China’s voluntary carbon market set to relaunch as registration begins

As the China Certified Emission Reduction (CCER) scheme, the country’s voluntary carbon market, moves closer to relaunch, Zhouchen Mao, Head of Research and Advisory, offers a closer analysis of the scheme and key proposed amendments outlined by the Ministry of Ecology and Environment.

Key messages:  

• China’s voluntary carbon market, the China Certified Emission Reduction (CCER) scheme, is set to relaunch with significant changes that will expand carbon trading and incentivise investments in sustainable and climate mitigation projects.  

• CCER has started accepting applications to register and open new accounts, marking a significant step to relaunch the voluntary scheme before the end of the year.  

• The passage of the CCER guidelines, which represents the comprehensive regulatory framework, is another strong signal that the relaunch is imminent.  

• The proposed amendments, outlined in the Administrative Measures, will help strengthen the credibility of the CCER and greatly benefit climate mitigation projects in the renewables, forestry, and methane reduction sectors.  

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China’s voluntary carbon market set to relaunch as registration begins 

Monetising carbon and participating in carbon credit trading in carbon markets are critical elements of the global shift towards achieving net-zero emissions. After a six-year hiatus in the trading of voluntary emission reduction, the much-anticipated relaunch of the China Certified Emission Reduction (CCER) scheme is expected to take place later this year. Since September, China Beijing Green Exchange (CBGEX) has begun accepting applications to register and open new accounts on the exchange. 

The CCER was first initiated in 2012 with the backing of CBGEX and attracted registrations from more than a thousand projects in the following four years. However, the scheme was shelved in 2017 due to low trading volume and a lack of market standards. The country has since only maintained a national emission trading scheme (National ETS) and several pilot carbon markets, all of which require mandatory participation.  

Background of China’s Carbon Market 

• China’s national emission trading scheme (National ETS), the country’s mandatory carbon market, became fully operational in 2021. The National ETS requires major emitters in the power sectors to have sufficient allowance to cover carbon emissions. When a firm exceeds the allowance, it must either reduce emissions or acquire additional allowances through trading.  

• China has also established seven pilot carbon markets to develop and test mechanisms for carbon trading. The pilot markets, which run in parallel to the National ETS, target key energy-intensive and high-emissions sectors, including steel, cement, petrochemical, and textiles.  

• The China Certified Emission Reduction (CCER) scheme is the voluntary carbon market designed to work in tandem with the National ETS. It is a carbon offsetting program where projects that reduce or capture carbon emissions can earn CCER credits. This includes projects in forestry, renewable energy, methane capture, and energy efficiency improvements. Currently, companies in the ETS market can use the CCER to offset five per cent of their annual emission obligation.  

• China Beijing Green Exchange (CBGEX) is the financial institution that provides the necessary infrastructure required for the listing, trading, registration, and settlement of CCER. 

Nonetheless, market confidence in China’s carbon voluntary market is on the rise after a string of initiatives were approved by the Ministry of Ecology and Environment (MEE) in recent months. These measures have established the foundation for the CCER’s relaunch. The most crucial is the “Administrative Measures for the Greenhouse Gas Voluntary Emission Reduction Trading”, jointly released by the MEE and the State Administration for Market Regulation (SAMR) in July this year.  

The Administrative Measures concluded public consultation in August and were passed in principle by the MEE at the start of September. The formal release is expected before the year end, upon which it will become the governing law of CCER and therefore is of great importance for both CCER’s relaunch and its operation. 

There are several key amendments in the Administrative Measures worth highlighting. 

First, a unified system was established to streamline the trading and settling of CCER credits. Under the Administrative Measures, CBGEX will be the only platform hosting trading once the CCER resumes operations, a move that would not only provide important infrastructure guarantees for the scheme’s restart, but also help to concentrate market liquidity given that trading was previously fragmented across different venues1.  

Second, on eligible sectors, the MEE is responsible for outlining the available projects that can be used to generate credit under the CCER scheme. It is expected that areas of renewables, forestry, and methane reduction will be prioritised in the sale of carbon emission reduction credits. However, MEE also indicated that available projects should be revised in accordance with economic and social development, leaving the door open to additional eligible projects and sectors. The Administrative Measures also clarified the projects that are prohibited from registering in the CCER scheme. Projects currently registered under the national and pilot markets are prohibited from registering in CCER to prevent double counting.  

Third, the Administrative Measures has called for more comprehensive verification and certification processes to strengthen the integrity of CCER credits that in turn will help promote the international recognition of Chinese carbon assets. For instance, in order to qualify for CCER registration, the project must contain a project design plan and undergo an independent review by the MEE that will determine its eligibility. CCER registry could also revoke project registration and ban project owners from registering a new project in the event of fraud or misrepresentation.  

Fourth, the document outlined stricter regulations on data as the National ETS has struggled with scandals around this issue since its inception. A technical committee will be established by MEE and SAMR to coordinate and oversee the data verification process.  

Looking forward, the relaunch of CCER will further activate and expand the coverage of China’s carbon market by allowing more voluntary emission reduction projects to participate in the market-oriented mechanism to reduce emission, increase the carbon market’s volume, and improve market liquidity.  

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