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China reboots voluntary carbon credit market
Central government’s resolve to reach decarbonization goals seen boosting emission trading scheme
Leo Tang 1 Feb 2024

After being halted for seven years, China’s voluntary carbon credit market, the China Certified Emission Reduction (CCER) scheme, has relaunched on the China Beijing Green Exchange.

On its first trading day on January 22, the exchange recorded a total of 375,315 tonnes of carbon being traded, with turnover exceeding 23.8 million yuan (US$3.33 million).

Voluntary carbon credit trading is seen as a powerful market-based solution to bring down carbon emissions, along with carbon tax.

Back in 2012, the CCER scheme had its debut as part of China’s early trials for carbon credit trading in multiple municipalities. Five years after its launch, however, regulators announced in 2017 that the CCER scheme would indefinitely suspend accepting new participants and issuing new carbon credits due to “low trading volumes and non-standard practice of some projects” until updates and revision of the rules and frameworks were completed.

In the years that followed, China ramped up its decarbonization journey, including making a national commitment to reach carbon neutrality by 2060. To safeguard its energy transition process, the importance of carbon markets became more pronounced and the development of a national platform for carbon trading accelerated. In 2021 China launched the national Emission Trading System (ETS), which only regulates corporates from the power sector.

Compared with the situation seven years ago, the current CCER scheme strengthens the regulation on the validity of carbon credit projects, and brings all carbon credits transactions to a centralized trading platform for data collection convenience and transparency. Participation is restricted to domestic entities at the moment.

How the carbon market operates

By design, the national ETS runs on a mandatory basis and covers high-emitting entities designated by regulators. Under ETS, each covered entity has an initial carbon emission amount allocated by the government. If the amount of allocated carbon emission is used up, the particular entity needs to purchase from other participating entities with a surplus of carbon emission, which creates an incentive for participants to save on cost by cutting their carbon emissions and generate revenue by selling the surplus.

Complementing the ETS, the CCER scheme provides an alternative way for entities under the national ETS to purchase carbon credits to offset their emissions beyond the rationed amount. It operates on a voluntary basis, with registered entities offering carbon credits generated from various clean-energy projects including wind, photovoltaic, forestation, etc.

Generally, the price for carbon emission credits traded through the CCER scheme is lower than that through the ETS. For example, the price for carbon emission credits on the CCER scheme on the first trading day was around 63.5 yuan per tonne, while the price in the ETS was around 70.6 yuan per tonne. To prevent arbitrage from the cost differential, the maximum amount of carbon credits a corporation can trade through the CCER scheme is capped by regulators at 5% of its total allocated carbon emission amount in the ETS per year.  

With the reopening of the CCER scheme, China’s carbon market infrastructure is completed. The combination of the mandatory national ETS market with the voluntary CCER market should provide a powerful mechanism for the world’s largest carbon emitter to realize its energy transition ambition. According to a report by the International Energy Agency, a well-running ETS would allow China’s power sector to reach the peak of its carbon emission before 2030.

Worldwide momentum

The return of China’s CCER scheme is but one example of the encouraging developments in voluntary carbon trading across the globe. The consulting firm BCG estimates that the size of the voluntary carbon market worldwide reached US$2 billion in 2021, and is expected to reach between US$10 billion and US$40 billion by 2030.

In Asia, an increasing number of jurisdictions have set up their own carbon credit trading platforms. In June 2023 Singapore launched its carbon exchange Climate Impact X serving global traders. Even earlier, the Hong Kong Exchange inaugurated its carbon credits trading platform Core Climate in October 2022.

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