Case 2: A New Fund for Air Pollution Prevention and Control in the Beijing-Tianjin-Hebei Region of China

Air pollution is a major challenge faced by many industrialized countries. The Beijing-Tianjin-Hebei region is one of the important comprehensive industrial bases in China. The process of industrialization and urbanization has led to persistent problems with air pollution, and the battle for blue skies is one of the most important environmental governance topics in the region.

The China Energy Conservation and Environmental Protection Group (or CECEP for short) is an enterprise focused on conserving energy, reducing emissions, and protecting the environment. CECEP Fund Management Co., Ltd. is a wholly-owned subsidiary of CECEP. In 2018, the Asian Development Bank, the Ministry of Finance of China, and CECEP formally signed the CECEP ADB Beijing-Tianjin-Hebei Air Pollution Prevention and Control Fund Project Agreement, which has made innovative use of the Asian Development Bank’s sovereign loan of USD 500 million as a fund in the Beijing-Tianjin-Hebei region to promote the application of high technologies in the fields of energy conservation, emissions reduction, and climate change mitigation in manufacturing, energy, and transportation among other industries and to improve air quality in the region.

To implement CECEP ADB Fund Project, CECEP Fund Management Co., Ltd., as the fund manager, initiated the establishment of a parent fund (the CECEP ADB Industrial Investment Fund), a regional sub-fund (the CECEP ADB Blue Industry Investment Fund), and 2 industry sub-funds (the CECEP Jinxin Equity Investment Fund and the CECEP Bohua Equity Investment Fund). The company has invested RMB 2.2 billion in 14 projects and led the other funds to invest RMB 11.7 billion, actively promoting the application of advanced technologies. Some examples of these technologies include the use of industrial by-product hydrogen instead of natural gas, the efficient treatment of volatile organic compound VOC gas, the promotion of graphene heaters and sewage source heat pumps for heating, the recycling of waste resources such as sewage and garbage, the reduction of energy consumption of electrolyzers, the development and utilization of biomass energy, and the procurement of clean and low-emission vehicles among others. Likewise, efforts continue in regards to geothermal and rooftop solar energy, intelligent microgrids, super energy service companies, and intelligent industrial parks.

Overall, the CECEP ADB Beijing-Tianjin-Hebei Air Pollution Prevention and Control Fund Project implemented by CECEP Fund Management Co., Ltd. has led to active participation in energy conservation and a reduction to pollution, the development of renewable energy, and the prevention of pollution, all of which have improved regional air quality.

In terms of promotion, the CECEP ADB Fund Project was designed in concert with the government, business, and international financial institutions to leverage the industrial advantages and operating experience of the business community and put the funds in a position to effectively support major strategies with high application and promotional value. The funded sovereign loan model established by the project has been adopted by the World Bank-financed Green Low Carbon Investment Fund Project and the ADB-financed Shandong Green Development Fund Project. In terms of industry contribution, the CECEP ADB Fund Project is mindful of environmental and social impacts and adheres to the positive externalities of energy conservation and environmental protection.

The establishment of a green performance evaluation system for funds facilitates cooperation between the green and fund industries. By guiding social capital to support the application and promotion of advanced technologies for energy conservation and emissions reduction and employing green finance to enable green business development, power, chemical, and transportation entities in the Beijing-Tianjin-Hebei region are aided in their green and low-carbon transformation. In terms of profitability, CECEP ADB Fund Project investment is planned on a rolling basis over a 15-year period, with an initial target of a USD 500 million sovereign loan over USD 1.5 billion in social capital to carry out investment in energy conservation and environmental protection in a wide range of fields and regions, thus improving the efficiency of capital use and diversifying investment risks. In terms of public welfare, the CECEP ADB Fund Project has introduced an international green framework integrating ADB’s environmental and social system requirements into each specific link and transmitting the advanced concepts of green, low-carbon, sustainable development to the enterprises receiving investment. The project will reduce air pollutant emissions in the Beijing-Tianjin-Hebei region and mitigate the negative impact of pollution on society and the economy. According to the EIA report and the results of regular monitoring of each project, those receiving investment can expect to save 1.0404 million tons of standard coal and realize 30.0262 million square meters of the clean heating area every year by adopting graphene composite materials, sewage source heat pumps, steam lithium bromide absorption heat pumps among other technologies to meet international advanced environmental protection standards. The resulting emissions reductions will equal 2.102 million tons of carbon dioxide, 18,100 tons of sulfur dioxide, 6,200 tons of nitrogen oxides, and 1.225 million tons of particulate matter. Future investment in new projects will further reduce energy consumption and pollutant emissions. In terms of innovation, the project’s application of sovereign loans as a fund is conducive to the guiding role of a policy fund and improves the profitability of policy fund investment by being market-oriented and taking into account both policy and profitability. At the same time, it learns from the international evaluation system, actively incorporates environmental and social benefits into the investment decision-making process, builds a green investment mechanism, and transmits green concepts to relevant stakeholders.

CECEP Fund Management Co., Ltd. has used ADB’s USD 500 million sovereign loans for the first time to establish funds with loans from international financial institutions innovatively, attract investors and technology suppliers for joint financing, continues to expand capital functions, power air pollution prevention and control in the Beijing-Tianjin-Hebei region, and accelerate the reduction of emissions. The project is long-term in nature and outstanding in profitability, paves the way for subsequent projects, and has obvious environmental benefits. (This case has been recommended and provided by the International Finance Forum)