(Yicai Global) June 8 -- China needs to adopt the carrot-and-stick approach, namely by greatly increasing the cost of carbon emissions and offering incentive policies, in order for the country to meet its goals of achieving carbon peaking by 2030 and carbon neutrality by 2060, the governor of the People’s Bank of China said today.

The businesses and users that emit greenhouse gases do not pay the costs related to these emissions which are instead mainly borne by society, Yi Gang said at the 14th Lujiazui Forum today. A reasonable carbon price needs to be set to gradually reduce the negative effects of greenhouse gases.

The PBOC will also roll out more policies to encourage emissions cuts, Yi said. For example, the central bank can introduce a carbon tax or ask people to buy emission rights. Increasing the price of fossil fuels will also reduce the green premium, he added. 

In 2021, the PBOC introduced a carbon emissions reduction support tool to key sectors. This provided refinancing to financial institutions at an interest rate of 1.75 percent for 60 percent of the loan principal. It also set up a special loan for the efficient use of coal, Yi said. 

Some CNY400 billion (USD56.1 billion) worth of the carbon emissions reduction support tool had been extended as of the end of April, allowing banks to issue CNY670 billion of loans, and helping to reduce emissions by more than 150 million tons, Yi said.

China has also formed a multi-level green financial market and both its green loans and green bonds rank among the most in the world, Yi said. China’s green loan balance in Chinese yuan and foreign currencies exceeded CNY25 trillion (USD3.5 trillion) as of the end of March. And the amount of green bonds topped CNY1.5 trillion (USD210.3 billion). There are also a variety of other green financial instruments in development. 

In 2021, the central bank asked 19 banks to conduct a carbon cost sensitivity stress test for eight key carbon-emitting industries, namely electricity, iron and steel, building materials, non-ferrous metals, aviation, chemicals, petrochemicals and paper.

Editor: Kim Taylor