The role of banks in energy saving and cutting emissions is well
established in developed economies, but is only just starting to
take shape in China.
The nation's development plan for 2006-10 sets a target of
reducing energy consumption per unit of GDP by 20 percent by 2010,
or 4 percent each year, and China also aims to cut emissions of
major pollutants by 10 percent in that period.
These are moves in the right direction, but the nation must get
its commercial banks involved if it is to achieve the target,
according to experts.
"The (Chinese) government is doing exactly the right thing by
setting the target," said Rachel Kyte, director of the Environment
and Social Development Department at the International Finance
Corporation (IFC), a member of the World Bank Group.
Incentives for green innovation will not occur without a clear
commitment from the State on a target that holds everyone
accountable, she said, at a recent forum on green financing.
With the target set, the next step would be to engage the banks
to facilitate the process, analysts said.
They said banks would make a big difference in meeting energy
use and emissions targets.
Last year, China's energy consumption per unit of GDP fell by
1.33 percent - the first time since 2003 it did not increase - but
was still short of the average 4 percent annual target.
"An important reason for the failure (to meet the target) is
that although many enterprises want to do it, they lack financing,"
said Calvin Xu, program manager of the China Utility-based Energy
Efficiency Finance Program under the IFC.
And that's where banks can step in.
The Industrial Bank, a major commercial lender based in Fujian
Province, is a frontrunner in financing green projects and an
example of how banks can balance their commercial and social
interests to benefit the country's environmental drive.
The Fujian bank, established in 1988, has extended loans worth
435 million yuan for energy efficiency projects since it started
the business a year ago, said Li Renjie, president of the bank.
Those projects are targeting CO2 emission cuts of 2 million
tons.
"We are going to increase these loans to 10 billion yuan by
2010," said Zhu Liyong, head of the bank's corporate banking
department. By then, the loans will help save 10 million energy
equivalent tons of coal and cut 22 million tons of CO2 emissions,
Zhu said.
That would help ease China's energy demand, which may amount to
2.7 billion tons of coal equivalent this year - almost double the
amount in 2000, according to Dai Yande, deputy director of the
Energy Research Institute of the National Development and Reform
Commission.
Dai warned that the country's fast growth of energy use is
unsustainable.
The Industrial Bank drive could achieve even more than Zhu's
estimate.
"The bank's estimate of CO2 emissions is rather conservative,"
said Xu, who believes it could reach 40 million tons, about 8
percent of China's CO2 emissions in 2006.
China's energy use and emission reduction targets would be more
easily met if more banks got involved in green programs, he
said.
"We expect the (Industrial Bank) program to have a significant
development impact on promoting energy efficiency when other banks
understand the opportunities that come from this line of business,"
said the IFC's Kyte.
The IFC is currently looking for more Chinese banks to repeat
the Industrial Bank model. "We will announce new partners for the
energy efficiency program by January," said Xu.
The IFC will guarantee any losses incurred to encourage banks to
extend loans to green projects. The IFC's experience in Eastern
Europe and Russia shows that bad loans are a slim possibility, Xu
said.
But policy risks exist for commercial banks that want to expand
their green credit programs, analysts said.
China is reining in credit to reduce liquidity, which has
triggered many problems - from excessive investment to ballooning
asset prices. The banking regulators have discouraged banks to lend
to companies in sectors that are heavy consumers of energy and
resources and that pollute the environment.
But as a new round of fiscal belt-tightening is expected
following the Central Economic Work Conference, prospects remain
uncertain - at least in the short term - for energy
efficiency-oriented green lending.
"My understanding is that this tightening aims to encourage
structural adjustment of commercial bank loans and will encourage
environment-friendly projects," said Tang Bin, secretary of the
Industrial Bank board.
(China Daily December 18, 2007)
