Chinese commercial banks are moving into the country carbon markets

Chinese commercial banks are moving into the country’s fledgling carbon markets, competing to deliver new financial products in order to help industrial clients hedge carbon trading risks and finance new investment in cutting carbon emissions.

China’s Industrial Bank Co. Ltd announced the launch of a yield enhancement product in Shenzhen, the first of its kind in China to link interest rates to revenues generated from trading carbon.

The bank has received a 10 million yuan ($1.63 million) deposit from the Shenzhen Huike Electronics Co. Ltd, which participates in the Shenzhen emissions exchange.

The deposit will generate guaranteed interest payments of 1.9 percent and could earn further yields of up to 2.2 percent, depending on the firm’s carbon trading revenues.

The bank will also hand over at least 1,000 Shenzhen permits to the firm once the deposit matures.

In September, Industrial Bank loaned 40 million yuan to a firm trading on the Hubei Emissions Exchange, another of China’s pilot carbon markets, using CO2 permits as collateral.

Two others – China Everbright Bank and China Construction Bank – have since made similar loans involving 400 million yuan.

China has launched seven pilot regional carbon trading platforms in Beijing, Tianjin, Shanghai, Chongqing, Hubei, Shenzhen and Guangdong, and aims to launch a nationwide market in 2016. They traded nearly 14 million permits by October, 1 percent of the total issued during 2013.