Revolutionary Regulations Unleash China’s Carbon Credit Market Potential

"China's Ministry of Ecology and Environment (MEE) Unveils Guidelines for Revival of Domestic Voluntary Carbon Market, Marking the Reboot of China Certified Emission Reduction (CCER) after Six-Year Hiatus"

China’s Ministry of Ecology and Environment (MEE) has released guidelines signaling the revival of the domestic voluntary carbon market (VCM), known as China Certified Emission Reduction (CCER). The market had been paused since 2017 for new project registrations while the government strengthened regulatory frameworks. China’s VCM is set to complement its national compliance emissions trading system (ETS), which was introduced in 2021. The CCER system aims to address previous shortcomings and bolster carbon reduction efforts by allowing carbon emitters to compensate credit-holding entities for their credits. These credits can be used to offset emissions within the compliance markets or traded within the national ETS. The MEE has introduced new legislation and approved 4 methodologies for CCER credit issuance, clearing the path for new projects and supplies to enter the market. The Beijing Green Exchange will host the trading platform for CCER credits and has issued rules for CCER trading and settlement.

The reopening of China’s VCM may increase supplies for compliance market companies, allowing them to use the credits to offset their emissions. The compliance carbon price hit a record of $10.12/mtCO2e in August 2023, surpassing the $10/mtCO2e mark for the first time. This price is significantly higher than international voluntary carbon prices, partly due to government tightening policies and resolving compliance problems. The increasing awareness of climate issues among the public may also lead to tangible policy changes and a gradual transition in the business approaches of state-owned enterprises towards decarbonization. However, experts speculate that the availability of government-backed CCER registry credits may reduce voluntary carbon credit supplies from China in the international market. The new guidance from the MEE outlines the criteria for projects to qualify for generating CCER credits, including comprehensive and accurate emission reductions accounting, conservative estimations of emission reductions, transparent disclosure of project information, and not being registered twice under other ETS. The MEE-approved methodologies for CCER credits include forestation, mangrove cultivation, solar thermal power, and grid-connected offshore wind power projects. Businesses under the compliance carbon market, project developers, and other trading entities can participate in CCER credits trading. The Beijing exchange will manage and publish all trading information, and forms of trading include listed transactions, block trades, and one-way bidding. Price fluctuations for listed transactions and block trades are limited to a certain percentage above or below the base price. However, there is currently no clear indication of how foreign investors can engage in China’s domestic carbon markets. Non-public trading is illegal and strictly prohibited from disclosing information for CCER credits trading. The official timeline for the CCER market’s restart has yet to be announced by the MEE. Nevertheless, the introduction of these guidelines indicates the readiness of the CCER market for a prompt relaunch, aiding China in lowering its carbon emissions.

Matt Lyons

Matt Lyons

Matt Lyons is the founder of Forestry & Carbon. Matt has over 25 years as a forestry consultant and is invoilved in numerous carbon credit offset projects.

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