Liu Shijin, deputy director of the Economic Committee of the National Committee of the Chinese People's Political Consultative Conference: We should build carbon assets for innovative carbon reduction and build a "carbon substitution" market

"Replacing the original industry and energy with new technologies and new energy sources is a fundamental way to reduce carbon emissions. But we currently lack a special concept for this, let alone an account for this, which is very detrimental to innovation. ”

At the 2023 International Symposium on Green Transformation and High-quality Development held recently, Liu Shijin, a well-known economist, deputy director of the Economic Committee of the National Committee of the Chinese People's Political Consultative Conference, and former deputy director of the Development Research Center of the State Council, said. Liu Shijin is also the chief advisor of the China Council for International Cooperation on Environment and Development.

The conference was hosted by the Natural Resources Defense Council (NRDC) and the Chinese Society for Environmental Sciences, and co-organized by the National Center for Climate Strategy under the Ministry of Ecology and Environment and the Energy Research Institute of Peking University.

Liu Shijin said: "At present, both in China and internationally, there is not enough consideration for innovative carbon reduction. ” 

On the one hand, the global carbon market basically issued free allowances in the initial stage, and there was little room for incentives for innovative carbon reduction. On the other hand, the voluntary greenhouse gas emission reduction trading market, a supporting mechanism for China's carbon market, has been reopened, but the design offset volume cannot exceed 5% of the company's performance amount, and it has not yet entered the actual operation process.

He pointed out that the current global carbon emission market is mainly playing a positive role in "efficiency-enhancing carbon reduction".

He divided the common carbon reduction practices into three categories: one is "recession carbon reduction", which reduces carbon emissions by reducing production, the second is "efficiency reduction", which reduces carbon emissions through energy conservation and emission reduction while the technical system remains unchanged, and the third is "innovative carbon reduction", which uses new technologies and methods to reduce carbon emissions relatively while achieving the same output.

Among them, innovative carbon reduction usually has a large carbon reduction, and can also drive investment, promote economic growth through new technologies and new industries, and ultimately reduce the cost of green transformation.

Liu Shijin suggested that the construction of innovative carbon reduction market mechanism should be strengthened, and the concept of "alternative carbon reduction" should be proposed, referred to as "carbon substitution". For example, the carbon emissions of photovoltaic and wind power generation are only 30 grams and 10 grams respectively, which is 97%-99% less carbon emissions than the 1,000 grams of electricity generated by coal.

He suggested that a standardized and sound accounting method for innovative carbon reduction should be established and incorporated into the existing carbon accounting system.

Second, the issuance of certificates for this part of the emission reduction, similar to "green certificates", to create a specific type of carbon assets for enterprises, and create a new trading market for such carbon assets to connect with the traditional carbon market.

"Traditional production enterprises can either directly reduce emissions themselves, or they can buy the 'carbon reduction' target formed by new technologies. Enterprises that use new technologies to achieve carbon reduction can obtain income as a result, which is a scientific assessment of the carbon reduction contribution of enterprises and has sufficient incentives. Liu Shijin explained.

According to public information, there are opportunities for innovative carbon reduction to be developed into carbon assets through various voluntary emission reduction mechanisms around the world, but there are not many actual cases at present.

Taking VCS, one of the mainstream international voluntary emission reduction mechanisms, as an example, the first threshold for innovative emission reduction projects to be developed into carbon assets is to identify and add new emission reduction methods to the original emission reduction method library. The VCS allows companies to apply for the recognition of new emission reduction methods, but only if the company is willing and willing to submit an application.

Thereafter, the application goes through a six-step review process. As of now, carbon capture and storage (CCS) technology has reached the validation stage, and it is still two steps away from approval.

There are not many new technologies that can go to the late stage of application like CCS. The review criteria for the VCS include that the emission reduction methodology is broadly applicable and does not address unmitigated social, environmental, legal and regulatory risks.

According to Lin Wu, deputy general manager of the technical service department of CTI Group, a third-party consulting agency, at the Fudan Carbon Price Index press conference in September 2023, CDM, one of the earliest voluntary emission reduction mechanisms in the world, did not include CCS technology because the carbon sequestration and emission reduction effects of CCS were controversial.

In response to the question of how to implement innovative carbon reduction trading on a large scale, Liu Shijin said that it can start from local pilots. He suggested that after the establishment of the accounting system of "carbon substitution", carbon asset pools or green carbon banks can be established in local administrative areas, "only need mutual recognition of internal transaction results, and external accounting of local governments".

After the local market has a certain influence, it can form a larger market and open up with the national carbon market and the voluntary emission reduction trading market. "This approach is seamlessly integrated with existing institutions and policies. Liu Shijin said.