Central Bank Research Bureau: Accelerate the development of the national carbon emission trading market, and orderly expand the scope of carbon market trading entities

The People's Bank of China official micronews, the Central Bank Research Bureau published a special column "Promoting the effective connection between green finance and transition finance". The article points out that the system of financial products and services should be enriched. Vigorously develop transition financial products and markets. According to the different transition entities, transition stages, and use of funds, research and develop targeted transition financial products, support the development of sustainability-linked bonds, and comprehensively use diversified tools such as credit, bonds, equity investment, and trusts to provide financial support for transition activities. Encourage the development of private equity (PE), venture capital (VC), M&A funds, debt-to-equity swaps, mezzanine investment and other financial products with greater risk inclusiveness. At the same time, we will promote and popularize the concept of green investment, expand the participants in green finance and the transition finance market, and guide green investors to pay attention to and support the transition economic activities. Accelerate the development of a national carbon emission trading market. Improve the trading mechanism and trading rules of the carbon market, and clarify the systems for registration, trading, and settlement。 Actively study various financial products linked to carbon emission rights. In accordance with the principle of investor suitability, the scope of carbon market trading entities will be expanded in an orderly manner。 Reasonably control the total amount of carbon emission allowances issued, and scientifically allocate initial carbon emission allowances. Enhance the liquidity of the carbon market and optimize the pricing mechanism of the carbon market.

Promote the effective connection between green finance and transition finance

Bureau of Research

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1. Green finance and transition finance complement each other to jointly serve the goal of carbon peak and carbon neutrality

Since the 18th National Congress of the Communist Party of China, China's green financial system has achieved remarkable results, and a multi-level and diversified green financial market based on green loans and green bonds has been formed, providing a strong impetus for serving the green and low-carbon development of the real economy. As of the end of the third quarter of 2023, China's green loan balance was 28.58 trillion yuan, a year-on-year increase of 36.8%, ranking first in the world, and the balance of the domestic green bond market was 1.98 trillion yuan, ranking second in the world.

Constrained by the structure of the energy industry and the stage of economic development, while vigorously developing green industries, it is necessary to promote the low-carbon transformation of traditional high-emission or difficult-to-abate-emission industries and economic activities in a steady and orderly manner, which has a direct effect on achieving the goal of carbon peak and carbon neutrality. In practice, the need to research and develop transition finance has become increasingly prominent. Transition finance focuses on industries and projects with significant carbon emission reduction benefits, and provides reasonable and necessary financial support for low-carbon transformation in high-emission or difficult-to-abate sectors, which can promote the increasing proportion of green industries and green projects in economic activities on the premise of ensuring "safe carbon reduction".

The People's Bank of China has always emphasized the following aspects in the process of promoting the development of green finance and transition finance in a coordinated manner:One is systems thinking.Based on the transformation of the whole chain of the supply chain or the overall transformation of the business entity, green and low-carbon transformation activities will be carried out in steps and stages.The second is to establish first and then break.Coordinate the current and long-term, and handle the relationship between energy transition, economic development and people's livelihood security. Encourage financial institutions to continue to improve their ability to identify green and low-carbon economic activities, actively respond to financial risks related to climate change, avoid "sport-style" carbon reduction, and help green and low-carbon development achieve steady and long-term development.Third, it is based on national conditions and technological realities.In accordance with the principle of "urgent use first", we will start with transition finance standards in key areas such as coal power, iron and steel, building materials, and agriculture, and give priority to supporting fields with advanced technologies and significant carbon emission reduction effects.Fourth, domestic green and low-carbon development and international coordination and cooperation on sustainable finance promote each other.The People's Bank of China has served as the co-chair of the G20 Green Finance Study Group and the Sustainable Finance Working Group, vigorously promoting international research and work related to green finance and transition finance, and contributing Chinese wisdom and solutions. The G20 Transition Finance Framework and other important outcome reports drafted by the Working Group have been officially released after being approved by the G20 Leaders' Summit.

2. Draw on the beneficial experience of green finance and fully integrate climate change-related factors into the design of transition finance policies and tools

In the next step, the People's Bank of China will be guided by Xi Jinping Thought on Ecological Civilization, conscientiously implement the spirit of the Central Financial Work Conference, further strengthen the top-level design of financial support for green and low-carbon development, adhere to the principle of marketization to promote the development and effective connection between green finance and transition finance, and systematically improve the ability of the financial system to manage and prevent climate risks.

The first is to improve the standard system and consolidate the foundation for the development of green finance and transition finance.Drawing on the experience of green finance standard formulation, we will gradually introduce transition finance standards that are common to all types of financial products. Encourage transition entities to formulate scientific, reasonable and feasible transition plans to ensure that carbon reduction and emission reduction are achieved at the overall level. At the same time, we will take the formulation of transition finance standards as an opportunity to adjust and update the current green finance standards to make the transition greener and more comprehensive and systematic. Gradually build a financial statistical system that can measure the effect of carbon emission reduction, and further improve the incentive and restraint mechanism for green finance and transition finance on this basis. Actively advocate for global transition finance issues and improve the comparability and consistency of global sustainable finance standards.

The second is to strengthen the requirements for carbon accounting and environmental information disclosure.We will further improve the carbon accounting system of enterprises, study and establish carbon accounting methodologies for financial institutions in line with international advanced practices, and promote the formulation of national standards. Under the premise of controllable costs, improve the consistency and comparability of carbon accounting data of financial institutions, and establish an inter-departmental information sharing mechanism. Further expand the scope of environmental information disclosure entities, improve the comparability of environmental information, strengthen the disclosure requirements for climate information such as carbon emissions and carbon emission reduction, and realize the mandatory disclosure of environmental information by financial institutions step by step. Actively participate in the development and trial of global sustainability disclosure standards.

The third is to improve the incentive and restraint mechanism to fully reflect the continuity of policies.Improve monetary policy support for green and low-carbon development.We will continue to make good use of carbon emission reduction support tools and special re-loans for the clean and efficient use of coal, and support the green and low-carbon transformation of the economy.To further enhance the effectiveness and pertinence of green finance evaluation,Improve the indicator system, study the gradual inclusion of indicators such as green finance and transition finance performance, climate-related financial risks, green mechanism construction, green finance and transition financial services, and climate and environmental benefits into the evaluation system, include more mature products and businesses in the evaluation scope, expand the application scenarios of evaluation results, and link evaluation results with green finance and transition finance support policies.Routine climate risk stress testing.We will continue to improve the methodology for climate risk stress testing and enrich the setting of stress scenarios, organize more financial institutions and some regions to carry out climate risk stress tests, explore the integration of climate change-related risks into the regulatory framework, and carry out in-depth stress tests on climate risk macro scenarios.

Fourth, enrich the system of financial products and services.Vigorously develop transition financial products and markets.According to the different transition entities, transition stages, and use of funds, research and develop targeted transition financial products, support the development of sustainability-linked bonds, and comprehensively use diversified tools such as credit, bonds, equity investment, and trusts to provide financial support for transition activities. Encourage the development of private equity (PE), venture capital (VC), M&A funds, debt-to-equity swaps, mezzanine investment and other financial products with greater risk inclusiveness. At the same time, we will promote and popularize the concept of green investment, expand the participants in green finance and the transition finance market, and guide green investors to pay attention to and support the transition economic activities.Accelerate the development of a national carbon emission trading market.Improve the trading mechanism and trading rules of the carbon market, and clarify the systems for registration, trading, and settlement。 Actively study various financial products linked to carbon emission rights. In accordance with the principle of investor suitability, the scope of carbon market trading entities will be expanded in an orderly manner。 Reasonably control the total amount of carbon emission allowances issued, and scientifically allocate initial carbon emission allowances. Enhance the liquidity of the carbon market and optimize the pricing mechanism of the carbon market.

Fifth, we should fully mobilize the enthusiasm and initiative of the grassroots, and promote the overall development of green finance and transition finance through local pilot projects.Since 2017, the construction of 10 green finance reform and innovation pilot zones across the country has achieved positive results, forming a series of beneficial experiences to be replicated and promoted across the country. In 2022, the first batch of pilot areas ended successfully. Encourage more qualified and willing regions to continue to explore diversified green finance reform and innovation experiments based on regional realities, support the upgrading of original pilot zones with characteristics and foundations, encourage the development of transition finance, and continue to contribute to the overall development of green finance and transition finance.