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Industrial Bank Offers a New Financing Channel for SMEs by Pledging Carbon Quota

If an enterprise revitalizes its carbon quota assets, it can receive pledge-based loans from banks with its own carbon emission quota – with the first carbon emission right pledge-based loan was granted by Industrial Bank successfully, another new financing channel is available to Domestic SMEs.

On September 9, 2014, IB Wuhan Branch, China Hubei Carbon Emission Exchange and Hubei Yihua Group Co., Ltd. (hereinafter referred to as “Yihua Group”) signed the strategic cooperation agreement on carbon emission right pledge-based loan and carbon finance. Yihua Group received the pledge-based loan of RMB 40 million from IB in the carbon finance market with its own carbon emission quota. This transaction is simply based on the guarantee by pledging domestic carbon emission right quota, without other additional mortgage and guarantee conditions, becoming the first carbon emission right pledge-based loan in China.

It is said that Yihua Group is an enterprise under emission control in the carbon trading pilot area of Hubei. In 2014, the Development and Reform Commission of Hubei Province and other relevant departments, after review, granted Yihua Group and its subsidiaries the carbon emission quota amounting to 4 million tons, which is worth RMB 80 million in the market. It became a headache of the enterprises under emission control like Yihua Group how to save energy and reduce emission to the largest extent while revitalizing carbon quota assets to alleviate the pressure of capital occupation.

As a leading enterprise in the area of green finance in China, IB innovatively developed the carbon quota pledge-based financing product based on the development of Hubei's carbon market and relevant institutional arrangements, with which the carbon quota of an enterprise is taken as a brand-new guarantee resource to help enterprises revitalize its carbon quota assets. Meanwhile, IB Wuhan Branch, in collaboration with institutions like the Development and Reform Commission of Hubei Province and China Hubei Carbon Emission Exchange, sorted out and designed the operating procedure for pledge of carbon quota, and solely created the model for risk management and evaluation of carbon quota. Through analysis based on the model, IB supported Yihua Group with the loan of RMB 40 million.

“As another innovation attempt in the area of carbon finance of IB, carbon quota pledge-based financing business is an important measure to respond to the problem of climate change by way of financial means.” Relevant person-in-charge of the Environment Finance Department of IB indicated that the business provides a path for enterprise to realize the market-based emission reduction at low cost, and it can help enterprises to revitalize their carbon quota assets, lower the credit threshold of SMEs, and solve the financing and guarantee difficulties of SMEs in energy conservation and emission reduction. Meanwhile, the business allows flexible term of repayment and loan amount according to specific situations of an enterprise such as project operation and output of emission reduction. Therefore, it can effectively alleviate the repayment pressure of enterprises, bring into full play the bridging role of carbon trading between financial capital and real economy, and guide the green development of real economy by means of allocation of financial resources and price leverages.

“Carbon emission right trading is an effective means for market-based emission reduction at low cost, and now 7 carbon trading pilots at home have had the corresponding trading system. Financial service, as an important bolster of modern economy, will play a positive role of leverage activation and financing mobilization in the construction and operation of carbon trading market”, the above officer told the reporter.

It is learnt that, now, IB has signed carbon finance cooperation agreement with 6 of the 7 carbon trading pilot provinces and cities at home to provide a package of products and services including consulting for the design of trading rules, development of trading and clearing systems, carbon assets pledged credit, and financing for energy conservation and emission reduction projects. In the meantime, according to the progress of domestic carbon trading pilots, the bank provides various trading centers in the carbon emission rights trading market with integrated solutions covering the design of trading platform and mechanism, and development of carbon trading system for domestic carbon markets, as well as clearing, settlement, nationwide agency account opening service, capital management and support financing for carbon trading.

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