China completes first issuance of domestic voluntary carbon credit CCERs

China completed the long-awaited first issuance of domestic voluntary carbon credits, called China Certified Emission Reductions, on March 6, with the issuance volume from the first nine offshore wind and solar thermal projects totaling 9.5 million mtCO2e, data from the official CCER website under the Ministry of Ecology and Environment showed.

China paused the registration of new CCER projects and the issuance of new CCERs in 2017 to refine its regulations and carbon crediting methodologies. In late 2023, MEE announced that it would stop using old methodologies and only allow CCERs to be issued under newly released methodologies, which marked the start of the CCER 2.0 era.

The first issuance of CCERs marks a breakthrough in this era, with market participants expecting imminent trading activities.

Seven of the nine projects are offshore wind projects with 250-400 MW power generation capacity. The projects are located in the east and southeast coastal regions of China, covering Shandong, Jiangsu, Guangdong, and Fujian provinces. The two solar thermal projects, with 110 MW capacity in total, are based in Dunhuang, Gansu, a famous city on the edge of China's Gobi Desert and its ancient Silk Road.

CCERs are issued based on emissions avoided from using wind or solar thermal power to substitute coal-fired power. Notably, despite China's low equipment manufacturing costs, these two types of renewable projects still have higher project development costs compared with more mature onshore wind or solar PV projects.

China's national compliance carbon market has enrolled over 2,000 power generation utilities, covering about 5.2 billion mtCO2e/year of greenhouse gas emissions. These compliance entities are allowed to use CCERs to offset up to 5% of their liable emissions, and they are expected to be the key buyers of the newly issued CCERs.

Starting in 2025, cement, aluminum, and steel producers have also been enrolled in the national compliance market, which implies that the new CCERs will have a bigger pool of buyers. However, the plans for implementation and emission allowance allocation for these sectors have not been released yet, so demand from these new participants remains uncertain.

Notably, the first issuance of CCERs happened during China's biggest annual political gathering, the Two Sessions. On March 5, China's Premier Li Qiang emphasized in his annual work report that the government will continue facilitating the expansion of China's compliance carbon market and strengthening controls over the country's carbon emissions and carbon intensities.

Market reactions

"It will not take long for these CCERs to be listed on the Beijing [Green] Exchange and start trading. Prices of these new CCERs should be similar to CEAs (China Emission Allowances). However, some CCERs could be sold at prices higher than CEAs, especially the solar thermal ones that have higher project development costs," according to a Beijing-based consultant who supports China's compliance entities in managing their carbon assets.

The consultant said both regulators and compliance entities are closely monitoring the environmental integrity of these CCERs, adding that, to avoid double counting of environmental attributes, these renewable projects will not generate other environmental certificates, such as domestic or international renewable energy certificates.

"Despite the significant volume of new CCER supplies, the market is not ready for speculative trading. The Beijing exchange has made it very clear -- only listed transactions will be allowed in the initial phase. Such arrangement kind of discourages investments from international players, because we are more comfortable with block trades and presale agreements, instead of pure exchange-based trading," a Singapore-based carbon trader said.

"For now, China's carbon market remains to be an insular one that prioritizes its own compliance entities and its own decarbonization targets. Foreign investors still have very limited opportunities, and also very limited interests, in China's carbon markets, for both compliance CEAs and voluntary CCERs," the Singapore trader added.

Even within China, project developers pointed out that the newly issued CCERs are mainly from projects operated by the country's state-owned generation utilities, including China Three Gorges, China Energy Investment Group, China General Nuclear Power Group, and State Power Investment Corporation.

"For private sector's players, we see more opportunities from afforestation projects, but the public consultation [for afforestation projects] seems to receive lots of negative feedback, and the carbon credit issuance is expected to take longer," a Fujian-based project developer said.

"It has become very difficult to develop nature-based projects in the international voluntary carbon market, because of the government's concerns over whether sending satellite data [of the forests] to foreign organizations can trigger security issues. We do need CCERs to move faster so that we can have a new business model for our projects in the pipeline," a Sichuan-based carbon consultant said.

The Chinese government has approved six carbon crediting methodologies in the CCER 2.0 era, including afforestation, mangrove cultivation, solar thermal, grid-connected offshore wind power, coal mine gas utilization, and implementation of energy-efficient streetlights in highway tunnels.