China is going to launch its first carbon-linked financial product

China will launch its first carbon-linked financial product on Thursday, a debt note linked to the performance of carbon offsets on the Shenzhen Emissions Exchange, issued by a unit of China General Nuclear Power Group (CGN). CGN will invite investments of up to 1 billion yuan ($160 mln) in the medium term note and it will mature after five years.

Shenzhen is among the six cities and provinces in China to have launched carbon markets amid efforts by the world’s biggest emitting nation to cut climate-changing greenhouse gases.

In the Shenzhen market, companies whose carbon dioxide emissions exceed limits set in government permits must bridge the gap by buying permits from other scheme participants. But they can also opt for cheaper carbon offsets issued by the central government to projects that can prove they have reduced emissions.

The CGN subsidiary, a wind power unit, has five wind projects that can generate up to 377,000 offsets per year if approved by the government.

The product’s future value will be decided by a combination of a fixed rate, to be announced on Thursday, and the floating price of offsets from the five wind projects, as traded on the Shenzhen Emissions Exchange.