Xiangjiaba Dam, China's third-largest hydropower station, discharges floodwater in Yibin, Sichuan province. Provided to China Daily

Climate Bonds Initiative is a not-for-profit organization based in London that campaigns for more investment in low-carbon projects.

This year the initiative issued a special report, which is supported by Britain's Foreign and Commonwealth Office, with recommendations for the Chinese government for growing the country's green bond market.

The report included examples of incentives the Chinese government could introduce in the market,one being a central fund to provide partial credit guarantees for green municipal revenue bonds and green public-private partnership project bonds.

Other suggestions included tax credits for interest earned on green enterprise bonds including making them more transparent, and new rules to make them more identifiable for investors across bond markets' information systems.

As well, the Chinese government could set up green investment quotas through the expansion of the Renminbi Qualified Foreign Institutional Investors program and the Qualified Foreign Institutional Investors program, which allow foreign investors to tap into China's onshore investment opportunities under the country's restricted capital market controls.

As the market develops, Kidney says, strong investor demand is expected to provide a slightly better price for green bonds. In the meantime, the green theme will be a useful marketing tool to appeal to the low-interest Western capital markets.

Many bonds are already issued in China relating to environmentally friendly projects, but these bonds are not yet labeled as green, meaning they are losing out on potential marketing advantages, he says.