The Carbon Trading Market Continues to Advance, And Independent Carbon Verification Agencies Are Expected to Benefit

The issue of global carbon emissions has received unanimous attention from all countries. Carbon neutrality has become a hot topic in policy documents. In general, carbon neutrality has three main directions. The first is to increase vegetation and restore water and soil to increase the intensity of carbon dioxide absorption in nature; the second is to accelerate the rapid popularization of clean energy; The third is to pay attention to the construction of the carbon trading market. The first two have been applied on a large scale, and the carbon trading market is only in the initial stage of development. On January 1, 2021, the first compliance cycle of China's carbon market was officially launched, and there are many market opportunities.

Accumulated for Many Years, The Carbon Market Continues to Advance

CDM is a clean development mechanism, CCER is a national certified voluntary emission reduction, and CCER projects are basically the same as CDM projects. From CDM to CCER, China's carbon market is gradually improving. The construction of China's carbon market can be roughly divided into three stages. The first stage from 2002 to 2011, mainly involves international CDM projects. From the perspective of project types, China's CDM projects are mainly centered on wind energy and hydropower, and the number of projects in these two sectors accounted for 43% and 38% of the total number of CDM projects in China, respectively.

In the second phase, from 2011 to 2020, pilot carbon emissions trading were implemented in eight provinces and cities in Beijing, Shanghai, Tianjin, Chongqing, Hubei, Guangdong, Shenzhen and Fujian.

CCER is the voluntary emission reduction of greenhouse gases. Companies with excess emissions can purchase CCERs to offset the excess carbon emissions through the carbon trading market.

Each pilot implemented a different offset mechanism, and CCER grew rapidly. The offset ratio of each pilot is mostly based on allowances or actual emissions. For example, in Beijing and Shanghai, the offset ratio of CCER should not exceed 5% of the current year's quota; the offset rate of Shenzhen and Hubei should not exceed 10% of the quota; the offset ratio of Tianjin should not exceed 10% of the actual emissions of the year.

Due to configuration issues and transaction chaos, China has suspended applications for CCER projects, methodology and other related filings from March 2017. With the joint action of the various pilots, China's carbon trading market is operating smoothly. In 2019, the transaction volume of CCER in China's carbon market reached 43.095 million tons. Among them, the Shanghai market had the highest CCER transaction volume, totaling 15.125 million tons, accounting for 35%. In addition, the CCER markets in Shanghai, Sichuan and Fujian are also more prominent.

It is expected that the trading volume of China's carbon market is expected to increase in 2021, and the carbon market trading volume is expected to be three times the total trading volume of each pilot in 2020. In the future, with the continuous advancement of carbon neutral policies, once the carbon trading market is relatively complete, CCER applications will gradually open.

The third phase starts in 2021, the national carbon trading market. In the mandatory greenhouse gas emission data, the verification agency is responsible for regularly verifying the greenhouse gas emission data in order to control the accuracy and reliability of the carbon emission data and improve the credibility of the overall results of the greenhouse gas emission. In addition, power generation companies are the first to use online monitoring methods for carbon accounting. It is learned from the experience of the European carbon trading market that online monitoring methods will not inhibit the need for verification. In the voluntary emission reduction market, the third-party verification agency is the main supervisor of the CCER project, responsible for project verification and verification.

Tightening of Quotas Is Conducive to the Growth of the Carbon Verification Market

China is under tremendous pressure to reduce emissions. Under the background of the dual carbon target, domestic quotas will be gradually tightened, which is expected to release CCER verification and certification requirements. If carbon emission quotas are tightened, if emission control companies cannot independently meet carbon emission standards, they will have to offset them through CCER projects or other carbon indicators. Therefore, CCER projects are expected to increase and contribute to the increase in the carbon verification market.

China's Emission Reduction Process Is Gradually Advancing, And the Scope of CCER Project Radiation Will Be Expanded

Photovoltaic power generation continues to grow steadily and has obvious advantages in reducing carbon. Public data shows that in 2020, China's photovoltaic power generation will reach 2,605 kWh, a year-on-year increase of 16.2%, accounting for 3.5% of the total power generation. In 2020, the newly installed photovoltaic capacity will be 48.2 MW, a year-on-year increase of 24.1%, and the cumulative installed capacity will be 253 MW. The proportion of clean energy consumption represented by photovoltaic power generation in the energy consumption structure has increased year by year, from 19.1% in 2016 to 24.3% in 2020. The photovoltaic power generation industry is still growing. From the perspective of reducing carbon emissions, related reports show that photovoltaic power generation does not generate carbon emissions during use, and has natural and significant advantages in achieving carbon reduction goals.

The amount of waste incineration continues to increase, and the operation of CCER is conducive to the operation of waste incineration companies. Compared with traditional coal, the amount of carbon dioxide saved by waste-to-energy generation minus the amount of carbon dioxide produced by its incineration still has significant carbon emissions reductions. CCER transactions will bring additional benefits to waste incineration companies and increase their profits. Improve cash flow. Data show that in 2019, the harmless treatment of municipal solid waste in China was 19,673.8 million tons, of which the incineration amount was 68.858 million tons, accounting for 35%. The construction of incineration power plants is in a period of rapid growth.

Third-Party Carbon Verification Agencies Are Expected to Benefit

Generally, in the carbon emission trading process, the main body of monitoring and reporting is the controlling enterprise. The completion of the transaction involves the greenhouse gas emission data of the buyer and the seller. In order to ensure the accuracy, objectivity and fairness of the greenhouse gas emission data of both parties, and to avoid interference from related interested parties, the verification work is usually completed by a third-party organization with professional capabilities and independent certification. The number of buyers and sellers will directly affect the volume of carbon verification demand in the market. With the increase in the number of emission control companies included in the carbon market, the market's demand for third-party verification agencies will continue to rise.

With the continuous advancement of the global carbon market, international carbon emissions cooperation will inevitably be based on objective and accurate greenhouse gas emissions data. Therefore, companies with professional qualifications are expected to benefit from it.

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