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Central banking and climate action – China steers credit to decarbonize

March 01, 2022
Norman Waite
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Key Findings

The People’s Bank of China (PBOC) has been quietly greening China’s financial system. The PBOC’s actions to steer credit into decarbonization efforts are bold and novel compared to other central banks globally.

The PBOC launched the Carbon Emissions Reduction Facility (CERF). Within its first month of operation, the PBOC refinanced loans to 2,817 borrowers promising to cut 28.76M tons of annual carbon emissions. That is 0.8% of China’s annual carbon dioxide (CO2) emissions from coal power.

This is a strong start, but 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.

Executive Summary

Many economists, politicians, and central bankers have been studying, theorizing, and debating the potential role central banking could play in the global effort to promote decarbonization and address climate change.

There is little consensus, if any. However, the People’s Bank of China (PBOC) has eschewed debate and quietly made efforts to green China’s financial system for some time. Last year, in the wake of the Xi Administration’s 30/60 pledge.

PBOC efforts to foster more climate-friendly lending intensified. In 2021, the PBOC continued to take conventional actions but added measures that diverged from central bank orthodoxy and embraced policy experimentation.

While the PBOC operates within China’s unique economic, political, and financial environment, it would be a mistake to overlook these policies. Apart from its conventional measures, the more active measures the PBOC is taking to steer credit into decarbonization efforts can provide insight into central bank efforts in the rest of the world.

Norman Waite

Norman Waite is a former IEEFA energy finance analyst.

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