Restarting CCER, can it really be made up?
On October 19, the Ministry of Ecology and Environment (MEE) and the State Administration for Market Regulation (SAMR) jointly issued the Administrative Measures for Voluntary Greenhouse Gas Emission Reduction Trading (Trial), according to which the State Administration for Market Regulation and the Ministry of Ecology and Environment (MEE) will approve a number of verification and verification agencies as soon as possible to provide verification and verification services for project owners to apply for project and emission reduction registration. This means that after five years, the supply and demand pattern of China's carbon market will be further improved, and the launch of CCER is imperative.
CCER is the abbreviation of China's Certified Voluntary Emission Reduction, which refers to the quantitative verification of projects in China that contribute to greenhouse gas emission reduction, such as renewable energy projects, energy conservation projects, efficiency improvement projects, forestry carbon sink projects, methane and other greenhouse gas utilization projects, and carbon dioxide recovery projects. The issued CCER enters the carbon trading market like the surplus allowance, and high-emitting enterprises can purchase allowances from other compliance enterprises or partially offset them with purchased/self-developed CCER projects if the initial free allowances are insufficient, so as to achieve the final actual carbon emission offset.
From this perspective, CCER is the so-called "voluntary market" in the carbon market. In fact, the emergence of CCER is a compensation and reward for those who make voluntary carbon reduction contributions under the existing carbon market framework system.
CCER in China has gone through three main stages of development:
Fig. | History of CCER
"If traditional industries such as thermal power and petrochemicals can be forced to reduce emissions through the power of the national carbon market, and renewable energy power generation such as wind and solar power generation does not emit carbon itself, can it participate in emission reduction? ”
Huang Jinpeng, an expert at the Hubei Provincial Collaborative Innovation Center for Carbon Emissions Trading, explained that CCER is an officially approved greenhouse gas emission reduction initiative created by the owners of emission reduction projects, which is particularly beneficial for renewable energy projects. "For example, if a wind power project runs for a year, it is equivalent to reducing carbon dioxide emissions by 100,000 tons, so the owner can enter the market with 100,000 tons of CCER in hand and sell it to enterprises that need emission allowances, so as to obtain profits, thereby stimulating the enthusiasm of active emission reduction. ”
Since CCER is positive in many ways, why was it stopped in 2017?
The National Development and Reform Commission (NDRC) issued an announcement in 2017 stating that the "suspension of application acceptance" of CCER was due to its existence"Problems such as the small volume of voluntary greenhouse gas emission reduction transactions and the lack of standardization of individual projects".
Fig. | Announcement of the National Development and Reform Commission of the People's Republic of China
The essence of CCER is to encourage the development of more renewable electricity and less fossil energy power generation, and help promote the overall emission reduction of the whole society. However, since its operation in 2012, the price of CCER has been low and does not reflect the true cost of carbon abatement. According to Refinitiv data, as of 2021, among the eight pilot cities, Beijing has the highest average carbon price of 60 yuan, Shenzhen has the lowest average carbon price of about 10 yuan, and most of the pilot cities have maintained an average carbon price of about 30 yuan.
According to Refinitiv Carbon Research data, the NDRC issued about 80 million tonnes of CO2e CCER from the start of CCER trading in 2012 to the suspension of new project acceptance in 2017, but only about 32 million tonnes were digested in the past five years.
Fig. | Carbon trading in China's pilot carbon market in 2021
Since 2012, China has launched pilot carbon trading markets in eight places, but there are restrictions on the proportion of carbon emissions trading that can be used: Shenzhen, Guangdong, Hubei, Tianjin, and Fujian can offset 10%, Chongqing 8%, Beijing and Shanghai only 5% and 3% respectively. In addition, the offset ratio of the national carbon emission trading market does not exceed 5% of the carbon emission allowances that should be paid, which has caused regional carbon markets with large differences in the average transaction price of regional carbon markets and are not connected to each other, resulting in the failure of carbon price functions, long-term depression of carbon prices, and large stocks.
But in fact, the emission reduction benefits brought by CCER are not lower than the trading price of carbon allowances.
At the same time, the quality of CCER projects and the authenticity of carbon data need to be investigated.Prior to the suspension of the CCER market in 2017, a number of CCER projects were exposed to falsification of reports and data, which undermined the credibility and credibility of the entire market, leading to the government's decision to suspend the issuance and trading of CCER projects, and to rectify and review them.
However, from the perspective of the integrity of the carbon market, CCER is an indispensable trading target. Compared with the trading of carbon emission allowances obtained by key greenhouse gas emitting enterprises, the CCER market has a voluntary and shared emission reduction benefit mechanism, which can make enterprises other than key greenhouse gas emitting enterprises more motivated to actively implement various emission reduction projects. Therefore, the trend of when and how CCER will be restarted is of particular interest. At the beginning of 2022, the price of CCER projects was as high as 45 yuan per tonne, which also made many companies smell business opportunities in the carbon trading market. According to Refinitiv Carbon Research data, under current regulations, existing CCER stocks can be used to offset up to 5% of the payable allowances, and the key greenhouse gas emitters in the first compliance cycle have absorbed 33 million tonnes of CCER stocks in one fell swoop, exceeding the total stock from 2012 to 2017, which also lays the foundation for the return of CCER.
And what impact will the release of CCER's restart signal this year have on enterprises?
Different industries need to use different data accounting methods when calculating carbon emission reductions. On the evening of October 24, the Ministry of Ecology and Environment officially released the first batch of project methodologies for voluntary greenhouse gas emission reduction projects, including afforestation carbon sinks, grid-connected solar thermal power generation, grid-connected offshore wind power generation, and mangrove restoration. However, in fact, the first four methodologies are clearly biased in favor of central state-owned enterprises and are not conducive to small enterprises entering the carbon market.
Fig. | About the issuance of the "Greenhouse Gas Voluntary Emission Reduction Project Methodology" Source| Ministry of Ecology and Environment
Among them, the two methodologies that have attracted more attention are grid-connected offshore wind power and grid-connected solar thermal power generation, both of which reduce carbon dioxide emissions by replacing the fossil fuel combustion of grid-connected power plants and their new grid-connected power plants in the regional power grid.
But in reality,Grid-connected offshore wind power and grid-connected solar thermal power projects are not necessarily suitable for small business emission reduction scenarios.
First, grid-connected offshore wind and solar thermal power projects typically require significant capital investment. Raising such capital can be a challenge for small businesses. In contrast, large enterprises, such as state-owned enterprises, usually have more financial resources and resources to undertake such high investments. At the same time, grid-connected offshore wind power and grid-connected CSP projects involve complex technology and expertise, including design, construction, operation and maintenance, etc., and small enterprises may not have enough technical strength and expertise to handle these complex tasks and need to rely on the support of external professional teams, while large enterprises can often reduce costs through economies of scale.
For example, mangrove restoration projects may have a negative impact on biodiversity during the actual implementation process, and the actual operation of enterprises needs to be combined with other emission reduction measures.
At present, the area of mangrove forests in China has reached 438,000 mu. It is distributed in Hainan, Guangdong, Guangxi, Fujian, Zhejiang, Hong Kong, Macao and Taiwan. Guangdong is the province with the largest area of mangrove forests in China. Although the mangrove vegetation restoration project has become an important measure for spatial ecological protection and restoration and the improvement of ecosystem carbon sink capacity by increasing the carbon storage of mangrove biomass and soil organic carbon and realizing carbon dioxide removal through artificial planting of mangrove vegetation. The country's first mangrove protection carbon sink project was also successfully auctioned at a price of 485 yuan per tonne.
However, the problem we face is the low survival rate of artificial mangrove replanting. According to statistics, the average survival rate of local mangrove plants in Guangxi in the past decade has often exceeded 40%. Suitable land and mixed cropping patterns for mangrove growth, topography and tidal levels, species selection, and the degree of pest and human disturbance are all important factors affecting mangrove growth. In addition, some tidal flats are high tide stopover sites for migratory waterbirds, providing foraging and resting functions, while others are home to a large number of organisms such as crabs, shellfish and arthropods. Restoring mangrove forests on these tidal flats would destroy the habitats of these organisms, leading to a decline in species populations and thus on biodiversity. Therefore, companies should consider the synergies between mangrove restoration projects and other emission reduction measures when formulating and implementing emission reduction strategies.
In addition, there is a need for coordination between the different green mechanisms.
In some renewable energy power generation projects, both green certificates and CCER can be obtained. For example, a wind power project can receive both a green certificate for renewable electricity and a CCER for reducing carbon emissions. Peng Peng, Secretary-General of the China New Energy Power Investment and Financing Alliance, said: "In the future, companies are likely to face a choice between CCER and green power trading. A power station sells both CCER and green electricity, and the possibility of visual inspection is very small. If you choose to participate in CCER, the project will require additional input costs, and the current policy is not clear, and you may face problems such as lower than expected prices or even unable to sell. ”
Although there is no clear timetable for the resumption of CCER issuance, its rules have been outlined by the relevant authorities, and the return is imminent. However, in the process of implementing the methodology, how many small enterprises can occupy a place? CCER is about to face a new round of market testing and adjustment in the era of a unified national carbon market.
Resources:
Dual-Carbon Strategic Alliance: How to evaluate the selection of mangrove restoration into the first batch of CCER methodologies?
Far East Credit: Nationally Certified Voluntary Emission Reductions (CCER): History, Present and Future.
EU-China Carbon Neutrality: The first batch of CCER methodologies or openness, including these 4 types of projects.
The Yireh Criterion: The restart of CCER is imminent, and this article reads the history, current situation and future of CCER.
Refinitiv: Review and outlook of China's emissions trading market.
CD: Xu Nan, CCER's comeback: 2022 suspense in China's carbon market.
Ministry of Natural Resources of the People's Republic of China, Forestry and Grassland Administration: Special Action Plan for Mangrove Protection and Restoration (2020~2025).
Paulson Institute, Lao Niu Foundation, Shenzhen Mangrove Conservation Foundation: A Study on Mangrove Conservation and Restoration Strategies in China.
Paulson Institute, China International Convention on Wetlands, Institute of Geographic Sciences and Natural Resources Research, Chinese Academy of Sciences, and Lao Niu Foundation: Strategic Research Project on Coastal Wetland Conservation and Management in China.
Alxa SEE Bagui Project Center: Reflections on the Mangrove Restoration Project - How to Plant a Mangrove Tree.
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