THE PRACTICE OF CARBON CREDITS IN MAINLAND CHINA AND HONG KONG
Within the framework of our commitment to the environment and the services provided to our customers in this area, we are proud to deal in this new quarterly newsletter with the practice of carbon credits in mainland China and in Hong Kong.
The notion of "carbon credits" encompasses, in particular, Certified Emission Reductions (CERs) and Verified Emission Reductions (VERs).
CERs are allotted by the United Nations within the framework of the Kyoto Protocol, when the project meets the technical criteria with respect to measurability, additionality and monitoring and was the subject of a validation and registration procedure. These credits may be traded on the carbon markets.
VERs are credits which do not (or not yet) meet the criteria for CERs. That is why their commercial value is lower than that of CERs and they can only be traded on an open emissions offsetting market which does not come within the standardized framework of the Kyoto Protocol. However, their marketing value is not negligible because more and more companies are anxious to convey a positive image in respect of their environmental policy.
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The 15th world conference on climate change held in Copenhagen which is about to end is not expected to exceed the objectives laid down by the United Nations in the Framework Convention on Climate Change and the Kyoto Protocol. The Kyoto Protocol established the basic rules of carbon credits.
The Kyoto Protocol introduced a Clean Development Mechanism (CDM) by which industrialized nations are encouraged to devise projects to invest in clean technologies in developing countries.
Each project may generate emission credits which allow project sponsors either to continue to emit greenhouse gases (while respecting their reduction objectives) or to derive revenue from them by selling them on a carbon market.
Indeed, each emission credit makes it possible to emit one ton of additional greenhouse gases per acquired unit. Another advantage of these credits is that they can be resold if they are not used in order to contribute to the financing of the credit generating project.
This market in carbon credits is constantly expanding, and China, which is at the top of the list of polluting countries , could not remain on the sidelines of a phenomenon which has the twofold advantage of being lucrative and of helping to achieve the objective of reducing GHG emissions set by the protocol.
Reminder: the Kyoto Protocol, the world importance of which can be measured by the number of States that ratified it (172 States with the notable exception of the USA), was intended to stabilize the concentrations of greenhouse effect gases (GHG) in order to avoid a probable major disruption of the climatic system.
The agreement is important for two reasons: it establishes a timetable for the reduction of emissions of greenhouse gases, with a total reduction of 5.2% by 2012 compared with 1990 emission levels and secondly, it comprises firm commitments by the parties to the agreement to reduce these emissions. |
China ratified the Kyoto Protocol in 2002 and as a developing country is not bound by the requirements to reduce the emission of greenhouse gases for the first commitment period of 2008-2012.
This results from the principle of "common but differentiated responsibility" set forth in the Framework Convention. Industrialized countries can, for their part, invest in green projects in China and thus generate carbon credits.
Today, China is the first beneficiary country by volume of generated carbon credits. At the end of February 2008, 949 projects were recorded representing 193 million tons of avoided CO2 per annum . At the average cost of 8 euros per ton, the market of carbon credits in China today represents nearly 745 million euros per year.
| Of the 1800 CDM projects approved by the United Nations, 35% are located in China, 26% in India, 9% in Brazil and 7% in Mexico. |
Hong Kong, which ratified the United Nations Framework Convention on Climate Change, undertook to abide by the commitments contained in the Kyoto Protocol on May 5, 2003. In 2000, Hong Kong’s GHG emissions represented just 0.18% of total GHG emissions. Consequently, the carbon credits market in Hong Kong has not undergone the same development as in China and is still limited today.
(1) The report of the International Energy Agency of September 2009 shows that China's CO2 emissions relating to the energy sector in 2007 increased to 6.028 billion tons of CO2, making China the world's greatest polluter.
(2) Sources: UNFCC – United Nations Framework Convention on Climate Change.
I - State of the carbon trading market in China and Hong Kong
II - Trading of carbon credits in China and Hong Kong
Conclusion
