Southern China’s Guangdong province, home to the country’s most active provincial-level carbon trading market, has launched a pioneering legal and financial framework that officially recognizes greenhouse gas emissions quotas as valid collateral for loans. This marks the first time such a mechanism has received systematic judicial protection in China, signaling a significant step forward for green finance.
The framework, jointly issued on August 12 by the Guangdong branch of the People’s Bank of China and the Higher People’s Court of Guangdong Province, encourages financial institutions to leverage carbon-reduction support tools to provide low-cost funding for eligible green loans. Banks and lenders that excel in advancing green finance will also receive additional policy support and incentives.
According to Li Zhiping, deputy head of the Chinese Society of Environmental and Resources Law and professor at Sun Yat-Sen University Law School, the move will inject momentum into Guangdong’s carbon finance market. By combining legal safeguards with financial innovation, the initiative could serve as a nationwide model to accelerate green finance and help achieve China’s dual-carbon goals — peaking carbon emissions before 2030 and achieving carbon neutrality by 2060.
The framework also urges financial institutions to diversify green financing solutions to meet varied corporate funding needs. This includes loan products backed by annual pre-allocated carbon quotas, pledges based on future income from carbon sinks, carbon quota-backed bonds, and carbon asset securitization instruments.
Guangdong has consistently been at the forefront of China’s carbon trading initiatives. As of July, the Guangzhou Emissions Exchange had traded 230.9 million tons of carbon quotas valued at CNY 6.7 billion (USD 933.2 million), representing over 30% of total transactions across the country’s eight pilot carbon markets.
With this landmark legal recognition, Guangdong is positioning itself as a national leader in integrating environmental sustainability with financial innovation, setting the stage for broader adoption of carbon-backed financing tools across China.