China's Tanpuhui carbon scheme; amassing the weight of a billion consumers

This is the second piece of a two-part series on China's Tanpuhui or Carbon Inclusion program, one of the world's largest consumer-end decarbonization incentive schemes.

China's plan to integrate its multiple private and public Tanpuhui carbon inclusion programs into a single system is unprecedented in size and scale, given that just one of the emissions schemes covered over half a billion users at one point, which is more than the population of many countries.

A consumer-level carbon emissions program on this scale presents interesting possibilities for price discovery, as the main channels for putting a price on carbon so far have been top-down policies like carbon taxes, cap-and-trade programs or carbon offset markets.

Tanpuhui would gauge the price that consumers are willing to be paid to lower carbon emissions instead of the price they have to pay. It will also be a national carbon incentive scheme backed by a billion Chinese consumers, a dynamic that has previously impacted global commodities markets and trade patterns.

The emissions reduction potential is immense. The International Energy Agency has said that net zero emissions by 2050 cannot happen without the consent of people and behavioral changes.

Incentive schemes can have an immediate impact on emissions from carbon-intensive assets, and reach niche areas that are ignored by big cap-and-trade schemes, it said.

"Whilst being simple changes, these actions pack a punch -- limiting heating to 19-20 C in buildings would reduce cumulative emissions from fossil fuel boilers by 10% through to 2030," IEA said in its 2023 report on behavioral changes.

However, large schemes come with equally large implementation challenges. China's numerous Tanpuhui programs are fragmented with different carbon accounting standards and reward systems, and limited information sharing.

Fragmented systems

As of February 2023, provincial governments had devised around 50 methodologies for calculating emission reductions from consumer behaviors such as purchasing energy-efficient appliances, installing solar panels for households, waste recycling, taking public transport and driving electric vehicles, Ministry of Ecology and Environment or MEE said in its 2023 report on Tanpuhui.

"Currently, Tanpuhui platforms in different regions are using different methodologies. If we cannot have transparent, universal methodologies with high standards and good practicality, we will face high administrative costs and great difficulties to effectively scale up the market," Zhang Xin, Chief Economist at National Center for Climate Change Strategy and International Cooperation (NCSC), said June 7 at an industrial forum.

Some incentive schemes developed by private companies were established before state-backed Tanpuhui programs, which currently follow their own protocols and integration with state systems is still work in progress.

When Ant Group launched Ant Forest in 2016, it was initially defined as a charity program instead of a Tanpuhui program and awarded green "points" instead of emission reductions. Ant Forest covers over 60 incentive schemes through the Alipay e-wallet, from recycling old shoes to using fewer disposables.

When sponsoring the Hangzhou Asian Games in 2023, Ant Group purchased equivalent amount of carbon credits for all green energy points donated by Ant Forest users to offset the event's carbon footprints.

However, Ant Group told S&P Global Commodity Insights that, on a day-to-day basis, they only award green energy points to users and do not intend to connect their program with carbon markets.

Over the past eight years, Alipay Ant Forest has generated 31.92 million units of green energy points. "Although this number does not directly equate to carbon emission reductions, it reflects the scale of environmental impact from the low-carbon consumption choices made by Alipay Ant Forest's large user base," said Xiaoying Wang, Senior Expert at Ant Group's Sustainable Development Department.

Despite that commercial platforms are yet to align with government's blueprints, state-backed platforms have been unable to attract as many users as commercial platforms. MEE's report said that, for the unified Tanpuhui program to succeed, the public and private sectors have to work together.

So far, provincial governments like Zhejiang and Jiangxi have linked their local programs with Alipay e-wallets and are developing Tanpuhui methodologies based on Ant Forest's. Beijing's transport commission and environmental bureau has codeveloped a Tanpuhui program with Gaode, China's digital mapping service, that will award credits for taking public transport, riding bikes and walking.

Eliminating duplication

Plans to integrate Tanpuhui programs with conventional carbon markets also present challenges such as carbon market integrity, double counting of credits, and overlapping methodologies.

Some platforms already mimic carbon offsetting, such as the ones hosted by the governments of Sichuan and Shanxi that allow companies to buy Tanpuhui-related units for offsetting.

Some Tanpuhui methodologies also overlap with methodologies in voluntary carbon markets, such as Shanghai's program for distributed solar PV, Guangdong's afforestation program and Chongqing's program that rewards methane emission reduction from agriculture.

In March, authorities in Shanghai issued a guidance saying that emission reductions under its Tanpuhui program should be exclusive and cannot be "double claimed" under China Certified Emission Reductions (CCER), Verra's Verified Carbon Standard, Gold Standard and UN's Clean Development Mechanism.

Ant Group has also been cautious about claims related to its Tanpuhui schemes. Wang said Ant Forest's emissions reductions are neither used for reducing the company's own carbon footprint nor meeting its net-zero goals.

"Eventually, we need to connect high-integrity Tanpuhui platforms with carbon markets," NCSC's Zhang emphasized in his recent speech.

Former climate envoy, Xie Zhenhua, said in the foreword to Lu Leshu's book on Tanpuhui titled Carbon Account, that the development of carbon accounting for individuals is still at an early phase.

"We are still carving the path to connect carbon markets for producers and the carbon markets for consumers. We are still exploring how to optimize the values of the carbon assets linked to individual carbon accounts," Xie said.