China Industrial Bank and the Shanghai Pudong Development Bank have become the first financial institutions to be awarded quotas from the government to issue green bonds in the Chinese interbank market to raise money to invest in green projects.
The two banks are allowed to raise 50 billion yuan ($7.6 billion) each in funds that can be invested in projects that reduce carbon emissions, improve energy efficiency, or address water and air pollution problems.
They were the first banks to be approved for green bond issuance after China’s central bank in December outlined rules for such instruments in a bid to help raise 300 billion yuan worth of funding annually.
The two banks did not disclose which project types they might prioritise, but both institutions are involved in China’s carbon market:
- China Industrial Bank in 2014 became the first to award a loan using CO2 allowances as collateral when it lent 40 million yuan to a fertiliser producer in Hubei province.
- The Shanghai Pudong Development Bank last year underwrote a carbon bond issued by China General Nuclear Power Corp. which has a floating interest rate tied to the value of Chinese carbon offsets, or CCERs. It is also offering loans using CO2 allowances as collateral, and has concluded one such deal with state-owned power company Huadian.
Officials hope the bonds can drive carbon emission cuts and also contribute to the development of new carbon market-related financial products.
But analysts have pointed out that the bonds might curb growth in the offset market as they represent a competing source of funding for low-carbon project developers.
By Stian Reklev – stian@carbon-pulse.com
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