More ESG Research and Insights are Available from GC Insights Contact: firstname.lastname@example.org for more information.
China’s long-awaited domestic Voluntary Carbon Market is scheduled to relaunch by 2023-end. With Chinese Certified Emission Reduction (CCER), the crediting mechanism is to be developed with growing policy scrutiny on the standardized and centralized management of CCER projects. In this recently published new Measure for Managing The Voluntary Greenhouse Gas Emission Reduction Trading Scheme, the regulator, the Ministry of Ecology and Environment (MEE) has announced the following application processes and rules for new CCER project applications:
From GC Insights.
The new measure for CCER projects has determined the unified registry of new mechanisms under the governance of the MEE. And the State Administration for Market Regulation and the MEE shall conduct administrative examination and approval of market access for verification and verifiers in accordance with the provisions of the Regulations on Certification and Accreditation. In terms of transaction management, a unified national trading institution shall be set up to carry out centralized and unified transactions. Great scrutiny from regulators upon the project owner, the verifiers, the verification processes, and emission reduction registrations around CCER projects with a penalty of up to two hundred thousand yuan for violators.
Carbon credit markets have the potential to support the deployment and scaling up of technological removals, but only if credit prices increase significantly. As reported by Refinitiv, the bid and ask price for CCER has been on the rise in 2022, mostly above CN¥40/t. The price of a carbon credit (Each carbon credit represents one tonne of greenhouse gas (GHG) emissions – measured in carbon dioxide equivalents (tCO2e) – that has been reduced or removed from the atmosphere.) could be fluctuated by a multitude of factors, such as:
Challenging macroeconomic conditions, inflation, and political pressures
Prominent public criticism of the integrity of the voluntary emission reduction projects
Continued uncertainty around best-practice use of carbon credits by companies for voluntary purposes
Project quality and credibility
Recognition from regulatory bodies and link to compliance markets
Transparency and standardization
Cross-regional carbon credit legitimacy
Evolving Nationally Determined Contributions (NDCs) e.g. The “30·60” dual targets
Project categories: avoidance projects (which avoid emitting GHGs completely, therefore, reducing the volume of GHGs emitted into the atmosphere) or removal (which remove GHGs directly from the atmosphere). Removal credits tend to trade at a premium to avoidance credits.
Project cost, development timeline, size and reduction potentials, and its effectiveness in fighting climate change
Demand (demand-side factors such as transition activity and fuel switching) and supply dynamics
The volume of credits traded at a time (usually the higher the volume the lower the price)
Regarding the geography of the project, some would prefer local contributions or other targeted locations of the project's original
The project vintage (typically, the older the vintage the cheaper the price) and delivery time
Project contribution, e.g. potential buyers would pay extra if the project could contribute to more than one UN's SDGs (Sustainable Development Goals)
The integrity of the certification standards
Integrity and professionalism of the verifiers and the verification processes
The critical status of climate change or the impact of global warming progress
The key elements of an emission reduction project: authentic, unique, additional, measurable, traceable, and verifiable
Development of compliance carbon markets: inclusion of ETS trading scope, e.g. energy price becomes an impactful factor as energy, transportation, and other carbon-intensive sectors are included in most ETS trading systems
Amount of free allowance allocated to emitters
International competitiveness and terms of trade, e.g. pressure from the Carbon Border Adjustment Mechanism (CBAM)
Interestingly, renewable energy activities represent around 45% of global registered projects and have dominated supply in carbon credit markets since their inception (~70% in existing CCER projects) dramatic falls in the costs of renewables over the past decade mean that, in an increasing number of cases, these activities are economically attractive without the extra revenue offered through carbon crediting. In such cases, the resulting emission reductions would not meet financial additionality requirements. As a result, the supply of credits from new large-scale renewable energy projects will likely reduce over time, with some independent crediting mechanisms having already restricted eligibility, largely to activities located in the least developed countries, as analyzed by the World Bank (2023).
Instead, there has been a growing focus on nature-based activities, covering emissions reductions from agriculture as well as forestry and land use activities. These credits sometimes offer co-benefits valued by buyers, but also come with their own unique challenges. According to Ecosystem Marketplace, in 2022 54% of new project registrations were for forestry and land use activities, suggesting a potentially significant expansion of supply in the future.