Central Banking and Climate Action

This report from the Institute for Energy Economics and Financial Analysis examines the steps being taken by the People’s Bank of China (PBoC) to green the country’s financial system, describing them as bold and novel compared to other central banks globally.

It examines the carbon emissions reduction facility (Cerf), which was established shortly after the Cop26 summit last year. It calculates that by the end of 2021, within its first month of operation, the PBoC refinanced loans to 2,817 borrowers promising to cut 28.76mn tons of annual carbon emissions. That equates to 0.8% of China’s annual carbon dioxide emissions from coal power.

The author strikes a note of caution, saying that the Cerf’s real test will come as emission reduction results come through, third-party audits are conducted, and the PBoC assesses both for rollover. Chinese companies have faced accusations of fraudulent emissions reporting, something which the authorities say they are taking steps to address.

The paper suggests that although the PBoC operates within China’s unique economic, political    and financial environment, there is considerable scope for its policies to be replicated elsewhere.