OREANDA-NEWS. June 13, 2013. “In collaboration with Industrial Bank (IB) to push forward the emission right financing projects, what touched me the most is that it has changed the ‘color' of green finance in my eyes. Although the project was of a small size, I truly realized in the project that green cause was not launched for seeking fame, but could match the development of enterprises.” Dang Hang, Chief Accountant of Hunan Valin Xiangtan Iron and Steel Co., Ltd. (XISC), said in great emotion upon talking the emission right financing.

The economic structure of our country is now in the process of low-carbon transformation, and ten provinces and municipalities including Hunan have launched the pilot sites for emission rights. In the long run, paid emission by enterprises is beneficial to both the country and the people. Objectively speaking, however, this also increases the cost of enterprises. With the promotion of emission right related policies, a market with great potential is coming into being.

Emission Rights: Commercial Opportunities in the “Burden” of Enterprises
The regime for trading and paid use of emission rights means the employment of economic means for the paid used of environmental resources and internalization of environmental cost to impel enterprises to become the main accountable and decision-making bodies for pollution control directly, with a view to make up the possible insufficiency in administrative enforcement. The profound meaning behind is to settle the issue of emission by virtue of market mechanism.

Hunan Province , as one of the ten emission rights trading pilot provinces, took the lead to take Changsha , Zhuzhou and Xiangtan as the pilot sites for emission rights, and established Hunan Provincial Trading Center of Emission Right Reserves. With basic policies and laws for the trade and paid use of emission rights, the initial distribution and secondary trading of emission rights have been launched in an all-round way. Since the payment of fees for the use of initial emission rights in 2010, more than 80% of emission enterprises across the province have paid the fees, and there have been 44 transactions of emission rights, totaling RMB 33.66 million.

As the leading enterprise of the area, XISC boasts an annual operating income up to tens of billions RMB, with an annual steel output of more than 8 million tons. With such a business scale, the company should spend tens of millions RMB to buy the emission rights each year.

In deed, the implementation of the emission right regime increases the burden of enterprises, so the government also worries about the business and investment attraction. In the previous idea, for the sake of environmental protection, enterprises must improve their consciousness and bear such expenses at their own cost. Otherwise, the government could only issue relevant policies and regulations for restriction. In fact, such a dilemma stands between environmental protection and the development of enterprises across the globe.

The mechanism for trading and paid use of emission rights opens another door – market mechanism in actuality. Enterprises can purchase emission rights according to their own needs and the excessive part can be sold to other enterprises. The platform-based trading mechanism brings a commercial property to emission rights, where opportunities emerge.

Green Innovation: Gallant Turnabout of the Emission Cause
How can we make use of the tradeability of emission rights? Among all commercial banks in China , IB, taking green finance as the road of its differentiated development, thus became the first one seeing the opportunities.

IB Changsha Branch gave a solution – to provide the government with capital settlement for incomes from emission rights, payment settlement, trading funds depository and other transaction-related financial services, and enterprises with emission right pledge-based loan.

During the business communication with the Environmental Protection Department of Hunan, the general financial service solution proposed by IB was accepted by the department, and both parties confirmed preliminary cooperation intent. With the active follow-up of the Sustainable Finance Department of IB Head Office and Changsha Branch, the general cooperation plan with the department was preliminarily determined at last based on the bank's understanding to the specific needs of government and enterprises. In the meantime, in order to enrich the financial services related to emission rights and lock the funds aggregation, IB also actively pushed forward the cooperation with the department in regard to the platform development for the trading system. In order to implement the businesses, the Sustainable Finance Department of IB Head Office developed the administrative measures and operation regulations for emission rights pledged credit in Hunan Province in particular. Since then, there have been rules for the business operation to follow.

In June 2012, IB Changsha Branch and XISC signed an agreement, in which XISC received the loan of RMB 16 million from IB Changsha Branch by pledging its emission rights worth RMB 20 million, at the benchmark interest rate.

The Seedling of Green Finance Broke Ground
In the park of XISC , what came into the eyes of the reporter, who was ready to cover himself by dust, was all green, and there was no offensive odor in the air. Dang Hang told the reporter: “Our input in green and environmental protection is considerable and sustained. As a matter of fact, the emission rights brought by IB open ‘a door', and we are considering the possibility to cooperate with banks in other green financial businesses.”

Meanwhile, in the general transformation of the banking industry, the implementation of innovative green financial businesses represented by emission right pledge-based loan indicates that the “sustainability” in the sustainable development road of green finance has really come into the profiting model of banking.

The “green finance” business covers three major fields of low-carbon economy, recycling economy and ecological economy. These projects involve a variety of projects such as improvement of energy efficiency, development and utilization of new energy and renewable energy, carbon emission reduction, sewage treatment and water area control, reduction of sulfur dioxide emission, and recycling of solid wastes in the mainstream sectors of energy, construction, transport and industry. Emission right is only one business among them, and the green finance has great market potential.

To achieve the performance of social responsibilities in the development model of commercialization, the characteristic road of green finance boasts unparalleled vitality. From the implementation of the first energy-efficient financing project in 2007 to the end of 2012, IB accumulatively granted nearly RMB 200 billion of green finance based financing loans to around 1,000 enterprises with a variety of financial tools, with the financing balance of green finance exceeding RMB 110 billion, which accounted for nearly 10% of the corporate credit balance.

The evolution starting from emission right signifies that the green finance cause of China has come to the germination period from the seed period. However, the seedlings require our care. It is not hard to see from the emission right financing examples that the government still plays a dominating role in environmental protection projects. Furthermore, considering the current regulatory environment, the enthusiasm of some banks is affected to some extent as the quantity of loans under green finance is restricted by the total banking loan scale.