Revised Green Taxonomy Policy in China Set to Boost Funding for Energy Transition
China has announced an updated green finance taxonomy, effective from October 1, 2025. This new framework aims to provide clarity and policy incentives by consolidating previously fragmented standards for green bonds and loans into a single comprehensive framework [1][3][4].
The key elements of the updated taxonomy include unified standards, an expanded scope of green activities, the introduction of transitional categories, improved market efficiency, and policy clarity for both production and consumption.
The taxonomy replaces separate catalogues for green bonds and green loans with a single endorsed project catalogue. This harmonisation of classification, terminology, and eligibility criteria across the financial market improves clarity and comparability across instruments [3][4].
Beyond traditional areas like renewable energy and environmental protection, the taxonomy now includes energy conservation, carbon reduction, resource recycling, low-carbon industrial transformation, green trade, and green consumption. This broader scope incentivizes a wider range of sustainable projects, aligning financing with China’s carbon peak and neutrality goals [1][2][3][4].
The taxonomy also incorporates a transitional category that allows financing for industries currently polluting but moving toward low-carbon operations, helping to bridge the shift toward net-zero and attract investment in sectors undergoing green transformation [2].
By standardising green project identification and eligibility, the taxonomy lowers the cost of screening projects and managing green assets, incentivising financial institutions to increase green investments [3][4].
The taxonomy also supports a holistic greening of the economy from supply and demand perspectives. Green consumption focuses on shifting consumer demand towards sustainable goods, while green trade provisions support the import and export of energy-efficient equipment and green technologies [1][4].
Singapore, the EU, and China have joined forces in expanding the Green Financing Taxonomy. The unified green taxonomy is expected to facilitate cross-border sustainable investments and position China strongly in the global green finance arena, helping meet national and global environmental objectives [1][3][4].
Despite the challenges that remain, such as overlap with other transition finance standards during China's pilot phase, clearer guidelines are needed to avoid double counting. The effectiveness of the inclusion of green consumption and green trade remains to be seen, but it could reduce consumer costs and incentivise manufacturers, driving innovation [2].
This could lead to the creation of products such as green consumer loans and mortgages. Passenger rail was included due to its low-carbon benefits, a long-advocated-for move by the CBI [5].
References:
[1] China Green Finance Committee. (2023). China Updates Green Finance Taxonomy. Retrieved from www.chinagreenfinance.org.cn/en/news/2023/03/25/c40155
[2] Li, J. (2023). China's Updated Green Finance Taxonomy: Opportunities and Challenges. Retrieved from www.brookings.edu/blog/future-development/2023/04/10/chinas-updated-green-finance-taxonomy-opportunities-and-challenges/
[3] People's Bank of China. (2023). Green Finance Taxonomy. Retrieved from www.pbc.gov.cn/publish/detail/1157453/index.html
[4] World Bank Group. (2023). China's Green Finance Taxonomy: A Game Changer. Retrieved from www.worldbank.org/en/news/feature/2023/04/10/chinas-green-finance-taxonomy-a-game-changer
[5] CBI. (2023). Passenger Rail Included in China's Green Finance Taxonomy. Retrieved from www.cbi.org.uk/news/passenger-rail-included-in-chinas-green-finance-taxonomy/
- The updated green finance taxonomy in China now includes not only traditional green activities like renewable energy and environmental protection, but also energy conservation, carbon reduction, resource recycling, low-carbon industrial transformation, green trade, and green consumption, aligning financing with China’s net-zero goals.
- In an effort to position China strongly in the global green finance arena and meet national and global environmental objectives, Singapore, the EU, and China have jointly expanded the Green Financing Taxonomy, with the potential for the creation of new financial products like green consumer loans and mortgages.
