Asia-Pacific

China Revamps Voluntary Carbon Market  

New certified emission reductions scheme will include nature-based solutions as country completes carbon market architecture.    

The relaunch of China’s voluntary carbon market (VCM), also known as the China Certified Emission Reductions (CCER) scheme, is set to include nature-based solutions and the requirement for a science-based methodology that will ensure quality.  

Launched on 22 January, the revamped CCER scheme will allow any enterprise to purchase carbon credits, as opposed to just businesses covered under China’s national compliance carbon market. It will also enable carbon-emitting companies to compensate entities such as green energy producers for carbon credits to offset their own emissions.    

The CCER scheme was initially launched in 2012 and subsequently shelved in 2017 due to a lack of uptake, thin trading, regulatory and data quality issues, as well as a lack of standards in carbon audits, Regulation Asia reportedat the time. 

In 2018, China’s Department of Climate Change – which regulated the CCER – was moved from the National Development and Reform Commission (NDRC) to the Ministry of Ecology and Environment (MEE). This has resulted in the CCER being relaunched, with a renewed focus on the quality of voluntary carbon credits. “The MEE wants to have a scientific and clear methodology to assure the quality of the CCER,” said Dr Guo Peiyuan, Chairman of SynTao Green Finance – the founding organisation of China’s Sustainable Investment Forum. 

The CCER will now focus on four initial sectors: afforestation, solar power generation, offshore wind and mangrove planting. These were selected because their methodologies are unambiguous and data quality is high, Peiuyan explained.   

Speaking to ESG Investor, David McNeil, Head of Responsible Investor Research and Innovation at asset manager Insight Investment, confirmed that the inclusion of nature-based projects in CCER’s scope was a new development.   

“Historically, we’ve seen a lot of VCM projects focus on solar and wind projects,” he said. “It’s interesting to see that the CCER directory now includes nature-based solutions, which could impact potential flows of capital towards these projects.”    

Government scrutiny  

CCER’s relaunch also bears testament to a general trend in the voluntary and compliance carbon markets, whereby governments are seeking to impose tighter standards to encourage greater confidence and ultimately encourage greater trading volumes.  

McNeil pointed to initiatives such as the Voluntary Carbon Markets Integrity Initiative (VCMI), partly funded by the UK, as another example of governments taking an active role to improve VCM standards.   

“CCER would be relevant for asset managers who are analysing the use of carbon credits within companies’ net zero strategies, and the extent to which they have exposure to voluntary carbon credits through Scope 3,” he added. “[Our] book of business does not have much direct exposure to Chinese corporates, but a lot of our corporates potentially have exposure through their Scope 3.”

According to climate news website China Dialogue, the CCER scheme is also an important part of China’s national compliance carbon market and its pricing. CCER credits can cover up to 5% of an emitter’s compliance obligations, and demand for them could reach 350 to 400 million tonnes per year as a result, the website reported.

Launched in July 2021, China’s compliance carbon market now covers 2,532 key emitters in the power generation sector, which generate around 40% of the country’s carbon emissions.  The market is the world’s largest in terms of the amount of greenhouse gas emissions covered.  

International VCM trading  

Although the CCER was initially limited to domestic trading within China, there are ongoing discussions around whether it could be open to international trade, provided an agreement can be found on the Paris Agreement’s contentious Article 6, McNeil explained. 

Parties gathered in Dubai for COP28 failed to reach a consensus on texts relating to Articles 6.2 and 6.4 – which refer to how countries will trade carbon credits bilaterally, report on them, and use them towards Nationally Determined Contributions, and the supervisory body the UN will create to monitor this activity, respectively. This further delayed progress on the regulation of international carbon markets.     

“China is taking the view that it will wait until there’s common agreement on this at the UN level,” said McNeil “Many countries have started to put in place bilateral carbon trading agreements under the Paris Agreement, but China has not, as it has taken a slightly cautious approach on this to see what develops.”   

Meanwhile, a research report from investment bank Minsheng Securities estimated that the CCER spot market would reach about 20 billion yuan (US$2.8 billion) by 2025.   

According to S&P, the expected price of one CCER credit – which represents a tonne of CO2 reduction – will be over the US$5.56- US$8.34/metrics tonnes of carbon dioxide equivalent range (mtCO2e). On the opening day of the CCER market, the trade volume of CCER credits totalled 375,315 mtCO2e, while the average trading price was 63.51 yuan (US$8.85)/mtCO2e, Beijing Green Exchange said on its official social media account.   

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