China's Industrial Bank has lent 40 million yuan ($6.5 million) to Hubei Yihua Chemical Industry Co, using carbon permits as collateral.

The loan earmarked to improve the company's energy conservation capacity, was the first in China using permits from the country's new carbon markets as collateral.

Under the scheme, companies receive a set number of emission permits from the government, each representing one tonne of carbon dioxide. Those that emit more than they have permits to cover must buy more in the market.

Hubei Yihua is one of around 140 companies covered by Hubei Province's pilot emissions trading scheme, launched earlier this year. It got the loan using 4 million permits, with a market value of 80 million yuan, as collateral.

The interest rate being charged was not disclosed.

This novel way of awarding credit will help those with carbon dioxide obligations to activate their carbon assets, lowering the bar to access credit for small and medium-sized companies, and will ease the difficulties for those companies to finance energy saving and mitigation projects, the bank said in a statement.

Industrial firms in China are finding it increasingly difficult to get loans after the China Banking Regulatory Commission last November asked banks to scrutinize credit given to polluting industries struggling with overcapacity.

In March of this year, sources told the news agency Reuters that many banks had cut lending to industrial sectors by as much as 2%.