In October 2011, China’s National Development and Reform Commission (NDRC) designated seven provinces and cities Ã¢â‚¬â€œ Beijing, Shanghai, Tianjin, Chongqing, Guangdong, Hubei, and Shenzhen Ã¢â‚¬â€œ as pilots to test an emissions trading system. The final date for a national European Union Emissions Trading Scheme (EU ETS) has not been finalized, but it is anticipated that the country’s 13th Five-Year Plan (2016-2020), currently under preparation, could include provisions for a national system after 2015. In addition, discussion continues about the potential for a carbon tax in China, with the topic surfacing once again in early 2013, although there is no clear timeline and scheme yet, according to the World Bank’s Mapping Carbon Pricing Initiatives report.
In June 2013, the city of Shenzhen, China became the first of the pilot programs to help pave the way for a national cap-and-trade program in China, an Ecosystem Marketplace story noted. Under the pilot program, 635 companies in Shenzhen, responsible for about 38% of the city’s emissions, face obligations to reduce their carbon intensity by 6.68% on average per year by 2015. The first day of trading on the Shenzhen Emissions Rights Exchange saw eight transactions of emissions allowances completed for a total of 21,112 tonnes of carbon dioxide equivalent (tCO2e). Allowance prices ranged from 28 to 32 yuan per tonne, close to the expected price of 30 yuan per tonne (US$4.89).
Emitters have the option of trading carbon offsets in the form of Chinese Certified Emission Reductions (CCERs) that are issued by the NDRC, the story noted. The NDRC allows existing projects registered with the UN’s Clean Development Mechanism (CDM) to register as CCER projects Ã¢â‚¬â€œ a source of potential relief for CDM suppliers reeling from the protracted collapse in prices for certified emissions reductions (CERs) and the recent ban on CERs from non-least developed countries (LDC) for use in the European Union Emissions Trading Scheme.
Beyond the historically strong relationship between suppliers of Chinese renewable energy offsets and European buyers, there is potential for CERs from China-based projects to fetch higher prices from domestic buyers should the pilots manage their prices well. With more than 70% of the world’s CERs issued in China as of the end of 2012, a big question on the minds of Chinese CER suppliers is how much domestic demand they can actually expect to absorb existing and new offset supply.
In March 2013, the NDRC released its first batch of 52 CCER methodologies eligible for domestic emissions trading, all of which are adapted from existing CDM methodologies. The list stays true to China’s traditional focus on renewable energy, energy efficiency and fuel switch, and methane. It also controversially includes methodologies for HFC-23 and N2O industrial gas offsets, which the EU ETS banned post-2012 in response to critiques of their environmental integrity.
In March 2010, the Japanese government introduced legislation that would have established a nation-wide ETS beginning in April 2013. While this nation-wide ETS was removed from the legislation in December 2010, other cap-and-trade measures, such as the Japanese Voluntary ETS (which began in 2005 and became part of the Experimental ETS in 2008), the Tokyo ETS, and the Experimental ETS (the trial period was for 2008-2012, and the government continues to encourage firms to participate), have been active in the country, according to a case study by the International Emissions Trading Association.
The Tokyo metropolitan area launched its own mandatory cap-and-trade system on April 1, 2010, which targets office and commercial buildings and factories. The system covers about 1,400 installations and 1% of the country’s emissions.
Starting April 1, 2011, Saitama, the fifth largest prefecture in Japan, became the second Japanese prefecture to implement a mandatory ETS. Saitama and Tokyo signed a pact to link their cap-and-trade programs in the future.
Japan has implemented an economy-wide carbon tax on the use of fossil fuels, with exemptions and tax returns for parts of the agriculture, transport and industry sectors. The tax is equivalent toÃ‚Â¥289/tCO2 (US$3/tCO2), with a gradual increase scheduled over 3.5 years, the World Bank report noted.
Kazakhstan has a mandatory ETS in place that covers carbon dioxide (CO2) emissions, with the pilot phase taking place in 2013 and the second phase running 2014 to 2020, according to the World Bank report. The total greenhouse gases (GHG) emissions of Kazakhstan were 318 million tonnes MtCO2e in 2010, and the cap for the ETS in 2013 is 147 MtCO2e plus a 20.6 MtCO2e reserve. The program covers facilities emitting more than 20,000 tCO2e/y in the agriculture, transport, oil and gas, mining and metallurgy, chemical and power sectors.
South Korea is set to launch the first national ETS in a non-Annex 1 country in 2015 following passage of its ETS law in May 2012. The program, which will regulate the six Kyoto Protocol GHGs, will cover about 60% of the country’s GHG emissions. It will apply to businesses emitting more than 125,000 tCO2e/year and single installations emitting more than 25,000 tCO2e/year, roughly 460 entities in total, according to the World Bank report. The design of the program is still being completed, but the final ETS emissions cap will be announced in 2014.
The Korea Verified Emissions Reduction Program (K-VER) kick-started early GHG reductions beginning in 2007, when lawmakers established a program for South Korea’s national government to directly purchase eligible K-VER credits. As of March 2012, the government has purchased 7.4 MtCO2e of a total 12.1 MtCO2e generated over the program’s life – an average of 1.5 MtCO2e/year, according to Forest Trends’ Ecosystem Marketplace’s Bringing it Home: Taking Stock of Government Engagement with the Voluntary Carbon Market report.
India, Indonesia, Thailand and Vietnam are all implementing countries in the World Bank’s Partnership for Market Readiness (PMR) program, which is assisting a number of countries interested in and exploring building emissions markets with the technical capacity to do so. These countries have all received preparation funding and are currently formulating market readiness proposals.
Demand for offsets from Asia-based projects in 2012 was dominated by low-priced renewable energy offsets for European buyers in search of affordable, available supplies to fill their portfolios, according to Forest Trends’ Ecosystem Marketplace’s State of the Voluntary Carbon Markets 2013 report. But in a dramatic reversal from previous years, renewable energy offsets occupied a smaller slice of Asia’s project mix, displaced by a growing proportion of offsets transacted from energy efficiency, fuel switching, and forestry offsets. Overall, Asia-based projects were behind 37% of all offset transactions, but valued only at $103 million owing to Asia’s declining offset prices, the report found.
With the continued collapse of CDM prices and the EU’s ban on CDM offsets from non-LDCs(least-developed countries) that are registered post-2012, suppliers in Asia’s most active developing countries Ã¢â‚¬â€œ China and India Ã¢â‚¬â€œ sought refuge in the voluntary markets as an alternative to the CDM. While 98% of all offsets were transacted to overseas buyers and largely into the secondary market, suppliers acknowledged a limited but growing potential to tap into domestic demand in select countries where governments are cultivating emerging or nascent domestic emissions trading schemes.
Of the total volume of offsets supplied from Asia-based projects, 11 million tonnes MtCO2e of offsets were supplied from China, down from 16 MtCO2e in 2011. The fall in transaction volume can be attributed to a significant scaling back of voluntary market activity by one large regional supplier, paired with a slow year as suppliers awaited more clarity around project eligibility and demand from China’s seven voluntary emissions trading schemes. Given China’s large existing offset supply, many project developers have been slow to embark on new projects until sufficient demand can soak up existing inventoriesÃ¢â‚¬â€potentially accommodating industrial gas offsets banned by the European Union Emissions Trading Scheme (EU ETS) post-2012.
To support the new cap-and-trade pilots, China’s National Development and Reform Commission (NDRC) is set to issue Chinese Certified Emission Reductions (CCERs) from unregistered CDM projects and voluntary projects. Governments in China’s five participating cities and two provinces are setting their own limits on offset location and project type, as well as the percentage of offsets that emitters will be able to use against their emissions reduction targets under each scheme.
Under the Japan Voluntary Emissions Trading Scheme (JVETS), companies receive subsidies to implement mitigation activities in line with voluntary commitments and can resort to emissions trading (including offsets) to meet their commitments with more flexibility. Though growing, its impact remains limited: over the first three years of the scheme, the 288 companies currently participating reduced their emissions by about one million tonnes (MtCO2e), according to the report.
Japan, historically the market with the highest reported prices for voluntary carbon offsets, has supported domestic project development primarily through its government-administered Japan Verified Emission Reduction (J-VER) and Japan Clean Development Mechanism (J-CDM) programs which the government has merged into the J-Credit Scheme mechanism. In 2012, J-VER transactions were valued at $19 million, according to the Ecosystem Marketplace report.
Projects in India were behind the bulk of 2012 voluntary transactions from Asia, transacting 12 MtCO2e, up from 7 MtCO2e in 2011, the Ecosystem Marketplace report found. Going into 2012, it was assumed that large-scale renewable energy project developers would migrate from the carbon market to other incentives like the renewable energy certificate (REC) market that might enjoy a more stable policy environment or lower project development costs. But in India, deficit-ridden state electricity boards reportedly fell behind on payments committed for RECs, so some project developers refocused away from both the CDM and REC markets in search of business from voluntary offset buyers instead.
Elsewhere in Asia, more than 3 MtCO2e were transacted from projects in Taiwan and South Korea. As South Korea readies its Emissions Trading Scheme (ETS) for a 2015 launch, the Korea Verified Emissions Reductions scheme (K-VER) has been broadening its expertise across project types, its primary verifier KEMCO earning accreditation in 2012 as a Verified Carbon Standard validation/verification body.
In 2012, K-VER also provided capacity building support to Thailand’s equivalent program (T-VER), which is set to launch in October 2013 and covers a broad range of project types. Among volumes reported for Southeast Asia, Thailand, Cambodia, Indonesia, Malaysia, and the Philippines together accounted for another 3 MtCO2e in transactions. In the Lower Mekong Region, and Vietnam, capacity-building continues to dominate efforts in timber-exporting countries like Laos, Cambodia, and Vietnam, with project development still in relatively early stages and operating largely off of a funds-based rather than market-based approach.