China releases supporting policies to facilitate domestic voluntary carbon market's restart

China's Ministry of Ecology and Environment late Nov. 16 issued a guidance for the development and implementation of projects in the domestic voluntary carbon market, alongside the announcement of rules for account registration, completing the final sprint for the market's restart.

The domestic voluntary carbon market, known as China Certified Emission Reduction, or CCER, has been paused for six years since 2017 for new project registrations, as the government called for an enhancement of the regulatory framework.

Earlier this year, MEE released the new legislation and approved four methodologies for CCER credit issuance, paving the way for this long-awaited market to onboard new projects and new supplies.

Beijing Green Exchange, which will host the national trading platform for CCER credits once the market officially restarts, also released the rules for CCER trading and settlement late Nov. 16. However, MEE has not announced the timeline in terms of when the CCER market will officially restart.

The release of these supporting measures, covering project development, registration, credit trading and settlement, has prepared the CCER market for an imminent reboot.

The restart is expected to provide companies in the compliance market with additional supplies, as they are allowed to use CCER credits to offset up to 5% of their liable emissions under the compliance mechanism, market participants said.

Meanwhile, some market participants expected voluntary carbon credit, or VCM, supplies from China in the international market to decline in the long term, as some project developers may prefer to get credits issued from the government-backed CCER registry, which are likely to enjoy price premiums compared with VCM credits.

According to statistics from S&P Global Commodity Insights, in the first quarter of 2023, about 20.8% of the issuance of VCM credits came from China, ranking first in the world.

Project development guidance

In the newly released guidance, MEE specified the key criteria for a qualified CCER project.

A qualified project should conduct a comprehensive and accurate accounting of emission reductions under the respective methodology. When assumptions must be made, estimations of emission reductions should be conservative. The information of a project should be transparently disclosed. The project should not be double registered under other emission trading mechanisms.

So far, MEE has only approved four methodologies, namely forestation, mangrove cultivation, solar thermal power and grid-connected offshore wind power projects. Nevertheless, the guidance outlined other types of projects that also have the potential to participate in the CCER market.

Potential project types include fuel switch and efficiency enhancement in power generation, industrial production, and transportation, as well as carbon capture, utilization and storage or CCUS, sustainable agriculture, mitigation of methane escapes from production and transportation of fossil fuels, and waste treatment.

Registration, trading and settlement

No constraints have been set in terms of who can trade CCER credits. According to the rules released by MEE and the Beijing exchange, companies in the compliance market, owners of CCER projects and credits, as well as "other trading entities" will be allowed to participate in the market.

Nevertheless, no clues have been provided in terms of whether and how a foreign investor can participate in this domestic market.

The forms of CCER trading include but are not limited to listed transactions, block trades and one-way bidding, the Beijing exchange said.

The exchange also set rules to limit price fluctuations.

The weighted average price for all listed transactions in the previous trading day will be used as the "base price" for the current trading day. The price changes should be limited to 10% above or below the base price for listed transactions and 30% above or below the base price for block trades.

The Beijing exchange highlighted that all trading information will be exclusively managed and published by the exchange.

The exchange emphasized that non-public trading strategies, financial performance of trading entities, and other information that has a potential influence on prices will be regarded as "insider information," adding that it is illegal and strictly prohibited to disclose or take advantage of such information for CCER trading.

The Shanghai Environment and Energy Exchange, which hosts the trading platform for the national compliance carbon market, has also released similar measures to prevent leakage of market information in August.

The exchange will be open for trading from Monday to Friday, excluding public holidays, at 9:30-11:30 am (0130-0330 GMT) and 13:00-15:00 pm, Beijing time.