The CDM Executive Board (EB) has agreed on rules for how projects can de-register from the mechanism, theoretically paving the way for thousands of Chinese schemes to chase higher prices in their domestic market.
The establishment of a domestic carbon market in China has been touted as a potential fix for thousands of Chinese carbon-cutting projects developed for the CDM whose profitability has suffered from collapsed CER prices and buyers eager to withdraw from contracts.
At its Feb 16-20 meeting, the EB agreed on a set of rules that will allow registered projects to withdraw from the CDM from April 1. (See Annex 15 of the official meeting report.)
But while access to the domestic market might offer improved profitability for CDM projects – CCERs in the pilot schemes fetch around 2 euros each, ten times more than in the UN market – they face major risks should they try to switch.
The National Development and Reform Commission, the government agency in charge of China’s carbon markets, has yet to clarify whether it would accept ex-CDM projects, and the outlook to have them approved for the national market from 2016 is uncertain at best.
Hundreds of new projects are in the approval pipeline for the domestic CCER mechanism, and concerns over over-supply have sparked a debate in China about whether older projects should be eligible.
DIM PROSPECTS
Market participants who attended a recent NDRC registration review meeting were lukewarm about CDM projects’ chances of making it to the domestic market.
“I believe the NDRC will review all CCER applications in a stricter manner in the future, in order to reduce the overall CCER supply volume while improving the quality of CCERs registered and issued,” said Princeton Peng, CEO of project developer Climate Bridge.
“From my personal perspective, I don’t think it will be easy or possible to deregister CDM project then join China domestic carbon market in the near future,” he added.
Caspar Chiquet with project developer South Pole Carbon was also doubtful that much volume from the CDM would come to the Chinese market.
“I don’t think that many large projects will take the risk of deregistering, since they will be aware of the discussion about restricting all but type-I (new projects) CCERs either at the local level, or even at NDRC level,” he told Carbon Pulse.
“It can be that some smaller project owners want to deregister and that it takes a while for the NDRC to react, if at all, so we might see a theoretical increase in CCERs, but I think that the regional pilots would be quick to update their eligibility criteria.”
A number of the seven pilot markets have issued rules to restrict offset supply that would make it difficult for CDM projects to win eligibility.
Beijing and Shanghai have made any emission cuts prior to Jan 1, 2013 ineligible for their markets, while Hubei only accepts credits from local projects.
By Stian Reklev – stian@carbon-pulse.com
