China to Drop ‘Clean’ Coal from Green Bond Eligibility List
China may be about to drop so-called “clean” coal from the list of eligible projects for a green bond designed to boost the country’s environmental standards.
“Two sources with direct knowledge of the situation say China’s central bank, which regulates financial institution debt issuance and whose 2015 guidelines were adopted by other market regulators, has already revised the eligibility list,” Reuters reports. “One of the people said the list is due to be published later this month.” The news agency says the People’s Bank of China did not immediately respond to its request for comment.
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“If confirmed, ending the policy of financing coal with green bonds would be a much-needed step in the right direction,” said Greenpeace senior campaigner Liu Jinyan. “With no new coal projects taking money from the green bonds market, those funds can actually accelerate China’s energy transition and green development.”
Reuters traces the story back to 2015, when the central bank included “clean” coal in its list of technologies eligible for green bond funding. “Beijing has in recent years promoted new green financing methods to help industry pay for its transition to cleaner modes of growth,” the article states. The allowance for coal “has put the country at odds with global standards, a point of contention for some international investors and many environmental groups.”
While the share of China’s green bonds that have been “internationally aligned” with global markets has been increasing, the Climate Bond Initiative reported in late February, only US$31.2 billion of the $42.8 billion issued last year would have met international standards.
“Green bonds have already financed a number of big coal projects in China,” Reuters notes. “Tianjin SDIC Jinneng Electric Power Co Ltd issued ¥200 million ($29.81 million) in commercial paper on the interbank market in mid-2017 to finance a low-emissions coal-fired power plant.” And “coal-to-chemical plants have also received billions of yuan in financing through green bonds, despite criticism from environmental groups.”
A two-tiered financing structure involving the People’s Bank and China’s state planning agency, the National Development and Reform Commission (NDRC), will still allow some coal projects to slip through and obtain green financing. Two Shanghai-based experts said it might be unrealistic to expect a sudden, blanket exclusion.
“For the time being, perhaps we have to put up with, make a compromise with clean coal,” said Hogan Lovells counsel Shengzhe Wang, who worked on green bonds with the U.K.-China Green Finance Taskforce. “I don’t think it necessarily means there will be more coal projects because of it, because there has already been a moratorium for quite some time,” added Dorsey & Whitney Managing Partner Peter Corne. But “coal’s not going to go away, and it will greatly accelerate our progress towards achieving emission goals if we do clean up the coal sector.”