China takes fossil fuel projects off green bond list

China's central bank has excluded fossil fuel projects from those eligible for green bond financing, marking a key step in the country's shift towards non-fossil energy sources.

The central bank last week released a list of projects considered eligible for green bond financing in China's 2021 green bond catalogue, which removes fossil fuel investments, including for ultra-supercritical coal power plants, coal-fired units above 300MW generation capacity, clean coal use, and refining units to produce clean gasoline and diesel. The latest catalogue takes effect from 1 July and replaces the one published in 2015.

The announcement came ahead of the US-hosted virtual climate summit on 22-23 April, in a sign that China might be willing to cooperate with the US on the climate crisis. Chinese president Xi Jinping also last year set targets for China's carbon emissions to peak before 2030 and the country to achieve carbon neutrality by 2060. And China's five-year plan for 2021-25 aims to raise non-fossil fuel energy to around 20pc of the primary energy mix from 15.8pc last year.

Independent greenfield refinery and petrochemical projects such as private-sector refiner Rongsheng's 800,000 b/d Zhejiang Petrochemical (ZPC) and private-sector Shenghong Petrochemical's under-construction 320,000 b/d Lianyungang refineries previously received government approval to issue green bonds capped at 4bn yuan ($616mn) and Yn3bn respectively. These refineries were deemed eligible under the terms of energy-saving and cleaner upgrades for oil and petrochemical units in the 2015 catalog.

Wind, solar and hydropower remain in the latest catalog, along with nuclear, biomass and hydrogen utilisation projects, with fuel cell manufacturing included for the first time.

Other additions to the latest catalog include long-distance gas pipelines, peak shaving facilities for gas storage, LNG receiving terminals, carbon capture, utilisation and storage projects, clean-heating energy projects for rural areas, and service providers for China's emissions trading scheme.

Fossil fuel projects are still a major source of carbon emissions even if cleaner production techniques are used, a central bank official said in a briefing note.

"Most of the mainstream global green bond issuances have excluded such items already, [and] the latest catalog will make China's green bond issuance more regulated and restricted in line with global practices," the central bank said.

China's total green bond balance was Yn813.2bn as of the end of last year, the second globally, according to figures from the Shanghai Clearing House.

More than 40 tranches of carbon-neutral bonds have been issued so far this year, with total values exceeding $10bn. The central bank estimates that China will invest Yn2.2 trillion/yr by 2030 to reduce carbon emissions, according to the official China Daily.