Recent Developments in Green Finance, Green Growth and Carbon Neutrality

By Kangyin Dong

Recent Developments in Green Finance, Green Growth and Carbon Neutrality explains the role of green finance in transforming the global economy into a green and carbon neutral one. The book explores the synergy between green growth strategy and green finance policy (2G) and carbon neutrality in an economic-environmental-financial framework that helps readers understand how to design a feasible path toward achieving carbon neutrality through economic initiatives and financial innovations. It shows how to apply the notion of green growth to organizations and illustrates the need for a theory of energy economics that estimates the benefits of a low-carbon transition and carbon neutrality.

Sections include historical background, relevant literature necessary to understand topics, the notions of green finance, green growth and carbon neutrality from an economic perspective. Other sections cover models and methods of carbon neutrality assessment, the nexus between carbon neutrality and economic development, green growth and financial development, green finance and green energy exploration and consumption, and more. Two chapters specifically focused on UN SDGs 7 and 13 round out the book, and it concludes with a final section that gathers and integrates the concepts discussed throughout the book.

• Uses green finance and green growth to develop a framework for achieving a carbon neutral society
• Brings together current knowledge in this field of research, then goes further to explain relevant concepts and the theoretical and empirical relationship between carbon neutrality, green growth and green finance
• Includes two chapters dedicated to a discussion of the United Nations Sustainable Development Goals 7 and 13 which underpin this book

• Language: English
• Publisher: Elsevier Science
• Release date: Aug 18, 2023
• ISBN: 9780443159374

Book preview

Chapter 1: Why carbon neutrality in Euro-Asia?

Mariem Brahima; Amine Lahianib    a Paris School of Business, Paris, France

b Univ Orléans, CNRS, LEO, FRE, Rue de blois, Orléans, France

Abstract

Climate change is the most challenging environmental issue of our time. The high quantity of greenhouse gases released by the overexploitation of nonrenewable energy sources and global industrialization has led to environmental degradation and seemingly inexorable temperature rises (Sarkodie et al., 2020). Deforestation and the expansion of petroleum resources use are meeting the growing demand for energy, food, and goods, but these practices are causing emissions of anthropogenic sources of greenhouse gases (GHGs). This results in species extinction, biodiversity losses, droughts, floods, wildfires, ocean acidification, melting of the North and South Poles glaciers (NSPGs), and sea level rise (Mora et al., 2018; Laufkotter et al., 2020; Yang et al., 2022). Even the Netherlands, a country known for its abundant rainfall, is not immune to drought. Power outages and water shortages in India and Pakistan are the results of extremely high heat waves in this region of South Asia. The city of Seoul is affected by exceptional showers and rainstorms. This climate disruption is likely to worsen in the coming years. It was announced that these emissions could even increase by 50% by 2050 (Rabaey and Ragauskas, 2014). Hence the agreement signed in Paris on 12 December 2015 by many countries, the landmark global agreement on emissions reductions. In fact, these countries committed themselves, by 2050, to limit the global temperature increase to less than 2°C, while achieving carbon neutrality. In February 2021, 124 countries confirmed their carbon neutrality ambition (Chen, 2021).

Keywords

Carbon neutrality; Euro-Asia region; Green finance; Energy transition; Technology

1: Introduction

Climate change is the most challenging environmental issue of our time. The high quantity of greenhouse gases released by the overexploitation of nonrenewable energy sources and global industrialization has led to environmental degradation and seemingly inexorable temperature rises (Sarkodie et al., 2020). Deforestation and the expansion of petroleum resources use are meeting the growing demand for energy, food, and goods, but these practices are causing emissions of anthropogenic sources of greenhouse gases (GHGs). This results in species extinction, biodiversity losses, droughts, floods, wildfires, ocean acidification, melting of the North and South Poles glaciers (NSPGs), and sea level rise (Mora et al., 2018; Laufkotter et al., 2020; Yang et al., 2022). Even the Netherlands, a country known for its abundant rainfall, is not immune to drought. Power outages and water shortages in India and Pakistan are the results of extremely high heat waves in this region of South Asia. The city of Seoul is affected by exceptional showers and rainstorms. This climate disruption is likely to worsen in the coming years. It was announced that these emissions could even increase by 50% by 2050 (Rabaey and Ragauskas, 2014). Hence the agreement signed in Paris on 12 December 2015 by many countries, the landmark global agreement on emissions reductions. In fact, these countries committed themselves, by 2050, to limit the global temperature increase to less than 2°C, while achieving carbon neutrality. In February 2021, 124 countries confirmed their carbon neutrality ambition (Chen, 2021).

In order to achieve the Paris Agreement objectives and to support sustainable development, many economic, social, technological, and environmental actions must be taken. To achieve carbon neutrality and sustain human activities, it is very important to increase energy efficiency and decrease carbon dioxide (CO2) emissions from fossil fuels and food, while stimulating carbon sequestration in land and marine ecosystems. Indeed, there are many strategies to improve carbon removal or sequestration and achieve carbon neutrality (Broadstock et al., 2021; Hepburn et al., 2021; Wang et al., 2021; Huang and Zhai, 2021). One solution is to invest in research and renewable energy use from carbon-free sources (i.e., sunlight, tide, wind, water, waves, rain, and geothermal energy) and biomass (i.e., organic materials from plants or animals). According to the International Energy Agency, it was imperative to stop extracting and developing new crude oil, natural gas, and coal by 2021. However, the COVID-19 crisis then emerged and undermined many signs of goodwill. More recently, the war started between Russia and Ukraine launched on February 24, 2022 will, among other consequences, delay this for several years as the whole world experiences a drop in the supply of raw materials such as gas and oil, which are essential to produce vital products such as electricity and gasoline.

This means that the stakes are particularly high for the Euro-Asia region that we have chosen for our study. Productivity, growth, standards of living, and prosperity are being challenged everywhere. Each year, as a result of droughts, volcanic eruptions, earthquakes, storms, large-scale floods, and tsunamis, millions of people are displaced in the Asia-Pacific region, where most of the world's population lives. This region is one of the biggest greenhouse gases emitters. Indeed, half of the world's CO2 emissions are produced in this region. Moreover, five countries in the region, including China and India, are the largest emitters of greenhouse gases. The future strategies to reduce emissions, which would be adopted by these countries, will therefore have a crucial role in the global strategy. Yet despite the fact that there are many reviews on low-carbon development, many of them leave out the practical aspects of carbon neutralization. In order to remedy these shortcomings, this chapter attempts to address this dimension as far as the Euro-Asia region is concerned. Therefore, we need to look at appropriate new technologies to enhance the race for carbon neutrality in several areas: renewable energies, sustainable food systems, maintaining the health of the largest reservoirs of carbon on Earth and therefore restoration and protection of marine and forest ecosystems, and carbon-neutral industrial chemical production.

2: Exploring the road to carbon neutrality

2.1: Overview of CO2 emissions

The graphs depict the evolution of CO2 emissions per capita (Fig. 1), cumulative CO2 emissions (Fig. 2), and annual CO2 emissions over the period 1750–2020 in Asia and Europe (Fig. 3). Fig. 4 presents maps of the distribution of cumulative emissions in tons in Asia and Europe in 2020. Darker red areas indicate regions with higher emissions. The CO2 emissions per capita in Asia (Fig. 1A) shows an overall upward trend over the period. In particular, we observe two subperiods. Indeed, the slope of trend is small from 1850 to 1925. Afterward, the slope of increase turns larger, meaning that the growth of CO2 emissions per capita accelerated from 1925 to 2020. The 2020 map of emissions in Asia (Fig. 4A) highlights that the largest CO2 emitter is China, which is also the second largest emitter in the world, followed by India. It is worth noting that China and India have experienced a phase of industrialization during the second subperiod. This is highlighted, in China for instance, by the rapid growth of industrial production, which reached 11% annually. In Europe (Fig. 4B), Russia remains the most polluting country. The United Kingdom and Germany are also polluting, but to a lesser extent. A similar pattern of CO2 emissions per capita is observed over the period 1800–1985 in Europe (Fig. 1B), with a first subperiod of a small increase of CO2 emissions per capita (1800–1945) followed by a second subperiod of a large rise of CO2 emissions per capita (1945–85). Afterward, CO2 emissions per capita in Europe have been decreasing up to 2020. The fall of CO2 emissions per capita could be explained by the level of financial development achieved in European countries during the last subperiod. A comparison of financial systems shows that the latter are more developed in Europe than in Asia. The cumulative figures confirm the previous analysis by showing the cumulative increase of CO2 emissions over the whole period. The path of cumulative increase started in Europe (Fig. 2B) in 1875, which coincides with the post-Industrial Revolution period in Europe while the turning point toward a cumulative increase is recorded in Asia (Fig. 2A) in 1950, corresponding to the postindependence industrial change, based on rapid industrialization.

Fig. 1

Fig. 1 CO 2 emissions per capita. (A) Asia and (B) Europe. (Source: Our World in Data, World Bank, CICC Research.)

Fig. 2

Fig. 2 Cumulative CO 2 emissions. (A) Asia and (B) Europe. (Source: Our World in Data, World Bank, CICC Research.)

Fig. 3

Fig. 3 Annual CO 2 emissions. (A) Asia and (B) Europe. (Source: Our World in Data, World Bank, CICC Research.)

Fig. 4

Fig. 4 Distribution of cumulative CO 2 emissions. (A) Asia (2020) and (B) Europe (2020). (Source: Our World in Data, World Bank, CICC Research.)

The evolution of annual CO2 emissions is similar to that of CO2 emissions per capita in Asia and Europe (Fig. 3). A comparative analysis of Asia and Europe evolution of annual CO2 emissions shows that these are still increasing up to 2020 in Asia (Fig. 3A), while in Europe (Fig. 3B), the annual CO2 emissions trend turned negative from 1990 to 2020.

2.2: Progress in practice of carbon neutrality

Virtually all countries have made or updated commitments under the 2015 Paris Agreement, the landmark global agreement on emissions reductions. This is essential to achieve the goal of carbon neutrality. For this reason, Zhang et al. (2021a, b) report that it has become a global consensus and that already more than 120 countries have submitted targets along these lines. Clearly, more and more countries will face climate change issues and actively contribute to the global carbon neutrality process. Specific policies and measures implemented by the European Union and Asian countries to achieve carbon neutrality will therefore be presented here.

2.2.1: Asian countries

Mitigating climate change is the goal of much of Asia, which is already taking appropriate action. Suriname and Bhutan achieved carbon neutrality in 2014 and 2018, respectively, and have even entered the era of negative carbon emissions. Conversely, in a vaguer manner, Singapore has announced that it will achieve carbon neutrality as soon as possible in the second half of this century. Following China's goal of carbon neutrality by 2060, Japan, the world's third largest economy, has promised to achieve carbon neutrality by 2050 by promoting the use of renewable energy and nuclear power. To achieve this goal, the country will have to transform its electricity sector radically, as it is highly dependent on gas and coal. South Korean President Moon Jae-in’s commitment to becoming carbon neutral by 2050 is accompanied by a desire to work with the international community. Considered one of the world's most fossil fuel-dependent economies, South Korea could move closer and closer to its goal by replacing traditional fuels with more renewable energy, and also by making significant investments in environmental infrastructure, clean energy, and electric vehicles. Although India, the world's fourth largest greenhouse gases emitter behind China, the United States, and the European Union, has set a goal of achieving carbon neutrality by 2070, its power sector, heavy industry, transportation, and other sectors still rely on coal. The development of clean-energy industry still seems negligible, and this goal does not seem to be achievable.

The example of China

China, the world's largest carbon emitter, still contributed to the tune of 32% of all emissions in 2020. Under these conditions, how will it be able to reach its carbon neutrality goal? Chinese President Xi Jinping announced on September 22, 2020, at the 75th session of the United Nations General Assembly, that the country should reach its maximum CO2 emissions by 2030 and carbon neutrality by 2060. On March 15, 2021, at the ninth meeting of the Central Committee of Finance and Economy chaired by Xi Jinping, China had already announced that the general scheme of building ecological civilization during the 14th Five-Year Plan period would mention its peak and carbon neutrality goal. Thus, it appears that China is paying close attention to carbon neutrality by integrating it into its national development strategy. For the President, a broad and deep systemic economic and social transformation is therefore necessary for the achievement of carbon neutrality. The comprehensive development of the country's ecological civilization is a concept that induces sustainable development and environmental goals that were enshrined in China's constitution in 2018. In addition, during the 13th Five-Year Plan period, China has made significant achievements in the fight against climate change. The intensity of greenhouse gas emissions was controlled. At the end of 2020, it decreased by 18.2% compared to 2015 and by 48.1% compared to 2005. In addition, the use of new energy vehicles is growing rapidly and energy conservation in key areas is making steady progress. Advanced and carbon-neutral action programs and strategies are indeed suggested by Chinese provinces and cities regarding relevant policies in the fields of energy, technology, ecology, industrial structure, finance, transportation, and construction. Shanghai, for example, is redeveloping the energy structure, providing clean energy, recycling waste, and reducing energy consumption of buildings.

In addition, carbon neutrality plans were developed by the National Development and Reform Commission, other ministries and commissions under the Council of State, and public and private enterprises. These include the Ministries of Transport, Housing, and Urban-Rural Development, and of course Ecology and Environment. State-owned enterprises include the China National Petroleum Corporation (CNPC), Sinopec Group, and the five major power generation groups in China, while private enterprises include Huawei Investment & Holding Co., Ltd., Ant Financial Services Group, and Tencent. For the Chinese government, the goal of carbon neutrality is a catalyst for advancing the country's development model toward improved and more sustainable economic growth to safeguard the environment and people's health, not only in the country but also globally. The government aims to fundamentally realize modernization. It has set out a series of long-term goals to achieve socialist modernization by 2035. As such, China will have to achieve industrialization, computerization, urbanization, and new-style agricultural modernization, and establish a modern economic system. Presented in a communique issued at the end of the fifth plenary session of the 19th CCP Central Committee, the objectives are as follows:

(i).significant increase in economic, technological and innovation strength;

(ii).raising GDP per capita to the level of moderately developed countries;

(iii).modernization of the governance system;

(iv).the advancement of culture and health; and

(v).reducing urban-rural and regional disparities.

Modernization goals also include promoting environmentally friendly work practices and lifestyles, and fundamental improvements to the environment in order to build a beautiful China. In short, the government has set the goal of making China a great, modern, prosperous, strong, democratic, culturally advanced, harmonious, and beautiful socialist country by 2050 (Xi, 2017; State Council, 2021). The continued shift away from energy-intensive heavy industry to higher value-added technologies and services is thus a central element of the economic transition, in line with both the modernization agenda and the carbon neutrality goal.

2.2.2: The European Union

To be the first continent to achieve climate neutrality is the desire of the European Union (EU). Launched in December 11, 2019, the European Green Deal commits states to achieving zero net greenhouse gas emissions by 2050. There is therefore a roadmap for the transition to a competitive low-carbon economy (European Commission, 2020). It must help transform the EU into a fair and prosperous society with a modern and competitive economy. To achieve this, it has first set an interim target for 2030 of a 55% reduction in emissions compared to their 1990 level. The European climate bill makes full reference to this goal. To move toward a cleaner, climate-friendly path, the EU has therefore committed itself to reducing its total national carbon emissions by 40% by 2030, by 60% by 2040, and by 80% by 2050. So far, 78% of cities have a carbon reduction target and 25% have the ambition to achieve carbon neutrality. A transformation of the EU industry will therefore be necessary to meet this climate ambition. It will also have other impacts such as:

a.creating sustainable economic growth;

b.creating jobs;

c.generating health and environmental benefits for EU citizens; and

d.facilitating the long-term global competitiveness of the EU economy by promoting innovation in green technologies.

History has shown that the European Union has kept its commitments on climate issues. Thus, those mentioned in the framework of the Kyoto Protocol have been exceeded. However, to reach such objectives, the EU must triple its rate of reduction over the coming few decades. Let us recall that the EU still faces the same challenges: significant capital investment, difficult technological breakthrough, and social equity to achieve carbon neutrality (Zhou, 2021). It is important that the EU invests massively in new electricity production capacity, both renewable and controllable, such as nuclear. It must also invest in electricity transmission and distribution networks to absorb this new capacity and improve interconnections at borders. The same is true for its electricity or renewable gas storage capacities (biomethane or hydrogen). Thermal renovation of buildings and the development of recharging facilities for electric vehicles are also necessary. It should be noted that EU member states will undoubtedly face the difficulty of finding new sites to install power generation or transmission plants. It is enough to recall the revolt movements that are rising against the construction of wind farms on land and at sea in many countries. In May 2022, Belgium, Germany, the Netherlands, and Denmark announced an agreement to install nearly 150 GW of wind power in the North Sea by 2050. The aim was to create the green power plant of Europe. The increase in the price of energy, whether it is the price of gas, that of electricity or the price of carbon, constitutes a threat that political powers must take into consideration. What should they do? Maintain traditional solutions for renewables (feed-in tariffs)? Resort to market borrowing? Or turn to capital endowments for public enterprises or subsidies when they do not conflict with the rules of the internal market, but also favor new financing mechanisms?

The Baltic countries

Finland has set itself the goal of becoming a carbon-neutral country by 2035, and Sweden by 2045.a By 2030, offshore wind capacity will increase sevenfold for the countries bordering the Baltic Sea, to 20 GW. These countries will be able to manage without Russian oil and gas. Reducing Russian gas purchases by two-thirds starting 2023 and in full by 2030, was requested by the Commission in March 2022. Increasing the share of renewables in the energy mix by 2030 from 40% to 45% was similarly proposed by the Commission. On August 29, 2022, Denmark announced that it would increase its wind power capacity off the island of Bornholm from 2 to 3 GW and connect this production to the German grid. In 2018, the Danish government presented a plan to build a carbon neutral society by 2050, hence there is a ban on the sale of new gasoline and diesel cars and strong support for the widespread use of electric vehicles. To keep up with global progress on carbon neutrality, Copenhagen proposed a series of low-carbon measures. These include improving the efficient construction process, promoting technological innovation, building a smart city, implementing energy-saving buildings, and increasing the use of solar cells. In the area of production capacity, biomass energy and waste-to-energy recycling are strongly promoted. In the field of transportation, green travel is recommended. People are encouraged to walk, cycle, and take the bus, use clean fuels, and make use of intelligent traffic management. We cannot deny that Copenhagen is the most livable capital in the world in terms of human health.

2.2.3: Interrelationships and synergies between adaptation and mitigation strategies

As analytical concepts, mitigation and adaptation have helped to structure thinking and action around climate change over the years. Between adaptation and mitigation in various areas such as implementing nature-based solutions and providing health and development benefits, the implementation of climate change action has revealed many cobenefits (Suckall et al., 2015; Puppim De Oliveira et al., 2013; Spencer et al., 2017; Gao et al., 2018). If, for a long time, adaptation strategies were separated from mitigation strategies by decision makers, for some time now, a change has been taking place that consists in combining them. This is all the more necessary as they are both needed. However, the synergies and trade-offs between mitigation and adaptation must be implemented carefully so as not to influence each other negatively. If mitigation measures do not increase vulnerability and adaptation measures do not increase greenhouse gas emissions, then the synergies prove positive (Zhao et al., 2018). For example, afforestation creates a beneficial synergy by acting as a carbon sink and at the same time protecting against certain natural disasters. On other hand, some mitigation and adaptation techniques involve trade-offs with problematic consequences. For example, building a hydropower plant will reduce greenhouse gas emissions because of its renewable energy source, but it will increase competition for water with local communities; this compromises adaptation. The construction of a dam will generate greenhouse gases because of the cement and steel used in its construction; this compromises mitigation.

Replacing fossil fuel energy with solar energy distributed to buildings is definitely a low-carbon mitigation strategy. Knowing that storms and temperature variations have an impact on terrestrial networks, solar energy leads to a more resilient and flexible power system. Thus, the use of this energy combines with adaptation (Ripple et al., 2022). The same applies to the planting and maintenance of forests. By reducing and storing carbon, forests moderate climate change. They adjust to it by fighting heat waves, droughts, fires, and floods (Moomaw et al., 2019). Promoting agroforestry, regenerative agriculture, and polyculture reduces the conversion of forests to agricultural land and thus mitigates climate change (Montanaro et al., 2018). In buildings, one method of mitigating and adapting to climate change is found in the construction of green walls and roofs (Grafakos et al., 2019). Indeed, by reducing heat islands, decreasing energy consumption, and sequestering carbon, green walls and roofs can mitigate climate change. In addition, green roofs allow for better stormwater management that facilitates flood adaptation. No one can deny that the impact of agriculture on global greenhouse gas emissions is considerable (Birkenberg and Birner, 2018; Boaitey et al., 2019). Consequently, it must also act on the search for carbon neutrality. Guizhou, Sichuan, and the Chinese province of Inner Mongolia have already largely started it. This involves moving toward green agricultural production technologies and the reuse of agricultural waste. Better agricultural practices, which include increasing soil carbon and water efficiency, and therefore achieving resilient crops and food security, contribute to better adaptation to climate change.

A climate change mitigation and adaptation strategy also include the transition from a linear economy to a circular economy, in which end-of-life goods can be used to create new goods. Many government initiatives can promote the circular economy such as carbon taxes, zero-carbon industry incentives, and mitigation and adaptation policies. According to the IMF (2019), carbon tax is considered a very successful instrument to reduce CO2 emissions. In order to make the ecological transition, the transport sector must face the first challenge of replacing its dependence on fossil fuels with the electrification of the fleet or the use of more environmentally friendly fuels. Several solutions are being implemented. The first is the democratization of electric vehicles. One of the objectives of the European Union is to ban the sale of thermal vehicles by 2035. However, it will take another decade before we no longer see gasoline or diesel engines on the roads (in France, the average car fleet age is currently 11 years). The most polluting vehicles belong to the most disadvantaged households, which do not have the financial resources to replace them. This is why a number of European countries responded to this situation by introducing public subsidies for conversion to electric vehicles. Thus, France has provided an ecological bonus of €6000 for individuals who buy an electric vehicle. Incentives for the production and purchase of electric vehicles are also provided by Germany. In 2021, the European car fleet increased by 1.2 million electric vehicles and is expected to reach 30 million in 2030. The autonomy of electric vehicles has been improved by car manufacturers, as it was the first obstacle to their adoption by individuals. For example, in January 2022, Mercedes-Benz announced that one of its electric vehicle prototypes traveled 1000 km without charging. However, to remove the concerns of motorists, the charging stations network needs to be extended on the German territory. In the midst of the energy crisis, which poses a risk of a shortage of electricity, the shift in car fleets to electric is a big question mark for European countries.

However, there are still adaptation problems that could add to the price of electricity. In particular, there are concerns about future material shortages for electric vehicle batteries. Shortages of lithium, cobalt, and nickel are already being felt, while electric car manufacturing is only in its startup phase. The semiconductor industry is at the center of global geopolitical and economic issues. The Russian invasion of Ukraine has obviously had a heavy impact on a sector that is already under pressure. According to a report by the firm Techcet, Ukraine supplies more than 90% of electricity. As for Russia, it also holds large reserves of palladium, a precious metal used in the manufacturing of certain electronic components. So far, Russia has supplied 35% of American needs. In addition, semiconductor manufacturing processes are very water-intensive. Taiwan Semiconductor Manufacturing Company reportedly uses nearly 150,000 tons of water per day in its production processes. As a result, the drought that hit Taiwan in 2021 may slow down production and prolong the semiconductor shortage. In addition, the production of silicon, a key raw material for the most common types of semiconductors, uses carbon-rich fossil fuels. Finally, not only is the use of toxic products abundant in foundries, but the energy-intensive nature of the production processes is also very problematic. This is why the United States and Europe, which have invested heavily in the chip industry, need to assess the environmental issues involved. Finally, the recycling industry will have to increase its capacity to manage obsolete batteries successfully. Going beyond individual vehicles, the environmental transition of transport also raises the issue of logistics. Currently, heavy goods vehicles generate almost a quarter (24%) of CO2 emitted by the transport sector. The marketing of electric or hydrogen-powered trucks and heavy goods vehicles is paving the way for change, even if these models are still more expensive than their combustion counterparts.

Massive CO2 emissions, which increase the concentration of greenhouse gases in the atmosphere and contribute to global warming, also come from the rapid growth of air transport and freight. We are witnessing a massification of tourism and therefore a very steep increase in air traffic. This trend is likely to become even more pronounced in the future. This is why aircraft manufacturers are working to develop aircraft capable of flying without fossil fuels. Aviation can reduce its carbon footprint with hydrogen. Airbus considers this fuel to be the best substance for decarbonizing the aircraft of tomorrow and is working on various prototypes. However, the commercialization of a hydrogen aircraft will not be effective before 2035. Following Air France's lead, a large number of airlines are experimenting with long-haul flights using biofuels to replace all or part of the kerosene. Promoting public transport, increasing vehicle efficiency, electrifying transport, and encouraging car-sharing services are all part of these approaches (Viguié et al., 2021; Sharifi, 2021) that are relevant to adaptation and mitigation. Climate change mitigation and adaptation can also be achieved through compact urban development with appropriate density, land use mix, and accessibility. Such development reduces per capita travel demand, reduces energy demand for heating and cooling, and provides more efficient energy systems. At the same time, it reduces the demand for land and avoids building on risky locations. It is also less sensitive to very high heat than urban sprawl, thus enabling adaptation to climate change. Congestion pricing and water-sensitive urban design are two other examples of synergistic sectoral transportation and urban design strategies that enhance both mitigation and adaptation.

3: Green finance in the Euro-Asia region

If reaching carbon neutrality represents a challenge, it is also a new opportunity for the Euro-Asia region. As such, green finance must be there to assist and support the green transformation of the real economy. Based on the weaknesses of this type of finance in the region, we will first recall the experiences and efforts made so far in this field. Second, we will make suggestions on how to develop policies to develop green finance.

3.1: Green finance: Serving the real economy?

In this perspective, a drastic transformation of investor behavior toward clean technology initiatives is imperative (Acheampong, 2019). In order to achieve the Paris Agreement goals, the UN considers $1.5 trillion in green finance to be essential each year. Green finance and energy investments are indeed key drivers of economic growth, financial development, and environmental sustainability, but due to unlikely profitability, fluctuations in green finance and energy investments can negatively impact investor decision-making (Su et al., 2022). However, just like with clean energy and green technologies, boosting green finance has become much more problematic since the COVID-19 pandemic and against the backdrop of war in Ukraine. Developing new sources of green finance built on the finance-growth nexus to ensure long-term economic development is a vital issue. Sustainable development through green finance is supported by financing environmental stewardship, financing green technologies, and kick-starting the share of renewable energy. The terms green finance and sustainable finance are interchangeable, along with the term climate finance. But the provision of financing for projects with a positive environmental impact is primarily known as green finance. Internationally, green finance therefore refers to financial activities associated with sustainable development.

In the majority of countries and international organizations, the ultimate objectives of financial activities are used as a basis for defining green finance. If the main objective of a financial activity is linked to the activities of the real economy on sustainable development, it can be considered green. According to Taghizadeh-Hesary and Yoshino (2020), the banking sector controls 60% of the green bond market. Addressing social and environmental risks properly and working profitably to provide the best return while promoting environmental quality and increasing accountability are the primary goals of green finance (Su et al., 2022). Several European and Asian countries are also promoting their green financial activities to offload the image of being the world's largest emitter. Using generalized autoregressive conditional heteroskedasticity (GARCH) and exponential generalized autoregressive conditional heteroskedasticity (EGARCH) approaches, Ortolano and Nissi (2022) analyzed green finance in China. Their results showed that it is, like green bonds, very volatile. During a positive shock, green finance is more unstable. Therefore, in the case of China, investments in renewable energy resources and green finance have been volatile over the past 3 decades, which was demonstrated using wavelet specifications (Li et al., 2021a, b). However, the volatility of investments in energy resources and green finance is rarely addressed in the literature. In financial intermediation, banks can develop a carbon-neutral business structure by channeling resources from surplus units to loss-making units. In order to achieve a zero-carbon economy, loans and investments by banks in green assets are essential. Diversifying their credit portfolios and including carbon-neutral investments should be part of their strategies. Similarly, literature addressing the consequences of green investments on the loan portfolio is scarce despite the existence of evidence of the robust performance of green investments (Tang and Zhang, 2020; Russo et al., 2021; Umar et al., 2021). To ensure sustainable growth, the integration of banks is imperative because they mainly contribute to financing. Therefore, developing this aspect becomes a necessity.

In addition, significant sums of money are needed for climate finance to be able to support efforts to mitigate and adapt to climate change. To minimize carbon pollution and the harm it brings to human health and the environment, renewable and clean energy projects require green financing. As a result, the decision is made more rational. Proposed by green finance, climate neutral solutions can improve sustainability and erase environmental problems (Liu and Song, 2020). To mitigate environmental deterioration, savings should be directed toward renewable energy projects.

However, despite many attempts, environment continues to deteriorate. It is undeniable that with the funds allocated, many projects have made the situation more difficult (Yilanci and Gorus, 2020; Ulucak et al., 2020). Furthermore, there are not enough investors in the advancement of green technologies, despite the large amount of green financing. The development of green technologies is restricted. Indeed, the upfront expenses for green technologies are high with high potential risks and, therefore, a very low rate of return that does not attract investors. For the banking sector, the financing of green technologies is not obvious because of the risk associated with green projects, and therefore the prospect of using other types of financial resources is more appealing (Ameyaw et al., 2019).

3.1.1: Asia

China is considered the most powerful of the emerging states. It has become a rising power with which the rich industrialized countries must now reckon. China's goal is, first, to maintain high economic growth. This is why, in order to preserve its economic and production level, it has reinforced its investments in energy resources with private actors. In 2013, however, the Green Credit Statistics System published by China explained precisely which projects were eligible for green credit loans. It was considered a step forward in building a green lending system in emerging markets. For green bonds, the definition of green industries or projects was mainly based on guidelines or catalogs issued by the corresponding regulators. The following year, in 2014, a working group on green finance was jointly established by the People's Bank of China and the UNEP survey. This working group proposed 14 recommendations to develop a green finance system. Subsequently, a number of documents were published, including Guidance Opinions on Building a Green Financial System. This was followed by the establishment of preliminary classification standards for green industries, green loans, and green bonds. In 2015, the National Development and Reform Commission issued guidelines on green bonds issuance. These guidelines mentioned that the products obtained from green company bonds should be invested in projects related to environment, recycling, and low-carbon development. Finally, since its 13th Five-Year Plan (2016–20), China has made further progress in the field of green finance, especially in formulating green standards, product innovation and implementing local pilot projects, developing incentive mechanisms, and disclosing environmental risks. By establishing specific infrastructures, the country has thus installed a global political system and a market environment that stimulates the development of green finance. Published in March 2019 by the National Commission for Development and Reform, the Green Industry Directory Guidance provided a comprehensive classification of green industries. Various financing tools are included in this guidance, which also sets out classification standards, particularly for green loans and green bonds.

Secondly, the gradual introduction of evaluation systems for investment and financing tools should also be noted. China's green loan evaluation system appears to be the most comprehensive. In 2014, banks had already implemented the green credit self-assessment system. It is used to estimate the extent of green credit development from a qualitative perspective. It is also used to assess the balance of loan pricing for energy-efficient and environmentally friendly projects, the Two Peaks and a Surge industry, and CO2 emissions decline as key indices to estimate performance on a quantitative level. In 2018, the People's Bank of China allowed the central bank to become the external evaluator and included its results in its macroprudential assessment. This decision increased the frequency of green loan performance assessments. In addition, an ESG investment rating system was developed in December 2020. Published by China Securities Index Company Limited, this rating method takes thoroughly into account the sector characteristics and information quality of listed companies. In addition, it combines three components (environmental, social, and corporate governance), 14 themes, 22 units, and more than 100 underlying