(Yicai) Aug. 15 -- Southern Guangdong province, home to China’s most active provincial-level carbon market, has rolled out a new financing mechanism that recognizes greenhouse gas emissions quotas as legal collateral for loans. This is the first time that this practice is being given systematic judicial protection in the country.

The document, which was released on Aug. 12 by institutions such as the Guangdong branch of the People’s Bank of China and the Higher People’s Court of Guangdong Province, also encourages financial institutions to apply for carbon-reduction support tools so as to offer low-cost funding to eligible green loans. Institutions which stand out in the development of green finance will also be given extra policy support and incentives.

The initiative will energize Guangdong’s carbon finance market, said Li Zhiping, deputy head of the Chinese Society of Environmental and Resources Law and a professor at Sun Yat-Sen University Law School. With the combination of legal safeguards and financial innovation, it can serve as a model for the rest of the country to help drive the growth of green finance and meet China’s dual-carbon goals.

The document also encourages financial institutions to expand their green financing options to meet companies’ varied funding needs. This includes developing financing backed by annual pre-allocated quotas, pledges of future income from carbon sinks, carbon quota-backed bonds and carbon asset securitization products.

Guangdong is China’s most active pilot carbon market. As of last month, the Guangzhou Emissions Exchange had traded 230.9 million tons of carbon quotas worth CNY6.7 billion (USD933.2 million), accounting for over 30 percent of all the carbon trades in the country’s eight pilot markets.

Editor: Kim Taylor