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China's growing carbon financing market lacks clear, unified regulatory standards

ANI | Updated: May 11, 2021 20:17 IST

Beijing [China], May 11 (ANI): China's rapidly growing carbon financing market lacks clear and unified regulatory standards to guide financiers to worthwhile projects and help them assess the carbon-reduction benefits of their investments.
The need to clarify standards shows how China's regulatory regime has lagged behind developments in the carbon financing market, a crucial tool for making the green transition necessary to meeting the country's goal to achieve net-zero carbon emissions by 2060, reported The Straits Times.
"The investment in carbon-neutrality won't just come out of thin air... Every investment needs to be based on guidance and calculation," China's former central bank chief Zhou Xiaochuan said at a recent seminar.
Regulators have not set unified standards for financing carbon-neutrality projects, including for things like how much of the proceeds have to be spent on reducing carbon emissions.
As at April 28, 65.9 billion yuan in carbon-neutrality bonds had been issued on the two markets - exchange bond market is supervised by the China Securities Regulatory Commission and is run by the Shanghai and Shenzhen stock exchanges, as well as 17.2 billion yuan in carbon-neutrality asset-back securities, according to Caixin calculations. The first batch of these bonds was issued in early February on the interbank market, reported The Straits Times.
Meanwhile, China's interbank and exchange bond markets have become major sources of financing for projects that will help the country achieve carbon neutrality.
However, the two markets have different requirements for how much of the money raised through these bond issuances must be spent on carbon reduction.
In March, the interbank bond market's self-regulatory body announced that in principle issuers must spend all of the proceeds raised from carbon-neutrality bonds on projects that can help reduce carbon emissions, such as clean energy, clean transportation and sustainable architecture, reported The Straits Times.

The central bank-backed National Association of Financial Market Institutional Investors (NAFMII) also told issuers that they have to disclose the estimated amount of emissions that will be reduced by their projects, and encouraged them to disclose a road map for achieving those reductions.
The idea is that there are some heavy emitting industries that will still be needed while the world transitions to a low-carbon future. For example, China will still need coal-fired power plants to ensure a steady supply of electricity while the country develops cleaner sources of energy, Dr Zhou Chengjun, Director of the PBOC's finance research institute, said at a forum in Beijing in late March.
As a world manufacturing power, China has many high-carbon industries that need financial support to make the transformation to low-carbon emissions, he said. Carbon-transition finance can have more flexible requirements than green finance to better support this transition.
The concept of carbon-transition finance is a new one. There is no internationally accepted definition of the term or universal standard for its classification, according to Dr Zhou. "Transition finance is a new proposition," he said.
Another significant issue in carbon-neutrality finance is the lack of clear standards for the accounting of carbon emissions in the financial sector that regulators can use to effectively assess its carbon-reduction performance.
Although the Ministry of Ecology and Environment has set standards for calculating the carbon emissions of companies in key real-economy industries, there are no regulatory standards for carbon emissions attributed to the assets of financial institutions, reported The Straits Times.
Another obstacle to getting more debt issuers and investors to engage in carbon-neutrality financing is the lack of incentives and commercially sustainable projects, some experts said.
Bond issuers have not been particularly enthusiastic to join in the green bond market, as the prospects of such projects remain unclear and they require a high initial investment, a source close to regulators told Caixin.
For investors, green bonds have about the same collateral and risk provisions as typical bonds, so they do not have much appeal other than for those who already care a lot about green issues, the source said. (ANI)