Final regulations published for the China Certified Emission Reduction Scheme

On 19 October 2023, the Ministry of Ecology and Environment of the People’s Republic of China (MEE) and the State Administration for Market Regulation (SAMR) jointly published the final version of the “Measures for the Administration of Greenhouse Gas Voluntary Emission Reduction Trading (for Trial Implementation)” (the Administrative Measures), such rules to come into effect on the same day as the date of publication. The Administrative Measures were finalised after the conclusion of a public consultation in August this year (see our previous blog post on the consultation). 

Numerous drafting changes were made to the final version of the Administrative Measures when compared with the consultation draft.  However, most of these drafting changes are technical in nature and the purpose and core provisions of the Administrative Measures remain unchanged; that is, to establish a unified regulatory framework for the trading and related activities with respect to voluntary emission reduction under the China Certified Emission Reduction Scheme (CCER) (see our previous blog post on the notable features of the regulatory framework).  We highlight below some key differences between the consultation draft and the final version of the Administrative Measures. 

Key differences in the final version of the Administrative Measures

Eligibility of voluntary greenhouse gas (GHG) reduction or removal projects

Voluntary GHG reduction or removal projects have to be authentic, “non-repetitive” and “additional” in order to be eligible for registration.  These criteria have not changed from the consultation draft.  However, the concept of “additionality” has been elaborated in the final version of the Administrative Measures.  In addition to requiring that the GHG reduction or removal benefits of a project exceed its baseline scenario determined by the relevant project methodology, “additionality” now also captures the idea that projects which may not be the best choice from a financial standpoint (measured by indicators such as the project’s internal rate of return) when compared with alternative solutions that can provide the same products and service, would benefit from the extra financing provided by the proceeds of carbon credit sales.  In addition to the above criteria, a GHG reduction or removal project may be registered if it (i) is developed after 8 November 2012, (ii) is of a nature supported by the project methodology issued by MEE and (iii) fulfils other criteria specified by MEE (Article 10). 

Crucially, the final version of the Administrative Measures no longer lists out examples of the types of projects which may be registered.  In the consultation draft, renewable energy, forestry carbon sinks, methane emission reduction and energy conservation and efficiency projects were provided as example types of projects which may be registered.  The final version of the Administrative Measures now provides for a general requirement that a project be conducive to carbon reduction/avoidance or carbon removal/sequestration (Article 9).  This is helpful to remove any doubt that the only types of projects eligible are those provided for in the rules.

Existing projects and GHG reduction and removal amounts filed with the authorities

The final version of the Administrative Measures clarifies that voluntary GHG reduction or removal projects that have been filed with the competent authorities for national climate change strategies prior to 14 March 2017 (the suspension date of the previous CCER scheme) should be re-registered under the Administrative Measures.  On the other hand, any GHG reduction or removal amounts which have been filed prior to 14 March 2017 can continue to be used in accordance with the relevant rules and regulations (Article 49).  MEE further clarified in a notice dated 25 October 2023 (MEE Notice) that such existing GHG reduction or removal amounts can be used to offset carbon emission quotas in China's carbon emission allowance trading market until 31 December 2024; from 1 January 2025 onwards these amounts can no longer be used to offset carbon emission quotas in China's carbon emission allowance trading market. 

Trading of voluntary emission reduction 

The final version of the Administrative Measures added block trading as one of the methods for the trading of voluntary emission reduction under the CCER (Article 25).  Separately, in addition to the requirement on trading institutions to avoid excessive speculation, the Administrative Measures provides that financial risks must be avoided with respect to the trading of voluntary emission reduction (Article 7). 

Accountability of third-party review and certification institutions

Under the Administrative Measures, voluntary GHG reduction or removal projects and voluntary emission reduction generated under the projects should be certified by third-party review and certification institutions approved by both MEE and SAMR.  The final version of the Administrative Measures strengthened the accountability of these review and certification institutions by providing that these institutions should undertake in their project certification reports and emission reduction verification reports that they are accountable for the compliance, authenticity and accuracy of the reports they issue (Articles 13 and 20).

Looking forward

The Administrative Measures provide market participants with a unified regulatory framework for the trading and related activities with respect to voluntary emission reduction under the CCER.  With the regulatory framework now in place, the focus will be on the construction of the market infrastructure for the CCER.  MEE stated in the MEE Notice that prior to the establishment of a national voluntary GHG reduction registration institution, the National Center for Climate Change Strategy and Internal Cooperation (NCSC) will be responsible for the registration and cancellation of voluntary GHG reduction or removal projects and amounts, as well as the operation and management of the national voluntary GHG reduction registration system. On the trading side, prior to the establishment of a national voluntary GHG reduction trading institution, the Beijing Green Exchange will be responsible for providing unified trading and settlement services for verified voluntary emission reduction amounts, as well as the operation and management of the national voluntary GHG reduction trading system.  The expectation is that national registration and trading systems for the CCER would soon be launched online. 

In terms of project methodologies, MEE has published project methodologies for four types of voluntary GHG reduction and removal projects; these being: forestry carbon sinks, grid connection solar thermal power, grid connection offshore wind power generation and mangrove vegetation creation.  Again, the expectation is that more project methodologies will be published by MEE in the future to support a wider range of projects to be eligible for registration.

With special thanks to Jenny Wong and Grace Tang for their contribution to this blog.