Establishing and Analyzing Commercial Banks' Carbon Finance Business Revenue Model

By Dawei, Xu; Peng, Zhao | International Management Review, January 1, 2018 | Go to article overview

Establishing and Analyzing Commercial Banks' Carbon Finance Business Revenue Model


Dawei, Xu, Peng, Zhao, International Management Review


(ProQuest: ... denotes formulae omitted.)

Introduction

Global warming has become one of the key issues of interest in countries around the world. Based on the pressure to reduce carbon emissions and characteristics of its development, the use of financial market tools to achieve the goal of reducing carbon emission has both theoretical implications and practical value. Internationally, carbon emission resources, carbon trading, and carbon derivatives trading have great development potential and create commercial opportunities. The "carbon finance" derived from the above situation is an important method not only for realizing energy savings and emission reduction but also for achieving low-carbon development in the environmental finance area, which is a "hot" research topic. As primary financial institutions, commercial banks actively participating in carbon emission innovation should have two objectives: realizing carbon emission reduction and increasing enterprises' operating revenue.

"Carbon finance" remains at the theoretical forefront and exploration stage of international finance. Scholars and research institutions in various countries are actively involved in relevant research and practices. The only global environmental finance magazine defines carbon finance as follows: "finance problems related to global climate change." Carbon finance primarily includes renewable energy sources certification, "green" investment, weather risk management, and the carbon emissions market. Carbon finance, including elements such as markets, institutions, products, and services, should be the solution to climate change. Carbon finance establishes an important segment to manage climate change and a low-cost method to achieve sustainable development, to reduce and adapt to climate change, and to manage the disaster. It is also the core economic method of low-carbon development. The international carbon finance system includes three primary parts: the carbon finance market system, the carbon finance organization service system, and the carbon finance policy support system (Wang, Y. 2010). The function of carbon finance is to shift environmental risks, improving the environment, reduce finance risks, and increase social benefits. These objectives are obtained by taking advantage of various financial institutional arrangements and trading activities aimed at greenhouse gas emission reduction. Finance market tools and finance services such as carbon emission rights and derivatives trading, investment in and capital raising for lowcarbon project development, carbon insurance, carbon funds, and relevant financial consulting services are utilized (Du & Li 2012). This article defines "carbon finance" as all finance activities that benefit carbon dioxide reduction, including capital-raising activities for low-carbon projects, carbon derivatives trading, and relevant consulting and guarantee activities. Thus, combining the business characteristics of commercial banks and based on the reduction of enterprise actual production and operations, this article proposes a revenue model for commercial banks to develop their carbon finance businesses and comparatively analyzes the revenue conditions and primary elements of commercial banks' carbon finance businesses.

Literature Review

With the expansion of the carbon trading market carbon emission rights have become financial assets with investment value and liquidity. The phenomenon has generated a carbon trading currency and a carbon finance system supported by a series of financial derivatives such as direct investment, capital raising, bank loans, carbon index trading, and carbon options and futures (Ge 2012, Wang & Wang 2015). The international carbon trading market has great potential: carbon finance has become a new area of competition for global financial institutions, and the development of the carbon finance business by domestic commercial banks is an inevitable trend. …

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