Worldwide: Carbon Finance In China

Last Updated: 20 July 2015
Article by Dentons Worldwide

On April 21, China's cabinet published the Notice of Establishing Guangdong Free Trade Zone, by which the government has confirmed Guangdong is allowed to open the country's first carbon futures exchange. Although throughout the whole publication there is only one sentence stating the possibility of launching this brand-new project, what can be assured is that the project will be undertaken very soon, with the backing of government.

The confirmation of China's first carbon futures exchange being opened could be viewed as the greatest progress that the Chinese carbon market has achieved since 2013, when regional market was opened. Additionally, what is clear from confirmation of this project and what can be gleaned from its backing of the government, is the government's wishes to enhance the liquidation and diversity of China's carbon market, even considering the creation of carbon financial instruments since 2014.

2014 is widely regarded as the first year of China's carbon finance. Since this time, financial products, in relation to carbon assets, started to be created by the market. In May 2014, Shanghai Pudong Development Bank underwrote the country's first carbon bond in the inter-bank market, CGN wind carbon gain additional medium-term notes, of which the total value of the bond was one billion RMB and the term until maturity was five years. In September, China Hubei Emission Exchange, Industrial Bank and Hubei Yihua Group jointly launched China's first carbon asset loan project. Under this project, Industrial Bank issued 40 million RMB to Hubei Yihua Group, securing the value of the loan against Hubei Yihua Group's carbon emission quotas to Industrial Bank as security. In November, the first government-recorded special asset management plan in relation to carbon emission rights was released in Hubei, of which the value of the funds in the management plan was worth 30 million RMB. In December, Bank of Shanghai, Shanghai Treasure Carbon New Energy Environmental Protection Technology and Shanghai Environment and Energy Exchange jointly launched China's first CCER loan project, in which Bank of Shanghai lent five million RMB to Shanghai Treasure Carbon New Energy Environmental Protection Technology, securing the value of the loan against numerous tons of CCER held by Shanghai Treasure Carbon New Energy Environmental Protection Technology to Bank of Shanghai.

In March 2015, China's first trust fund established for the investment in carbon emission was released by JIC Trust, worth 50 million RMB. In April 2015, China's first carbon dedicated investment trust for carbon emission was created by CMB Sinolink Investment. This investment trust's financial value was equal to the first carbon emission trust fund launched last month. In addition, April saw the first CCER transaction which was settled in Shanghai Environment and Energy Exchange, when Shanghai Treasure Carbon New Energy Environmental Protection Technology sold its CCER to Shanghai Aijian Trust.

Looking to the future of carbon finance in China, taking the opening of the national market into consideration, it is expected that by 2020 the value of carbon futures market will reach 60 billion–400 billion RMB while the spot market will reach 1 billion–8 billion RMB. Obviously the market has already regarded China's carbon finance as a great new market and started to participate into the big game. As Xiong Yan (former Chairman of Beijing Financial Assets Exchange) puts, "the combination of China's environment reform and financial reform will breed great industry and investment opportunities. The price of China's environmental products will be greatly improved, thus giving rise to the new opportunities".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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