Chinese central bank to allocate more green bonds to foreign exchange reserves; new catalogue of projects eligible for green bond issuance issued.
The PBOC (People’s Bank of China) has announced a set of new measure to improve its support for green finance and the transition away fossil fuels.
China has previously pledged to reach peak carbon emissions by 2030 and achieve carbon neutrality by 2060. The PBOC has said that government funding alone will not be enough to reach these targets, and that the private sector will also have to mobilise funds into green investment.
According to Goldman Sachs, China will need to invest US 16 trillion in new energy and pollution control-related projects over the next 20 years to reach its carbon neutrality goal, Caixin reports. At least 75 percent of this investment will need to come from the private sector.
Last week, PBOC governor Yi Gang said in a speech that China’s carbon market will help to price climate risks and incentivise a reduction in carbon emissions. China’s national emissions trading system (ETS) is also due to start trading in Shanghai by the end of June, following its launch in February. The first phase includes over 2,000 power companies.
China has also launched its new Guangzhou Futures Exchange, which will seek to develop carbon futures products, as well as explore the introduction of electricity futures, climate-related products, commodities index futures and other unspecified “green-linked” commodities.
In the speech, delivered at an online seminar co-hosted with the IMF, Yi highlighted the need to raise public awareness of emissions reduction, ensure better disclosure of climate information by institutions, and pay more attention to transition risks.
“Financial institutions have invested heavily in carbon-intensive assets, and the risk of asset price adjustment caused by the green transition must be closely monitored,” he said.
The PBOC plans to improve its standards for green finance, set up a mandatory disclosure system for climate-related risks, and promote greater information sharing between financial institutions and companies.
The central bank also plans to provide low-interest funds for the use of carbon emissions reduction, and introduce further incentives through bank credit ratings, deposit insurance rates, macro-prudential assessments, and collateral used in open market operations.
In a separate speech at the Boao Forum on Wednesday (21 April), Yi said the PBOC will increase its allocation of green bonds in China’s foreign exchange reserves and limit investments in high-carbon assets.
He also reiterated plans to incorporate climate change factors in bank stress tests, though key technical challenges and the lack of common methodologies and standards will first need to be addressed.
The PBOC has already instructed pilot financial institutions to measure the carbon emissions and assess the climate risks of the projects they support. A performance evaluation system for financial institutions based on green credit and green bonds will also be established.
Also on Wednesday, the PBOC issued a new catalogue of projects that are eligible for green bond issuance, which will come into effect on 1 July 2021. The catalogue, the subject of a consultation last year, excludes ‘clean’ coal and other fossil fuels from the list of eligible projects that can be financed through green bond issuance.
Included in the new catalogue are projects related to green agriculture, sustainable buildings, water conservation, green equipment manufacturing and related trade activities, carbon capture and storage, and clean heating in rural areas.
Yi also pledged to strengthen international coordination green finance and taxonomies, including through its work with the NGFS (Network for Greening the Financial System).
Earlier this week, China and the US issued a joint statement pledging to cooperate to tackle the climate crisis, including to help developing countries finance a switch to low-carbon energy. The pledge followed meetings between Chinese climate envoy Xie Zhenhua and his US counterpart John Kerry.
Chinese President Xi Jinping will be attending a virtual climate change summit hosted by US President Joe Biden on Thursday (22 April), China’s Ministry of Foreign Affairs has confirmed.