Caixin
Apr 02, 2021 07:48 AM
FINANCE

PBOC Drafts More Financial Tools to Support Carbon Neutrality Goal

Liu Guiping
Liu Guiping

China’s central bank is drafting policies to introduce more financial support for the country’s carbon neutrality goals, a senior official at the People’s Bank of China (PBOC) said Thursday.

The central bank is exploring setting up a national carbon accounting system and designing policy tools to directly benefit the real economy’s emission reduction efforts while assessing financial institutions on their green financing activities, said Liu Guiping, deputy governor of the central bank.

The PBOC will also gradually incorporate climate change factors into its macro-prudential regulatory framework, which was introduced in early 2016 to evaluate banks across a range of criteria such as bad debts, exposure to credit risk and capital adequacy, according to Liu.

Chinese authorities have stepped up efforts to use more financial tools to support the ambitious goals set by the top leadership to address climate change. In September, President Xi Jinping pledged that the world’s biggest emitter of carbon dioxide — the chief greenhouse gas contributing to global warming — aims to top out such emissions before 2030 and achieve carbon neutrality by 2060.

To reach the 2060 goal, China will need to invest $16 trillion in new-energy and pollution-control projects over the next 20 years with backing from both the state and private sectors, according to Goldman Sachs.

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In January, the central bank at its annual work meeting said it would improve the policy framework and incentive mechanisms for green finance to guide financial resources to support green development. The financial system’s ability to manage climate change-related risks will also be improved, the bank said.

Yi Gang, the central bank governor, in a March forum said that green finance will be a priority for the PBOC over the next five years and climate change will be one of the factors taken into consideration in the formulation of policies for financial stability, monetary policy and the investment of foreign-exchange reserves.

At the Thursday press briefing, deputy governor Liu said financial policies to be designed to support China’s green transition will focus on resource allocation, risk management and market pricing mechanisms.

The PBOC has launched studies on setting up a nationwide carbon accounting system to help companies and banks measure and disclose their climate-related business, Liu said. China does not yet have a unified carbon accounting system that can be applied nationwide, making it difficult to track emission control progress.

The central bank is also working on policies to encourage financial institutions to support the real economy’s green transition. The central bank has launched assessments of banks’ green finance while imposing disclosure requirements and introducing incentives to push banks to support carbon emission reductions, Liu said.

Liu said the central bank will also deploy more financial instruments to support the national carbon trading market, which was launched Jan. 1. Starting this year, China for the first time asked domestic companies to buy and sell emission quotas on a unified national carbon market as the world's largest carbon trading market started its first “compliance cycle.” But compared with a mature market such as in European Union, China’s carbon market lacks active participation by financial institutions.

Liu said the central bank will also push forward green investment principles for Belt and Road projects and will strictly control overseas investments in new coal-fired power plants. He said China will work with the U.S. to advance a sustainable finance agenda for G20 countries.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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