China has been in the spotlight of global climate change debates since it overtook the U.S. as the largest greenhouse gas emitter in the world a few years ago, and is increasingly playing a pivotal role together with other BRICS (Brazil, Russia, India, China, South Africa) countries in international climate change negotiation.

The global negotiation process lost some momentum following the 2009 United Nations Climate Change Conference (COP15) in Copenhagen, when the gathering failed to achieve globally binding commitments on emissions reduction. But since then, China has become much more active and open in tackling domestic climate change challenges. Actions of note include: the announcement of a carbon intensity target to be achieved by 2020, together with ambitious shorter term energy efficiency and renewable energy targets in the country’s 12th Five-Year Plan; the development of more than a dozen low carbon cities and zones; seven carbon market pilots are soon scheduled to start trial runs and a carbon tax may be announced within the next few years; and a climate change law is under development.

All this progress has huge implications for business. The heyday of emissions-cutting Clean Development Mechanism (CDM) projects may have passed but the knowledge and know-how gained through their development in China about carbon accounting, verification and trading have been hugely beneficial. Many Chinese companies have started to develop in-house carbon trading capabilities and are building their carbon emission inventories in preparation for the upcoming carbon pricing mechanisms. Renewable energy, energy efficiency and low carbon technology industries are taking advantage of preferential policies and incentives to grow quickly in China, attracting foreign investors, service providers and customers. In the long-term, climate change-related sectors will be an area of growth in generating business opportunities for both Chinese and foreign players.

So, too, will the ambitions of the Chinese government in moving up the value chain – moving away from an economic model dominated by labour-intensive manufacturing industries and developing more value-added industry sectors, which can contribute to the government’s goal of a harmonious economy.

However, climate change will continue to be a controversial political issue in China, at least until a legally binding global agreement is reached post-Kyoto. The National Development and Reform Commission (NDRC), one of China’s leading policymaking agencies, holds most power with respect to climate change-related issues and is reluctant to concede this influence to other departments and local government. China will continue to emphasize “common but differentiated responsibilities” with respect to its climate change responsibilities and is unlikely to approve any aggressive actions at sector or local levels, concerned it may jeopardize its negotiating position. The recent Civil Aviation Administration of China (CAAC) ban on Chinese airlines taking part in the European Union (EU) Emissions Trading Scheme is a clear signal. Foreign companies operating in or entering China need to consider such political risks.

In the long run, however, there are certainly significant business opportunities, and those companies entering early and anticipating and managing the political risks well are likely to enjoy strong competitive advantages.

John Barnes is a partner in PricewaterhouseCoopers’ (PwC) risk and controls assurance practice. He joined PwC’s Beijing practice in 2005. He is responsible for managing key clients of risk and controls solutions in PwC China.