Low Carbon Economy, 2010, 1, 71-79
doi:10.4236/lce.2010.12009 Published Online December 2010 (http://www.SciRP.org/journal/lce)
Copyright © 2010 SciRes. LCE
The Study on the Status and the Countermeasures of
Low-Carbon Financial System of China
Yuechun Wen, Yingzi Wu
School of Economics and Management, Tongji University, Shanghai, China.
Email: wuyz1978@yahoo.com.cn
Received October 20th, 2010; revised November 10th, 2010; accepted November 30th, 2010.
Low-carbon economy has become the inevitable choice for the future development of human society, and can not de-
velop without the strong support from financing system. Based on foreign low-carbon finance development experience,
through studying on the status and the existing problem of the development of the domestic low-carbon finance, it is
found that it is very important to improve and perfect a low-carbon financial system for China, including the
low-carbon financial institutions and products system, the low-carbon financial market system, the low-carbon finan-
cial environment system and the supporting policies and measures system.
Keywords: Low-Carbon Economy, Finance S y stem , Financial Environment System
1. Introduction
Global warming has become a long-term problem since
the industrial revolution, which has been exacerbated by
a large number of carbon emission with the modern pro-
duction methods and ways of life in recent decades. It is
an inevitable choice for the mankind to develop Low
carbon economy and promote sustainable development
of human society in the future.
However, it will require substantial capital investment
to solve the problem of global warming through the de-
velopment of low-carbon economy. According to Nicho-
las Stone's calculation, who is the former chief economist
of World Bank, it need to invest 1% of global GDP an-
nually to stabilize atmospheric carbon dioxide at the lev-
el of 500 ppm to 550 ppm to meet the warming goals of
less than 2 degrees, which is a huge financial burden.
The major developed countries have announced the funds
plan with more than 500 billion U.S. dollars for the
low-carbon economy development, but there is still a
financing gap about 1700~3,000 U.S billion for the an-
nual global emission reduction. The Center for Environ-
mental Finance think that it will lead to the abilities of
the most country more and more vulnerable to solve en-
vironmental issues because of the huge cost and the big
financing gap for solving environmental problems.
Therefore, it is need to develop long-term environmental
financing strategies for environment issues with full use
of financial instruments.
It is still in its initial stage for low-carbon economy
development in China. It is conspicuous that the mode of
economic development is a comparatively extensive,
with low efficient resource consumption and high envi-
ronmental pollution. So it requ ires a systemic low-carbon
economy policy, especially a financing system to support
the economy transition from the “high carbon” to “low
carbon” and then achieve the level of sustainable devel-
2. Literature Review
2.1. The Relation between Finance and Economy
It is always a focus point on the relationship between
financial development and economic growth in theory.
There is a strong correlation between them, Beneivenga
et al. [1] , King et al. [2] found that the healthy develop-
ment of the financial system can promote the economy
growth without other impeded economic factors, and
Krugman [3] found that the imperfect financial system
will hinder economic development. None economic leap
is separated from the development of financial innova-
tion in history, such as the rapid development of the First
Industrial Revolution supported by the joint-stock com-
pany reform, the strong support from venture capital for
the Third Industrial Revolution, and so on. Based on the
“functional view”, the financial system and its features
were summarized by Merton [4]. It is found that the dif-
ferent function of the financial system will affect the de-
The Study on the Status and the Countermeasures of Low-Carbon Financial System of China
Copyright © 2010 SciRes. LCE
cision-making of savings and investment, sound financial
system can promote economic growth, while imperfec-
tions will hinder it [5], Romer [6] and Robert [7], the fi-
nancial system will impact the technological innovation
[8], thus affect economic growth. The financial system
should have the capacity of adaptability and innovation.
In the development of low carbon economy, it should
play an important role, including the fund provision, es-
tablishment of an effective carbon emission trading mar-
ket and the formation of accurate price signals, and the
promotion of various financial derivatives emission re-
duction. Based on the theoretical economic growth mod-
el which make the environmental capital conversion from
the exogenous factors into the endogenous, Tang, Li [9]
has found that the key for the innovation of the market
mechanisms should be the financial innovation which is
based on the negative ex ternalities and th e environmental
capital, that is, the government should define the initial
property rights for environ mental resources and build the
energy trading market, develop environmental or carbon
finance in the clean development mechanism, and guide
enterprises to exchange the environment resources. As an
important driving force, the financial system should ad-
just itself to meet the development of low-carbon econ-
omy [10,11].
2.2. Bank-Based Financing
Some scholars have carried out some exploration on the
financial support for low-carbon development, Ganzi et
al. [12] survey shows that many banks have set up the
environmental sector and developed friendly environ-
mental products. On the basis of the empirical analysis,
Luisa Montes et al. [13] found that the “green bank”
should be different from the traditional banks, which
should focus on the sustainable development sectors and
projects with the active participation in the construction
and supervisize the projects loan and provide various
forms of financial suppor t. Andrea B. Coulson et al. [14]
have found that the environmental risks will result in the
loss of credit business, so environmental risk manage-
ment should be introduced to credit management proce-
dures. Even it is difficult to determine the return on the
sustainable development sectors and projects, banking
sectors should set up a special green credit product, col-
lateral and social responsibility fund for sustainable en-
terprises [15]. Currently, many U.S. commercial banks
demonstrate the ratio of green credit, and requires the
enterprises have more energy efficiency and carbon
emission reduction measures when they apply for green
loans. Sonia Labatt, etc. [16] extend the scope of the en-
vironmental finance products which should be led by
financial institutions and transfer the environmental risk
based on market, including green banking products,
mortgages, weather derivatives, green funds, catastrophe
bonds, and the greenh ouse gas emission reduction cr edits.
Dahlstrom et al. [17] have found that the insurance com-
panies should play a key role in the innovation of new
technology. The insurance companies have a responsibil-
ity to help develop the relevant climate policy [18-20].
Through the study of the financial operations in com-
mercial banks, Wei Heng [21], He De-xu [22] have
found the concept of environmental protection and the
environmental financial risk management system should
be taken into the daily management of the bank. Based
on an actively exploring on the path of financial support
the development of recycling economy in China, Ding
Ling-hua [23] found that the policy Bank can help the
formation of carbon financial market system. Based on
the practical experience of carbon finance operations of
Industrial Bank and analysis on the hidden risks of the
development carbon financial market in China, Chen Yu
[24] support that the commercial banks should speed up
environmental financial innovations, take active in Car-
bon emissions trading and promote the construction of
intermediary organizations for carbon emissions trade.
2.3. Market-Based Financing
According to Coase property rights theory, if the market
transaction cost is zero, no matter how the initial alloca-
tion of emission rights, market transactions can make the
allocation of resources achieve optimal level. But with-
out a perfectly competitive market, the initial allocation
of emission rights will affect the market transaction effi-
ciency. Most current theories of the initial allocation of
emission rights are followed mainly three types: gov-
ernment free distribution, public auction and the combi-
nation of both. Borenstein [25] found that it will take
some time for the transition from the partial auction to
the complete through the study of the validity of the ini-
tial allocation under different mechanisms. Cramton [26],
etc. compared the public auction and free distribution,
found that both of them have their own application con-
ditions. Starzetakis [27] found that the initial allocation
of emission rights by government is superior to market
allocation scheme when it is imperfectly competitive. Li
[28] discussed the complexity and guiding ideology of
the initial price of emission rights at th e theoretical level.
Chen [29] found that the management can improve the
efficiency of resource allocation through an effective
initial allocation. Stavins [30] found that the transaction
costs will affect the efficiency of emissions trading sys-
tem and lead the total cost of pollution con trol rise. In the
Los Angeles emissions trading market, Gandgadharan
[31] found that the initial transaction costs have an im-
portant role for emissions trading, which has well ex-
plained the cause of emissions market trading is not ac-
The Study on the Status and the Countermeasures of Low-Carbon Financial System of China
Copyright © 2010 SciRes. LCE
tive in the early stages.
Based on the current development and its unfolded fi-
nancial Feature of the global carbon market, Ren [32]
argues that it should accelerate the development of car-
bon trading market, the pri ce discovery mechanisms, and
the corresponding environmental derivative financial
instruments in China. Wang [33] proposed 8 models of
carbon financial innovation to solving financing problem
in CDM projects. Wang et al. [34] suggested that China
should try to gradually particip ate in the secondary CDM
market, improve product pricing and control risk. Zhang
et al. [35] provided that corporate credit should be rea-
sonably measured and effectively supervised and the
mechanisms for carbon trading should be established.
Liu [36] studied the carbon accounting standards and the
right of forest carbon sinks, argue that the market trans-
action procedures should be regulated, thus to reduce
transaction costs.
2.4. Policy Support
Lin [40] considered that the path of low-carbon should be
the development of low carbon cities, with the character-
istics of low emissions, high energy efficiency, high
output, which can be achieved with the joint efforts of
the policy incentives of Government and the finance
support of financial industry to drive technology innova-
tion. Zhuang [39] argued that the potential ways to
achieve low carbon development without affecting the
economic development goals in the future might include
adjusting the structure of energy and the industry, im-
proving energy efficiency, curb wasteful, develop the
potential carbon sink and seek the international economic
and technical cooperation. Ren [41] provided that it is
urgent to develop low-carbon economy through the es-
tablishing of the low carbon economic strategy and legal
security system, strengthening the innovation of low-car-
bon technology, developing low-carbon industries, en-
couraging enterprises engage in low-carbon production
and operation and so on. Under the challenges of eco-
nomic restructuring, Fan [42] argued that it is need to
support low carbon economy for China through national
strategy, optimizing energy structure, the transformation
of traditional high-carb on industry, policy incen tives and
so on.
2.5. Brief Review
Although some explorations have been made, it has not
yet formed a complete, systematic and scientific theory
for the financing system of low-carbon development,
which can not provide eff ective policy support or lack of
support for the development of low-carbon economy in
China, mainly due to that th e low carbon econo my is still
in the early development stages, and the relevant policies,
rules and markets has not yet been formed. So it is vital
to carry on an in-depth research on financing system for
low-carbon development and the corresponding support-
ing measures, policies and long-effective mechanism.
3. Foreign Expe r i ence
Low-carbon development policy support. To promote
low carbon economy development, the developed coun-
tries have been at the forefront: The United States has
taken various measures, including legislation, such as the
U.S. Senate proposed a “Bill of low-carbon economy” in
July 2007; “The Clean Energy Security Act” has been
passed in the House of Representatives in U.S. in June,
2009. The security policy mechanism secures the opera-
tion of low-carbon economy, such as carbon emissions
trading scheme was launched in 2005 in EU. The launch
of “the EU Green Paper on Energy Policy” is to increase
the investment in energ y efficiency, clean energy and the
renewable energy research and so on. In March, 2009,
the EU announced that the 105 billion euros will have
been invested by 2013 to support the “green economy”,
promote employment and economic growth, to keep the
EU a world leader in low carbon industries. It also pro-
posed to increase 50 billion euros earmarked for the de-
velopment of low carbon technologies in the next decade
in October, 2009.
Indirect investment and financing. “Equator Principles”
has gradually become an international industry standards
and practice in project financing. Foreign commercial
banks actively participate in environmental financial in-
novation, the carbon trading and providing intermediary
services for families and SMEs. Such as Dutch bank pro-
viding rate discount of 1% for housing mortgage loan
which comply with governmen t environ mental standard s,
U.S. banks providing unsecured loans to small transport
companies when they buy fuel-efficient equipment; Bar-
clays Bank launching green credit card and promising
that the holders can have a more favorable in the pur-
chase of friendly environmental products; Deutsche Bank
introduced energy-saving mortgage loans to customers
for the upgrading works of home energy conservation
and renewable energy installations. The international
communities have set up some self-regulatory organiza-
tion, which is to promote green finance and supervise the
financial institutions engaging in sustainable finance,
whose members are from the bank, insurance and securi-
ties companies and other financial institutions in the
world. The United Nations Environment Programme
Department of Finance Initiative sector (UNEP FI) is the
most influential one among them.
Low-carbon capital markets. Developed countries use
their own sound GEM stock market to promote low-
The Study on the Status and the Countermeasures of Low-Carbon Financial System of China
Copyright © 2010 SciRes. LCE
carbon economy, such as the London Stock Exchange,
there is more than 60 companies listed on GEM, which
committed to new technologies of the carbon emissions
reduction. Low carbon industries have become a new
investment field for international institutional investors
and the venture capital. Carbon trading index has become
an important index of market indicators, the world's ma-
jor carbon trading market issued eight influential Low-
carbon index, which influencing the pricing of carbon
emissions on the international market. On the basis of
these indices, some financial institutions established the
ETF funds, such as Easy ETF carbon fund.
Carbon emissions trading market. Global carbon trad-
ing market has grown rapidly since the “Kyoto Protocol”
formally came into effect in 2005, with total market val-
ue of 144 billion U.S. dollars in 2009, and the quota
based is 122.8 billion U.S. dollars, the project based is
3.37 billion U.S. dollars [37]. The relevant derivatives
transactions also are developed carbon trading market.
EUA transactions reached US$118.5 billion in 2009,
making the EU ETS the largest existing carbon market.
Over 6.3 billion tCO2e changed hands in 2009 through
spot, futures and options contracts. The green Exchange
(Green Exchange) is formed by New York Mercantile
Exchange (NYMEX) with wide varieties of transactions
related to carbon emission rights, renewable energy, en-
vironmental futures, options and swaps contracts. Carbon
futures also has been launched in Australian Climate
Exchange (ACX) and the Australian Stock Exchange
(ASX) in early 2009.
4. The Status and the Limitation of
Low-Carbon Investment and
Financing in China
4.1. The Development Status
Domestic commercial banks take active measures in the
carbon finance business. It has adjusted credit structure
to support energy conservation and emission reduction
projects by increasing credit for energy conservation and
other environmental areas and decreasing the credit quota
for high-pollution and high energy consumption indus-
tries. For example, 223 energy saving projects was sup-
ported by the Industrial Bank at the end of 2009, and the
cumulative energy saving loans was issued 16.6 billion
yuan. On the other hand, it develops carbon finance
business and utilizes a variety of financial tools to sup-
port low-carbon economy. The financial products about
emissions trading were first launched by the Bank of
China and the Shenzhen Development Bank in December,
2009. The Indu strial Bank, as the first Equator Principles
bank in China, successfully provide project financing for
the expansion of Fujian Huadian Power. There is three
banks signed the global UNEP FI statement which has
been agreed by 200 financial institutions in the world,
namely, the Industrial Bank, Shanghai Bank and China
Merchants Bank.
China remained the largest Clean Development Me-
chanism (CDM) seller in carbon emissions market. There
is 2,685 CDM projects approved by the Chinese gov-
ernment by the end of September in 2010, which are ex-
pected to reduce nearly 500 million tons of carbon diox-
ide equivalent emission, and 953 projects of which suc-
cessfully registrated in the United Nations CDM Execu-
tive Board and the estimated annual emissions of green-
house gases achieve to about 2.3 tons of carbon dioxide
equivalent. There is no mandatory emission reduction
quota for companies, so a voluntary emission reduction
will remain the main trade mode in a short term in China.
However, the quota trading pilot will be the trend for
China. The “Panda standards” issued by the Beijing En-
vironment Exchange in January 2010 will promote the
real carbon trading market development in the future.
And the Southern low-carbon index, first domestic
low-carbon index IPO in the Shenzhen Stock Exchange
on September 20, 2010, will lead the domestic green in-
vestment. The data from Zero2IPO Research Center
shows that the low-carbon industries attract more and
more venture capital since 2006. In add ition, the GEM in
Shenzhen Stock Exchange will also lower the IPO thre-
shold for the industry of new energy and emission reduc-
tion. About 200 billion RMB has been invested in the
area of energy saving by central government during the
period of “Eleventh Five-Year”, which driving nearly 2
trillion of social investment.
4.2. The Current Limitation
While some explorations have been made in low-carbon
finance business by financial institutions, the low-carbon
financial system is still in its early stages and the speed
of development is very slow. The main current limitation
may be as follows.
There is neither a mature Carbon financial institution
and product system no r a complete framework for carbon
finance system. The basic credit facilities remain the
main financial products for low carbon industry, and the
product of the forward and futures has not innovated.
The main reason may due to that the new energy industry
is still in the initial stage of development and there is
uncertain input-output ratio which brings great chal-
lenges to the risk management for financial institutions.
And there is absent of experience for low-carbon finance
business, especially in trading rules, risk management
and the professional talents.
Carbon market system is imperfect. CDM remain the
largest share in carbon market in China which is project-
The Study on the Status and the Countermeasures of Low-Carbon Financial System of China
Copyright © 2010 SciRes. LCE
based. However there are many risk factors involved in
the CDM project for the relatively long development
cycle, huge transaction costs, different countries involved,
and lack of professional service in domestic carbon mar-
ket which can offer technical service for financial institu-
tions in analyzing, evaluating, avoiding project risk.
There is not yet a unified carbon emission trading market
and intermediary service system. The pricing mecha-
nisms for carbon trading urgently need to be set up, as
well as the standards of carbon emissions trading. It is a
fact that there is no share in quota-based carbon trading
for China which accounting for more than 85% share in
the total market capitalization with 122.8 billion U.S.
dollars. According to the forecast from New Energy Fi-
nance in UK in 2009, the global carbon trading market
will become the world's largest market in 2020 with 3.5
trillion U.S. dollars transaction, which is expected to ex-
ceed the oil market, and the carbon credits will be the
world’s largest commodity. Therefore, the absent of do-
mestic carbon trading market would severely limit the
further development of carbon finance business.
The low-carbon capital markets should be further im-
proved to allocate the resources through market mecha-
nisms. At present, there are less than 10 companies with
the concept of low carbon listed on Shenzhen Stock Ex-
change and Shanghai Stock Exchange, with 323.36 bil-
lion yuan of total market capitalization and 2.76% of
total market value only. Recently the South low-carbon
index just listed, it is should be followed by the construc-
tion of low-carbon index system in China and the further
design of the carbon financial instruments, such as
low-carbon ETF, low-car bon ind ex fund s, car bon futur es,
carbon options and more. Moreover, it is still blank for
the funds, venture capital and the corporate bonds issued
by energy conservation enterprises in China.
Lack of incentive mechanism. Price mechanism can
not play a full role in the low-carbon market for eco-
nomic externalities, and “market failure” appears. The
interest conflicts between en terprise and their own so cial
will result in the increase of credit risks in financing in-
stitutions when lack of appropriate risk compensation,
guarantees and tax deduction. The main reason is that the
financial institutions are unable to share the social costs
under the current financial regulatory system. The low-
carbon economy is facing more and more severe financ-
ing environment because the banks stress the safety,
profitability and liquidity of the credit loans, and the
stock market require the corporate keep high profits.
Inadequate policy support. The development of Low-
carbon economy is still in the early stage in China, rele-
vant policies, rules have not yet been formed, such as
corresponding tax system and low carbon support policy,
which is the dependent environment for the diversified
investment structure.
5. The Countermeasures
It is require that a perfect carbon finance system should
be built, embracing a national policy framework consist
of corresponding tax deduction system and credit derived
financing support serv ices system, a financial institutions
system supported by regulatory authorities and public
finance, a series of financial instruments including bank
loans, direct investment and financing, carbon credits
trading, carbon options and futures, and so on.
5.1. Establishment of a National Low Carbon
Policy Framework
First, it is vital to perfect the low carbon laws and regu la-
tions system with increasing the relevant provisions to
mitigate the climate change, which will drive the all lev-
els of government, business and the public work together
to promote low-carbon transition. Secondly, the next step
may take measures to support the transformation of the
energy strategic system. It is the global energy strategy
characteristic of saving, efficient, cleans, diverse, secure
for modern energy system. So development new energy
technologies will become the new strategy for most of
the governments in the world. It will require the new
scheme for property rights exchange and the resources
distribution to urge the development of energy saving
industry and new energy industry, such as wind energy,
nuclear power, solar energy, and so on, as well as the
development technology for energy saving, carbon cap-
ture and storage. Third, a low carbon public finance sys-
tem should to be established, wh ich will play a great role
on solving the externalities of environmental issues, for
the resource tax will encourage the rational development
of resources, promote the use of renewable resources,
and the favorable policy on tax will guide the low-carbon
production and consumption, push the commercial banks
provide financial support for the low carbon field, and
also can accumulate low carbon develop funds, as well as
the utilization of the government prices Regulation, pro-
curement policy and information dissemination to drive
the low carbon production and consumption. Fourth, the
green accounting and audit system should be introduced
that will help the establishment of monitoring mecha-
nisms and evaluation system fo r green b ehavior. Through
the above measures taken, a long-term mechanism for
low carbon development will gradu ally formed in future.
5.2. The Sound Bank-Based Financial
Institutions and Products System
Sound low carbon credit system. As the core of China’s
financial system, commercial bank should be a major
The Study on the Status and the Countermeasures of Low-Carbon Financial System of China
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force for low-carbon economy development, so it should
play its due position to build a sound low carbon credit
system under the “Equator Principles”. First, the green
credit system should be established that focus on the fi-
nancial mode meet the demand of low carbon industry
with one hand support for low-carbon financial business
and the other hand restrain the high carbon loan issue.
Second, in addition to the basic credit facilities, the in-
novative instruments should also be developed, including
financial derivatives, joint equity, bonds, etc, which
broaden the financial channel for SMEs. Third, it should
pay attention to improve the carbon credit risk manage-
ment system because carbon finance business often face
a varieties of risks with the long process cycle, intensive
technology, policy risk, inad equate business credit issues.
It is vital to take measures to control the bank’s credit
risk, including introducing the environmental risk man-
agement, risk sharing mechanism, technical certification
for projects, seeking cooperation with the guarantee fu nd
or a professional security agencies, and so on.
Perfect Financial institutions. First of all, it is reason-
able to promote the low-carbon credit business coopera-
tion among commercial banks, which utilize the size ad-
vantage and stren gthen capab ility to solving the high -risk
at early stage of carbon finance business. Secondly, it
requires a diversified investment patterns, with the joint
efforts of the local government financing platform, in-
surance companies, venture capital, institutional inves-
tors and other parties, to provide low carbon financial
services, such as guarantees, risk compensation, insur-
ance, etc. Third, it is an integral part of low carbon fi-
nancial system that the intermediary system providing
professional technical advisory which improve the de-
velopment of low carbon market and help banks and oth-
er financial institutions to analyze, evaluate, avoid risks
come from the development and transaction of low car-
bon business.
It is significant that the measures made to perfect the
low carbon financial institutions and products system
which will broaden the financing channels for low car-
bon enterprises, improve the development of low-carbon
economy, as well as their own development.
5.3. A Sound Low-Carbon Financing Market
5.3.1. T he Es tablishment of a National Carbon
Trading Market
The credit subject. It is the first job for the low carbon
trading system to define the carbon emission rights for
the economic entities. In theory, the reduction is the re-
sponsibility for every entity, but in fact, it is unable to
force every entity to participate trade in the carbon mar-
ket. The entities involved in EU emissions market is
generally limited to the energy-intensive industries, such
as power generation, heating industry, oil refining, cok-
ing, iron and steel, cement, glass, lime, brick, ceramics,
pulp and paper and so on.
Rational allocation of credit. Reasonable distribution
of credit is the basis of carbon trading mechanisms. As
the property rights are the base of the market, the emis-
sion market is unable to play its due role in absent of the
clear definition of emission rights. If the allocation of
emissions are too loose, it will lead to the proliferation of
carbon credits and the decrease of prices of the emission
rights, thus will lose the incentive effect for emission
deduction. Therefore, the rational allocation of emission
rights directly affects the function of trading system. It is
the functions of government to define implement and
monitor the operation of greenhouse gas emissions, and
the prompt measures should be made by the Chinese
government to set up the carbon emission rights system
for initial allocation.
The mechanisms of check and punishment. Carbon
emissions rights is a scarce source, whose price shows
the value of carbon credit. If the emission behavior
without corresponding monitoring, the entity will have
the urge to use the emissions rights excessively, which
will harm the foundation of emission rights market.
Therefore, the emission behavior should be under se-
verely monitoring mechanism which can successfully
guarantee the due emission behavior with survey, report-
ing and verification of real carbon emissions. The corre-
sponding penalty system should take effect when the
excessive emission actually happened, which make sure
to prevent the prevalence of opportunism and protect the
due interest of low carbon entities. In ad dition to pay the
fine, the entities with excessive emission can not be ex-
empted from the mandatory liability provisions, whose
allocation must be deducted from that of the next year. It
is approved that this k ind of punishment mechanisms has
played an important ro le for the successfully operation of
the EU emissions trading scheme.
Establishment a carbon emissions exchange system.
First, the basis of carbon emissions data system should
be collected. To collect the accurate, reliable, timely and
transparent corporate carbon emissions data, it can first
build an accounting system for carbon emissions in the
energy-intensive industries, then gradually promoted to
other sectors. Second, a unified national carbon exchange
should be founded with the integration of existing re-
sources and information, as well as a unified national
automated quotation system, which will become a inte-
gral part of the financial market, like stock exchange,
futures exchange and financial futures exchanges. The
rules and standards of carbon trading system should be
further explored, and the construction of the pricing me-
The Study on the Status and the Countermeasures of Low-Carbon Financial System of China
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chanism for carbon trading should be promoted, which
will help the development of the quota-based trading
system. Third, it is the multi-level investment system
should be established to meet the demand of carbon
market development, which will attract more financial
institutions to participate in carbon trading markets, and
upgrade the low carbon industry. Fourth, it deserve to
pay attention to changing the low-end position in the
global CDM market and increase the income of the CDM
owner, thus will protect the strategic interests of the
China. Then, the measures should be made to cultivate a
professional technical advisory system to help financial
institutions to analyze, evaluate and manage risks of
CDM projects, with the reference to the theory and prac-
tice from foreign intermediary market. And it is very
important to strengthen the cooperation between the do-
mestic financial institutions and foreign agencies, to en-
courage private capital investment, help the intermediary
service system be formed. Fifth, it is vital to make fron-
tier research on the “carbon currency” and settlement
currency, to take actively in international monetary sys-
tem reform. It will minimize the settlement risks when
the RMB as one of the payment currency in carbon trad-
ing, which will in fact promote the process of interna-
tionalization of RMB and be a key step in pricing power
in the new energy field for China.
5.3.2. Improvement of Low-Carbon Capital Markets
Development of multi-level investment. First of all, the
local governments should establish low-carbon funds to
guide and promote social capital invest in low-carbon
industries, including PE, VC, and some trust funds, etc,
and long-term carbon bonds with the central government
credit guarantees should be issued, which will help the
establishment of a reasonable cost share mechanisms for
the intergenerational financing. Second, the government
can take some special measures to encourage both large
scale enterprises and private and personal capital to par-
ticipate in the development of the low-carbon economy
with the utilizing of special policies, tax leverage, eco-
nomic instruments, government procurement policy, and
so on. Third, A special development fund for low-carbon
economy should be set up by China Development Bank
(CDB), which will play full role of the advantage of pol-
icy bank to provide the financial support for national and
cross-regional low -car bo n p rojects.
Promotion the founding of low-carbon capital market.
First, Reference to the development experience of SME,
the regulatory should support the IPO, corporate bonds
and medium term notes for low-carbon companies, and
guide the social capital in favor of low carbon field.
Second, through the innovation of financial models in-
cluding the BOT project finance and asset securitization,
it can improve the environmental quality, transfer envi-
ronmental risk, and meet the market demand. It also can
get the financial support from international financial in-
stitutions, intergovernmental organizations and interna-
tional capital markets for th e development of low-carbon
economy in China. Third, it is vital to improve the con-
struction of China's low-carbon index system, which is
the base of innovation of financial derivatives, such as
carbon futures, options and the other, and will lead the
green investment.
5.4. The Improvement of the Low-Carbon
Financial Eco-System
As good incentive mechanisms, the low-carbon financial
eco-system should be an integral part of low-carbon fi-
nancing system. The follow measures should be taken to
perfect low-carbon financial eco-system: First, a sound
system of policies and regulations should be established,
the property rights and responsibilities of carbon emis-
sion should be recognized which is the preconditions for
the domestic carbon trading market system, the environ-
mental responsibility for financial institutions should be
strengthened which will promote the improvement on
corporate governance of financial institutions and the
corresponding innovation on environmental financial
instruments. Second, the financial discount system for
low-carbon industries should be established. With the
combination of financial subsidies and bank credit, it will
mobilize the enthusiasm of the Bank and the investors at
all levels, expand investment scale, adjust the investment
structure, and increase investment efficiency. Third, it is
vital to promote low-carbon financial regulatory system.
In the process of transformation of economic develop-
ment, the financial regulators should update the regula-
tory philosophy and improve the regulatory capacity to
actively respond to new financial risks from home and
abroad, minimize the settlement risks. It should take
measures to monitor the implementation of the govern-
ment discount policy and evaluate its results, to increase
the efficiency of public finance and ensure that is consis-
tent with macro-control goals. Fourth, it is urgent to im-
prove the low-carbon personnel training system. The
low-carbon development of financial markets is bound to
increase the demand for professionals that must have a
solid theory, knowledge and risk management skills not
only in the field of finance but also in low-carbon indus-
try. In the long run, it should take great efforts to make
long-term plan for the development of high-quality
low-carbon financial personnel meet the urgent need for
the development of low carbon finance business.
In short, the building of low-carbon financing system
is a systematic project, which requires the improvement
of low carbon financial institutions and products system,
The Study on the Status and the Countermeasures of Low-Carbon Financial System of China
Copyright © 2010 SciRes. LCE
the low carbon financial market system, the low carbon
financial eco-system, and the low carbon development
related institutions, mechanisms, rules, which will en-
courage individuals, businesses and financial institutions
to invest in the field of new energy and emission deduc-
tion, thus promote the innovation of low-carbon tech-
nology and the development of low-carbon economy.
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