Shenzhen restricts CCER use in carbon market

Published 10:28 on June 8, 2015  /  Last updated at 13:38 on June 8, 2015  /  China, China's Offset Market  /  Comments Off on Shenzhen restricts CCER use in carbon market

Shenzhen on Monday became the seventh and last of China’s pilot carbon markets to announce restrictions on which CCER types can be used for compliance, including geographical limits on offsets from power sector projects.

Shenzhen on Monday became the seventh and last of China’s pilot carbon markets to announce restrictions on which CCER types can be used for compliance, including geographical limits on offsets from power sector projects.

The rules had been expected since March, but were only now published on the website of the China Emissions Exchange in Shenzhen.

Unlike in Tianjin, where rules released last week made ineligible all the CCERs that had traded in the market so far, the key components of Shenzhen’s restrictions had been communicated to market participants earlier this year, meaning traders have been able to steer clear of the now-banned offsets.

Shenzhen will allow CCERs from five main sectors: power generation from wind, solar, landfill methane, rural biogas and biomass; clean transport; ocean carbon sequestration, forestry; and agriculture.

Hydro projects were ruled out.

The city government has negotiated bilateral deals with 16 provinces, most of them among China’s poorest, and power, transport and ocean sequestration projects will only be allowed if they are located in one of them.  More deals might be signed in the future.

The eligible provinces are: Anhui, Fujian, Gansu, Guangxi, Guizhou, Hainan, Hunan, Inner Mongolia, Jiangxi, Ningxia, Qinghai, Shaanxi, Sichuan, Tibet, Xinjiang and Yunnan.

In addition, four cities in Shenzhen’s own Guangdong province were included.

There were no restrictions on forestry and agriculture projects, and Shenzhen also chose to not ban pre-CDM CCERs, which have been ruled out of most other markets.

LOW IMPACT

Market participants welcomed the rule clarifications, but thought they would have little impact on the market in the near term, despite the compliance deadline approaching.

“There is not much benefit for me from CCERs at the moment. Most of my customers have already closed their positions,” one broker told Carbon Pulse.

As of Monday, 240 of the some 650 companies covered by the Shenzhen scheme had already handed over permits to the government to cover their 2014 emissions, even though the deadline is not until June 30, according to the Shenzhen carbon exchange.

The broker said most of the companies in the Shenzhen ETS that emit more than 50,000 tonnes of CO2 per year are long and don’t really need CCERs.

“Smaller emitters are mostly short, often by up to 50% or more. But 10% of their emissions (the CCER limit) amount to just hundreds or a few thousand tonnes. There is not much they can save (from buying CCERs),” he said.

Only one CCER deal has been reported in Shenzhen so far, when UK trading firm Carbon Trading Capital bought 22,000 offsets from state-owned power company China Guodian Longyuan in April.

By Stian Reklev – stian@carbon-pulse.com