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A financing facility on an "impressive scale" for moves lowering carbon emissions is likely to be unveiled soon by the People's Bank of China as part of a green financing package to support the country's carbon neutrality efforts, Ma Jun, a senior green finance policy advisor to the central bank, told MNI.
The decarbonisation facility, like the relending programmes, will offer "pretty preferential" rates and will target low-carbon projects via bank loans, said Ma, chairman of the Green Finance Committee (GFC) of the China Society for Finance and Banking, an industrial association set up by the PBOC to promote green finance.
"It is expected to be a standing structural tool in the PBOC's toolkit, and it would leverage large scale private capital using a preferential rate, an incentive equivalent to interest subsidies, " said Ma, also a former member of the PBOC's Monetary Policy Committee.
China announced a comprehensive plan on Sunday to coordinate a shift to green growth and policies that fit in with the official goal of a carbon-neutral economy by 2060.
China's total green investment demand will reach CNY487 trillion over the next 30 years, involving 211 industries, most of it funded by green loans and green bonds as well as equity financing, according to GFC. It will offer "a significant opportunity" for financial institutions, Ma said.
An urgent task in order to attract foreign investors is the harmonisation of global standards of green finance, said Ma. China and the EU are likely to launch a Common Ground Taxonomy next month, which will guide Chinese financial institutions as they package green assets into financial products such as Reits and asset-backed securities, he said.
China's 2060 carbon neutrality target will lift the scale of low-carbon investment in areas like energy and cut fossil energy imports, creating green employment opportunities to replace jobs lost in the energy transition, Ma said. The transformation of China's huge domestic market and advanced manufacturing capacity will also pave the way for exporting green technologies and products, he said.
However, Ma warned that the transition will be a painful process that will include high costs, unemployment, bankruptcies and stranded assets in sectors such as power plants, petrol-fuelled transport and in manufacturing industries such as steel and cement. The spillover effects to the financial sector need to be considered as companies which fail to transform could struggle to repay bank loans, he said.
The financial sector needs to improve risk disclosure and initiate tools to manage the transition, according to Ma. GFC suggests that financial institutions should report the carbon intensity of their assets and exposure to carbon-intensive assets, as well as conduct climate risk analysis.
New financing and policy guidelines also present big opportunities for green finance, including a newly-introduced carbon trading market, fiscal subsidies and tax cuts for green industries, Ma said.
In addition, financial institutions should accelerate the introduction of new carbon financial products and derivatives such as carbon quota repos, carbon bonds, carbon futures and options, he said, adding that the central government should consider national green transition funds to support key sectors.