Can Green Bonds Help Air Pollution Mitigation in China? Potential and Challenges

Abstract: This paper aims to examine the potential of green bond implementation in China suited with Chinese air pollution situation. It researched the green bond origination, history, definination and categories and so on. The paper applied literature review, case study and internview methods to purpue a conclusion. Since the financial crisis, many countries are exploring how to re-engineer the financial system integrating sustainability, social responsibility and environmental factors. Green bonds are one of the forms of investment with an environmental focus. China is a country with both large amounts of financial capital and severe environmental issues. Pursuing economic development in a sustainable manner is a crucial topic for emerging market economies, such as China. One of the most vicious environmental issues that cause direct damage to human health is the air pollution problem, which has worsened in recent years. This paper focuses on the outdoor air pollution in China, which has significant adverse impact on residents’ health and the country’s overall economic development. The main source of outdoor air pollution in China is industrial coal burning. And to reduce the industrial coal burning, there are three main solutions: increase renewable energy use, improve energy efficiency and enhance clean production. Cases from the World Bank and IFC on green bond issuance and their proceed use show evidential facts that green bonds could help air pollution mitigation by providing financial resources for energy efficiency, for the energy conservation sector and for leveraging more capital flow into the environmental area. Green bond implementation in China could potentially contribute two positives: on the one hand, green bonds could help solve the financial resource shortage for mitigating the air pollution problem; on the other hand, they can add to the environmental finance products’ diversities. This paper explores the potential and the challenges of green bond issuance in China based on a key question: can green bonds help air pollution mitigation? By studying the green bond product (concept, feature, proceed use) and bond market, and analyzing the financial need for air pollution mitigation in China, we can conclude a positive answer to the question proposed.