BOFIT Viikkokatsaus / BOFIT Weekly 2018/29

Bonds intended to finance environmental protection projects such as waste-water treatment facilities or climate-saving technology such as solar power arrays are referred to as green bonds. The international expert organisation Climate Bonds Initiative (CBI) reports that last year the amount of green bonds meeting international standards reached $156 billion globally. Of these, 25 % were issued in the US, 15 % in France and 15 % in China. The largest green bond in 2017 was issued by the French government ($11 billion), followed by the China Development Bank bond ($5 billion). In the first six months of this year, Chinese issuers launched 22 new green bonds worth over $3 billion in total.

While a total of $36 billion in green bonds were issued in China last year (an increase of 5 % y-o-y), a large share (38 %) only qualified as green under China's own criteria. Banks, which dominate the green bond market, accounted for 74 % of last year's issues. Although the banks' share has fallen, it is still substantially larger than the global average of 25 %.

Unlike international green bond standards, China includes projects involving e.g. clean coal, improvements in coal-burning efficiency and efficiency optimization of fossil fuel power plants. Moreover, international standards require that in practice all funds raised through the issue to be dedicated to green projects, while Chinese standards allow up to almost a half of the money to be used, for example, for servicing banks loans or augmenting corporate capital.

The People's Bank of China say the county would need to spend about 2–4 trillion yuan ($320–640 billion) a year on environmental protection and measures to mitigate climate disruption. The various policy measures used to promote green bonds were recently bolstered by including them as acceptable collateral in central bank financing.