China’s central bank PBoC launched a new monetary policy tool to incentivize lending for carbon emission reduction activities on November 8, as reported by Caixin on November 9. The new policy tool mandated that interest rates for carbon emission reduction loans should be close to the level of the country’s benchmarking lending rate, the loan prime rate (LPR). After financial institutions provide qualified loans to companies for carbon emission reduction activities, PBoC will provide 60% of the loan principals made by financial institutions for carbon emission cuts, with a one-year lending rate of 1.75%. Lenders will have the autonomy to choose projects and roll over the loans twice.
The new tool aims to mobilize more capital to promote a low-carbon transition in key sectors, with a focus on clean energy, energy saving, and carbon emission reduction technologies. Lending for projects with potentials for large emission reduction and at early stages of development will be prioritized. In other words, the new lending tool is equivalent to targeted re-lending with interest rate cuts to support a green economy. In addition, PBoC will require financial institutions to disclose relevant information, such as the number of projects, the amount of loans, the weighted average interest rates, and carbon emission reduction data. Such disclosures need to obtain third-party verification from a professional institution and be subjected to public supervision.