China’s climate stress test in carbon-intensive thermal power, steel, cement sectors highlights default risks
- The People’s Bank of China completed the first phase of climate risk stress tests at 23 major banks last year
- Rising emission costs as well as policies designed to facilitate ‘industrial substitution’ would lead to the problem of stranded assets and other ‘transition risks’
China’s banks face rising default risks as a result of higher climate-related costs in carbon-intensive sectors like thermal power, steel and cement, Liu Guiping, vice governor of the central bank, said in comments published on Friday.
The People’s Bank of China completed the first phase of its climate risk stress tests at 23 major banks last year, focusing on the possibility that the three sectors would be forced to pay for their carbon emissions, Liu wrote in the bank’s China Finance publication.
“The test results showed that if enterprises in the thermal power, steel and cement sectors do not carry out low-carbon transformation, their repayment capability will decline to various degrees under the (different) stress scenarios,” he wrote.
Rising emission costs as well as policies designed to facilitate “industrial substitution” would lead to the problem of stranded assets and other “transition risks”, he said.
Liu said more tests would be conducted to ascertain banks’ exposure to other high-emission industrial sectors.
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