China Central Bank issues financing for emissions cuts

People's Bank of China headquarters, April 4, 2020. [Reuters]

China has issued the first 85.5 billion yuan ($13.4 billion or Sh1.51 trillion) batch of low-cost loans to financial institutions to promote green projects and corporate efforts to cut carbon emissions, the central bank said on Thursday.

Under the carbon emission reduction facility (CERF), the first of its kind to be rolled out by the People’s Bank of China (PBOC), financial institutions can apply for low-cost funding to back the loans they issue to finance companies’ emissions reduction efforts.

The CERF is part of China’s broader goal of bringing carbon emissions to a peak before 2030 and achieving carbon neutrality by 2060, as well as sheltering the economy from the economic fallout of the Covid-19 pandemic.

Under the CERF, the PBOC will provide financial institutions with funds equal to 60 per cent of a loan’s principal at a one-year lending rate of 1.75per cent. That would be at a discount to the seven-day reverse repo rate of 2.2 per cent.

The bank has also officially rolled out low-cost loans to support companies’ efforts to use clean coal, Sun Guofeng, head of the PBOC’s monetary policy department, said in a news conference. He did not say how much has been provided already.

The CERF could lead to 1 trillion yuan per year being invested in projects related to clean energy after the monetary tool is fully rolled out in 2022, according to reports from Huatai Securities and Everbright Securities.

But banks are required to certify the loans have been issued to firms that can help the economy adopt cleaner energy or improve energy efficiency.

As targeted monetary policy tools, Sun said both the CERF and the special clean coal loans can contribute to the overall credit supply and stable credit growth.