PBOC outlines approach to greening monetary policy

August 11, 2021|Written by Graham Caswell|People's Bank of China

The People’s Bank of China (PBOC) has outlined its approach to greening monetary policy in a quarterly implementation report from the central bank’s Monetary Policy Analysis Group, released on Monday. The design of “carbon emission reduction policy support tools” will be based on “marketization, rule of law, and internationalization”, the report says, and will be fully transparent.

In accordance with the decisions and policies of China’s Party Central Committee and the State Council, the PBOC will promote the design of green monetary policy tools in an orderly way, the report says. Measures will “fully reflect” openness and transparency, and will be “operable, calculable, and verifiable” to ensure that the policy tools are accurate. Practical effectiveness will be a fundamental concern in the design of these new tools, the report makes clear, with “clear support” to be given to activities with significant carbon emission reduction effects with a focus on clean energy, energy saving, environmental protection and carbon emission reduction technologies.

The report also referenced the PBOC’s recently announced green lending facility, which it calls “a structural monetary policy tool that directly reaches the real economy.” PBOC will provide funds to support financial institutions in offering preferential interest rates for key projects with significant carbon emission reduction effects, it says, encouraging social investment and financing to green and low-carbon fields and helping to “tilt [the market] to promote the achievement of carbon peak and carbon neutral goals.”

The report states that “computable” metrics are vital, and financial institutions will be required to calculate and publicly disclose the carbon emission reductions driven by their loans, with these disclosures verified by a third-party professional institution.

The PBOC will also convene a conference on “adjusting the credit structure of major banks across the country” in order to “guide commercial banks to increase their support for green and low-carbon industries.” The forum will discuss the creation of “carbon-neutral special financial bonds” and “carbon-neutral debt financing instruments” to support projects with significant carbon emission reduction effects.

Although media coverage of the report has focused on the PBOC’s intention to keep monetary policy flexible amid an uneven economic recovery from the Covid-19 pandemic, much of the second quarter monetary policy report focused on emissions reduction efforts.

China’s emissions reduction targets are not aligned with the IPCC pathway to the 1.5C Paris Agreement target, and China remains the largest source of finance for new coal plants. However, independent research has ranked the PBOC ahead of its international peers in responding to the climate emergency.

This page was last updated August 11, 2021

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