CCER is seen as an important supplementary mechanism to China’s national Emissions Trading Scheme (ETS), the world’s largest carbon market which regulates over 2,000 emitters from the power industry.
Under the national ETS, emitters are given a limited amount of emissions allowances based on their emissions intensity and can sell the unused allowances to companies that need them to offset higher emissions. They can use the carbon credits purchased under the CCER scheme to offset up to 5 per cent of any emissions that exceed the national ETS targets.
However, after the CCER was launched in 2012, China’s central economic planner, the National Development and Reform Commission (NDRC), suspended new project registration under CCER in 2017 due to low trading volume and a lack of standardisation in carbon audits.
With the launch of China’s national ETS in July 2021, a restart of the CCER scheme has been widely anticipated. China Beijing Green Exchange, which oversees the CCER scheme, announced in February that it has finished developing the registration and trading systems for CCER before operations resume, but an official date has not been disclosed since then.
The CCER voluntary carbon market is important to China’s 2060 carbon neutrality target, as it could incentivise investments in climate mitigation projects, according to Polo Heung, ESG research associate at HSBC.
The CCER guidelines emphasise the singularity of projects, meaning big renewable projects subsidised by the government or those covered in the national ETS will not be entitled to CCER credits. However, smaller-scale renewable energy projects might benefit from the CCER, said Heung.
“We believe one of the biggest beneficiaries will be forestry, as currently conserving forests and afforestation is worth less than harvesting in conventional economic terms. CCER will provide more financial incentives for forest owners to keep their trees alive,” said Heung.
Challenges in CCER trading include technical requirements and CCER credit quality, according to Heung.
“The previous thresholds on approvals processes for CCER credits were too loose, leading to oversupply, weak climate credibility and prices, which were the main reasons for pausing project registrations,” he said. “Too many low-quality CCER credits could dilute the efficiency of the national ETS and discount China’s climate efforts.”
To avoid oversupply, a stricter standard for CCER projects will be essential. Heung expects the MEE to be more prudent when approving CCER projects in the beginning, leading to a lower issuance of CCER. However, demand for CCER is expected to increase over time as the national ETS coverage expands from the power sector to more heavy-emitting industries, said Heung.
Some experts said an early reboot of CCER is better than a later one.
“Like the China national ETS, CCER doesn’t need to prepare for perfection to restart. Perfect is the enemy of good. The actual operation of CCER will help accelerate the identification and addressing of problems,” said Liu Hongming, director of carbon markets at environmental non-government organisation Environmental Defence Fund (EDF), which has been advising China on the launch of its national carbon market.