Low Carbon Economy, 2011, 2, 15-19
doi:10.4236/lce.2011.21003 Published Online March 2011 (http://www.SciRP.org/journal/lce)
Copyright © 2011 SciRes. LCE
Literature Review of Carbon Finance and Low
Carbon Economy for Constructing Low Carbon
Society in China
Shihong Zeng, Shuai Zhang
Economics Management School, Beijing University of Technology, Beijing, China.
Email: zengshihong2000@yahoo.com.cn
Received January 3rd, 2011; revised January 25th, 2011; accepted January 28th, 2011.
The purpose of the research is that China develops low-carbon economy and strengthens low-carbon economy research
by learning other countries experiences, which literatures in the papers introduced. The principal results of the paper is
that the paper done up right literatures review of carbon finance and low carbon economy. The major contribution is
that the paper finds that China is facing the challenges of the global carbon finance problem and the lack of its pricing
power. The conclusions is that we need to increase our academic research on carbon finance to solve Chinas laggin g
in carbon finance construction and knows how to construct development system.
Keywords: Low-Carbon Economy, Carbon Finance, Literature Review
1. Introduction
Low-carbon economy mostly linked global climate change
and energy conservation together. People have created a
huge supply of funds and financial flow mechanism
based on the low-car bon economy. China is makin g great
efforts to develop low-carbon economy, and China is one
of the countries which have abundant resources of “car-
bon finance”. This determines that China must have the
voice on the carbon finance market and the right to price
the carbon financial products. Therefore the development
of carbon financial system, to promote “low-carbon
economy” research which based on China’s national
conditions is very important. This article firstly intro-
duced some articles about the low carbon economy at
home and abroad, and gives the definition of a low car-
bon economy. Then introduced some articles related to
the carbon finance. It is hope that this article can provide
assistance for scholars to make further study.
With the gradual warming of global climate as well as
conventional energy depletion and other issues con-
stantly being realized, people started to focus on low-
carbon model of economic development. The low-carbon
economy rise from the change of the international cli-
mate policy, specifically, involves two significant inter-
national conventions: the 1992 “United Nations Frame-
work Convention on Climate Change,” and the 1997
“Kyoto Protocol.” Low-carbon economy, on the surface
has more to do with global climate change and energy
conservation, but in practice a huge supply of funds and
financial flow mechanism has been formed.
As for the real economy of low-carbon model devel-
opment, it also has the characteristics of financial capital
flows. “Kyoto Protocol” designed three carbon emission
reduction market mechanisms, since different business
carbon emissions and carbon abatement costs , the enter-
prise which has more emissions rights can sell the excess
to those enterprises which have shortage of emission
rights in order to obtain benefits. Carbon emission s rights
which have market value of liquidity as well as general
goods can be traded in the market.
Financial institutions develop a number of carbon-
based insurance products, derivatives and structured
products in order to manage and transfer risks and costs
of carbon emissions and get more sustainable profits. So
carbon emissions right has become a financial instrument,
the price is becoming more and more decided by finan-
cial markets. More and more financial capital is involved
in low-carbon economy, so it comes from the carbon
emission rights market and the low-carbon economic
development turns into a carrier of financial tool for in-
Since the development of carbon finance is based on
Literature Review of Carbon Finance and Low Carbon Economy for Constructing Low Carbon Society in China
low-carbon economy, the activities of financial markets
and financial policies related to the developmen t of a low
carbon economy can be collectively regarded as “carbon
finance.” “Carbon finance” includes all financial transac-
tions which reduce carbon emissions, carbon emissions
rights and its derivatives transactions, investment or
speculative activities, the investment and financing ac-
tivities on low-carbon energy projects and the associated
security, advisory services and related activ ities.
China is one of a small number of countries which
have abundant “carbon finance” resources. According to
the data released by the State Development and Reform
Commission, China ended in March 2010 had approved
2369 CDM cooperation projects1. If China wants to con-
tinue to maintain rapid sustainable economic develop-
ment in future, the right to speak in carbon finance mar-
ket can not be lost .China must have the power to price
the carbon finance products. Therefore, promoting low-
carbon technologies, capital flows and accumulation to
develop low carbon economic based on China’s national
conditions is particularly urgent.
We hope that this article can provide some assistance
for scholars to make further study.
The structure of this manuscript is arranged as follo ws:
the II section of this article reviews some articles about
the low carbon economy at home and ab road; the III sec-
tion of this article reviews some articles about the carbon
finance at home and abro ad; the IV section of this article
conclude the paper.
2. Literature Review on Low Carbon
The following documents analyze the need of imple-
mentation of the low carbon economy.
1992 “United Nations Framework Convention on Cli-
mate Change,” and the 1997 “Kyoto Protocol”, pushes
this new low-carbon economy model of economic de-
velopment directly to the stage of history.
References [1-3] thin k that the essence of a low carbon
economy is problems on energy efficiency and clean
energy structure and the core is the energy technology
innovation and system innovation, the goal is to mitigate
climate change and promote human sustainable devel-
opment. We spare no effort to minimize greenhouse gas
emissions to slow global climate change and to realize
clean sustainable economic and social development
through technique and system innovation as long as
without prejudice to economic and social development.
Reference [4] proposed that the expansion of low-cost
investment in growth-oriented economy for the healthy
development of China is unsustainable, it is necessary to
develop and implement green development strategy, es-
tablish the environmental protection, DC, to promote low
carbon economic development, in order to solve the
China’s economic growth mode transformation lag is-
Reference [5] think that, while economic growth re-
mains the primary consideration by Governments, but
climate change is a key factor which urgently need to be
addressed on the road of economic development for all
countries. Protection of the environment, especially the
control of greenhouse gas (GHG) emissions has become
a standard of quality of national economic growth.
Reference [6] analyzed from China’s concrete situa-
tion. He thinks that developing low carbon economy
must be taken to address climate change to promote
China’s economic growth and energy security.
According to the above summary, climate change is
becoming a universal concern of the international key
issues, low-carbon way of economic development has
became the world attention, the environment is even a
standard of measuring economic growth quality. China
should regard developing a low carbon economy as an
opportunity to change the “three high one low” growth,
promote economic restructuring and green development.
Low carbon economy to promote sustainable economic
development is important for economic restructuring. But
how is the availability of controlling carbon emissions?
The following documents are related to the study of the
implementation of low-carbon economy.
2003 UK Energy White Paper “Our energy future: cre-
ating a low carbon economy” came up with “low-carbon
economy” concept in the first time. Then the country and
abroad had studied in the implementation of low carbon
Reference [7] searched in the related technical feasi-
bility of the UK housing stock by substantially reducing
emissions of carbon dioxide. They concluded that the use
of existing technology to the middle of this century can
reduce baseline emissions in 1990 to 80%.
Reference [8] identified related factors which impact
the changes in emissions of po llutants through long-term
climate stabilization scenarios for research: the carbon
intensity, energy efficiency and economic activities.
They pointed that we need to speed up intensity in im-
proving comprehensive energy and decline rate should
increased 2-3 times based on the past 40 years in order to
achieve 60-80% reduction of carbon emission reduction
Reference [9] designed a low carbon economy for the
local level of the Japanese government to control green-
house gas emissions in the long-term approach through
empirical research in Shiga. Here’s how: First, develop a
method to quantitatively estimate in the county’s indus-
1The data come from
Copyright © 2011 SciRes. LCE
Literature Review of Carbon Finance and Low Carbon Economy for Constructing Low Carbon Society in China17
trial, commercial, residential and transportatio n of carbon
dioxide emissions and forecast the future of these units of
carbon dioxide emissions. On this basis, then quantita-
tively design line of low-carbon eco nomy: 1) Maintained
the county’s 1.6% annual GDP growth, so that carbon
dioxide emissions reduce by 30-50% by 2030 baseline in
1990. 2) To achieve the intended emission reductions
must adjust the socio-economic structure and develop the
new technology in itiatives. 3) Adopt inno vative measures
at the county level, including: land planning, promoting
renewable energy and lifestyle changes.
Reference [5] thinks that the protection of the envi-
ronment, particularly greenhouse gas (GHG) emissions
have become an indicator of quality of economic growth.
As the international community has had a global con-
sensus on carbon price, so some countries have devel-
oped strategies for economic development in low-carbon
leading. A Masidaer project in Abu Dhabi, United Arab
Emirates, is developing a renewable energy and sustain-
able development of broad stone technology, low-carbon
economy for the future development of sk ills, knowledge
institutions and the necessary capital. In addition, the
aims of the Masidaer project is to establish a carbon neu-
tral, zero waste city in the world and taking efforts to
develop carbon capture and storage project.
Reference [10] explored the background of low-carbon
economy, analyzed the China’s development path and
methods of low-carbon economy. China can control car-
bon emissions and develop low car bon economy through
the development of low carbon industry in China,
low-carbon agriculture, low-carbon industry, carbon se-
questration and carbon reduction cities and other feasible
There is no international unity on the definition of
low-carbon economy, combined with the documents
above we can defined it as: it is a win-win economic de-
velopment patterns that under the guidance of the con-
cept of sustainable development, through technical inno-
vation, new energy development, industrial restructuring,
system innovation and other means to reduce coal and oil
consumption of high-carbon energy, reduce greenhouse
gas emissions, achieve economic and social development
and ecological environment protection as much as possi-
ble. Low-carbon economy, in essence, is the efficient use
of energy, clean energy development, the creation of
green GDP, the core is the ener gy technology and carbon
emission reduction technology innovation, industrial
structure and system innovation and the concept of hu-
man survival and development of fundamental change.
3. Carbon Finance Literature Review
Carbon finance is built on the basis of a low carbon
economy, financial market activities which develop a
low carbon economy and the related policy can be re-
ferred to as “carbon finance.” So far, main research about
financial carbon finance at home and abroad is:
Reference [11] proposed the establishment of carbon
credit financing is an effective measure to control green-
house gas emissions.
Reference [12] studied Guyana (Latin America) of
concrete cases, analyze the economic feasibility of car-
bon offset projects through cost-benefit analysis and
carbon emissions in the simulation model. Analysis
showed that when the pr ice of $ 0.23/tC carb on sinks, the
large-scale commercial forest harvesting and forest pro-
tection benefit breakeven.
Reference [13] study is based on national planning and
development department by the input-output tables, using
the input-output decomposition technique analyze four
aspects of measures to reduce the effect of carbon
equivalent, which is four: fuel mix effect (due to a
change in the emissions of fuel mix changes), structural
effect (no carbon tax and carbon tax case, changes in
emissions), the impact of final demand (final demand
change on the impact of changes in emissions), Com-
bined (mixed fuel, structure and final demand of these
three aspects of the interaction effect). Out the final con-
clusion is: when the carbon tax is $50/tC, the energy tax
is $ 1.0/MBtu, you can control carbon emissions.
Reference [14] the United States formulated trade pol-
icy to control carbon emissions, the establishment of a
well-designed carbon trading market to develop carbon
price will be a major factor for enterprises to redu ce co sts
and promote the innovation. In the establishment of car-
bon trading market, we must also formulate relevant
supporting policies, such as incentives related to such,
only in this way can be more effectively prompted the
U.S. transition to a low carbon economy.
Reference [15] the Indian government plans to take
home solar power plan to give light to 78 million rural
families which still use kerosene for lighting for the lack
of transmission equipment. This program can not only
bring light to rural families, but also can effectively re-
duce greenhouse g as emissions. In th e clean develop ment
mechanism, the scheme will bring the benefits by calcu-
lating because of greenhouse gas emission reductions.
When the $10/tC, give each family reduced by 19% of
the cost.
Reference [16] from a theoretical point of view, the
Clean Development Mechanism the scale of the reduc-
tion of greenhouse gas emissions for developing coun-
tries, even in government financial support to reduce the
case, the reduction power is adequate, the project’s cred-
iting process is effective inter-of. However, the effect of
the clean development mechanism must also be larger in
developing countries results in carbon emissions to be
Copyright © 2011 SciRes. LCE
Literature Review of Carbon Finance and Low Carbon Economy for Constructing Low Carbon Society in China
verified. Articles by China, for example, of the clean
development mechanism to promote renewable energy
development in China to play a role, and how the inter-
national carbon finance can best be used to help reduce
emissions in developing countries is an alyzed.
Reference [17] thinks that carbon emission reduction
and economic growth can both be obtained. China’s car-
bon emissions trading market is a huge global financial
market space, we should speed up the carbon financial
product innovation, low-carbon economy and a win-win
financial innovation.
References [18] analyzed the main function of carbon
finance in response to climate change as well as the ma-
jor obstacle in development of China’s carbon finance
and propose China’s carbon finance strategy to deal with
the obstacles.
Reference [19] introduced operation on the interna-
tional carbon market. They proposed eight kinds of car-
bon financial innovation model, namely: banks type
Carbon Fund financial products to yield the right of
CERs as a pledge of loans, financial leasing, factoring,
financial products of carbon trust, private equity, carbon
asset securitization and insu rance, carbon trading.
Reference [20] summarizes the development of the in-
ternational financial community about the major experi-
ences of low-carbon economy; combined with the Indus-
trial Bank case based on low-carbon economic develop-
ment on the demand for green finance, explore effective
ways to push to speed up China’s green financial innova-
The study above analyzed the specific situation of im-
plement carbon finance by some specific case .whether it
is carbon offset, carbon neutral, carbon taxes and other
measures have effectively reduced carbon emissions, it
has brought benefits to countries which implement re-
lated projects and promote a low-carbon economy of the
development process. The study of Chinese and foreign
literature provide a reference for study of low carbon
economic development and the establishment of carbon
finance system, but the disadvantage of Chinese and for-
eign literature is that there is only description or study
about the low-carbon economy and the development of
carbon finance in foreign countries, not from the nation al
conditions of China to find out good ways to solve a se-
rious related pr obl ems.
China’s current carbon trading is still in a “farmers
market” stage, is only focused on the specific case of
carbon trading in a project. China has not established a
complete and unified platform for carbon trading and
carbon sound financial system. China’s greenhouse gas
emissions and emissions trading cases in years, but scat-
tered in various cities across China and various industries
are basically dealing with overseas buyers by the com-
pany in direct consultation and negotiation, the degree of
information transparency is not enough. Because of the
scattering of non-public market conditions, China’s par-
ticipation in carbon emission trading companies are often
in a weak position in negotiations, resulting in the final
transaction price is far from the international market
price. So long continues, will inevitably result in situa-
tion that now sell it low and buy it high in future. “Car-
bon finance and carbon trading is just like two legs.
Without the support of carbon finance, carbon trading in
China will not only lose their pricing power, and will
once again lose the opportunity of financial innovation.”
Through analysis of existing literature, despite domes-
tic commercial banks take the action of carbon finance,
but did not go deep into the core of carbon finance-related
part of the carbon finance project development. They are
not yet familiar with carbon finance development, opera-
tion mode, the transaction rules, and are lack of deep
understanding of relevant expertise on the CDM (clean
development mech anis m), th e abil i ty of inves t men t-rela ted
projects in this area is inadequate. Not only is lack of
maturity in the domestic carbon trading scheme, carbon
trading and carbon trading platform sites, and no securi-
ties, such as carbon, carbon swaps, futures and other
carbon-carbon derivatives products of financial innova-
tion.It is hard to compete with the international financial
institutions.China is facing challenges that the problem
of global carbon finance and the lack of its pricing
For financial development in China lags behind the
current status of carbon, we need to increase our aca-
demic research on carbon finance to solve China’s lag-
ging behind in carbon finance construction and know
how to construct development system and other related
4. Conclusions
The major contribution of the paper is that the paper
finds that China is facing the challenges of the global
carbon finance pr oblem and the lack of its pricing power.
The conclusion is that we need to increase our academic
research on carbon finance to solve China’s lagging in
carbon finance construction and know how to construct
development system.
5. Acknowledgements
The research was achievements of the current stage of
2011 Beijing philosophy & Social Science research pro-
gram (2011 Beijin g Education Committee key project): a
subtopic of study on financial development in Beijing
based on low carbon economy. The authors thank Re-
viewer’s opinions.
Copyright © 2011 SciRes. LCE
Literature Review of Carbon Finance and Low Carbon Economy for Constructing Low Carbon Society in China
Copyright © 2011 SciRes. LCE
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