chan Mo-po could bring his new budget to life by emphasising the key unifying factors in Hong Kong’s long-term opportunities. He is right in that the mainland market is vital to Hong Kong. After all, China is the world’s largest economy in purchasing power parity terms, and the second-largest in GDP terms after the US.

Hong Kong needs to capitalise on its well-placed position. It must optimise its opportunities through focused efforts and the right narratives to guide, explain and inspire. Many ingredients are in place, as evidenced by the budget, but the financial secretary can make sure his stir-fry sounds, looks and tastes good.

Above all, Hong Kong must make use of the mainland’s two main policies going forward – its dual circulation strategy and carbon neutrality goals.

Dual circulation is about reforms to strengthen China’s domestic markets and consumption. At the same time, China’s membership in the Regional Comprehensive Economic Partnership, a free-trade agreement, and the EU-China investment agreement will expand business.

China’s pledge to lower carbon emissions after 2030 and achieve carbon neutrality by 2060 is nothing short of a fast-paced industrial and technological revolution. There will be many new policies, laws and regulations from five-year plan to five-year plan, starting with the 14th, which is just round the corner.

Dual circulation and carbon neutrality are two limbs marching the nation forward. They are closely related, as domestic production and consumption will both have to be low-carbon.

Besides China, Japan and South Korea have also made carbon neutrality pledges, and other economies are likely to strengthen their low-carbon efforts when they bring new commitments to the UN Climate Change Conference (COP26) in Glasgow later this year.

The European Union is keen to work with China on climate change and, despite US-China tensions, the highest potential for collaboration between Beijing and Washington lies in decarbonisation. Hong Kong’s financial secretary has a vested interest to ensure the city is in a position to contribute.

In other words, there will be a continuing international focus on climate change and decarbonisation for the rest of the year at least. Hong Kong can genuinely build a better story of its capabilities and potential.

But Chan remains too hesitant in finding a major role for Hong Kong in the global green transition. He acknowledged that “green development is a major global trend” in his budget but his hesitancy comes from the mumble-jumble that “the government needs to have visions and determination; the people need to build awareness […] the business sector needs to develop and adopt novel technologies, and launch products of high efficiency”.

Instead, he could have directed much of his budget towards achieving decarbonisation. For example, he could have said everything in the budget related to the government sector must focus on low carbon. All the housing, retrofitting and infrastructure the government pays for could have been included. Digital and smart city spending, meanwhile, should be aligned with the goal, while training should be available to upgrade the capacity of the workforce.

Indeed, Hong Kong’s already highly trained workforce will benefit from having climate change and environmental sustainability added to their list of qualifications, whether they are in construction, manufacturing, real estate, logistics or hospitality. Only through experience can Hong Kong develop a highly climate-competent workforce that understands sustainability and can provide high-value services to other economies.

This climate training must include those working in finance, accountancy and law as well, who have to increasingly deal with carbon and environmental disclosures. The EU and China are collaborating to work out rules – taxonomies – to define what “green” means, so as to help redirect capital into green investments.

Chan should be chairing meetings to discuss how Hong Kong can participate in the mainland’s emerging carbon and energy markets. This is an area where the mainland has much more experience than Hong Kong, as it has been experimenting for some years. Yet, Hong Kong has deeper experience in derivatives trading that could be applied to emissions. International experience is available to help regulators understand emissions trading, if they want it.

While not much manufacturing takes place in Hong Kong, local investors have large production facilities on the mainland and elsewhere. The mainland is the world’s biggest manufacturing economy and it is driving a circular economy through recycling, resource efficiency, aligning efficiency across industries and changing consumption practices.

Hong Kong needs to find niches where it can build on existing competences – industry is one such area. Chan’s plan for re-industrialisation can learn from mainland thinking on how to use policy and incentives to drive alignment within industries, which must also include research and development.

Another obvious area is the design, construction, retrofitting and management of buildings. All the ingredients are there but, unlike in Singapore, the policy alignment is lacking for Hong Kong to be a leader in high-performance buildings that are green, smart and healthy.

The frustration on the ground with many sector leaders is that they see opportunities, they know they can meet the challenge, but where policy is needed, they do not see much movement.

Chan has his work cut out. Instead of merely expanding the government’s green bond programme, as he said he could do, he could surely help Hong Kong navigate a much wider sea of economic opportunity.

Christine Loh is Chief Development Strategist and adjunct professor at the Hong Kong University of Science and Technology’s Division of Environment and Sustainability.

The article is published in SCMP online at https://www.scmp.com/comment/opinion/article/3123439/why-are-hong-kongs-vital-low-carbon-policies-missing-budget