China Issues Updated Guidance on GEC and Carbon Markets

China’s National Energy Administration issued a Guidance to strengthen the coordinated promotion of energy security and green and low-carbon transformation, as well as promote the upgrading of the energy ecosystem through systematic reform and technological innovation.

Key points of the Guidance

Green Electricity Certificates (GECs) to be market drivers instead of policy tools

The GEC is the sole proof of the environmental attributes of renewable energy in China. Driven by the national energy transition and carbon emission policies, GECs should be the starting point to shape the behaviour of market players. The Guidance noted that the government will issue a policy document outlining the development of the GEC market, enabling the GEC to transform from a policy tool to become a driving force shaping the behaviour of market players. Furthermore, the Guidance encouraged aligning the GEC with international REC standards to enable Chinese enterprises to meet the sustainability requirements of international supply chains and become more competitive.

Establishing the synergy of electricity-certificate-carbon mechanisms

At present, GEC trading, electricity market trading, and carbon market trading are independent of each other, and their functions are different. The establishment and improvement of the electricity-certificate-carbon synergy mechanism is to accurately transmit the economic costs, environmental values and emission reduction responsibilities of the energy transition to market players through market-oriented means. To establish synergy between the three markets, the Guidance provides the following:

• Carbon emission accounting deduction: GEC consumption can be included in the carbon emission accounting system of enterprises, and part of the quota can be deducted to enhance the actual value of GECs.
• Competition and synergy with CCER: With policy guidance and market balancing itself, the prices of GECs and CCERs may gradually converge to form a complementary mechanism.
• Establishing a price transmission mechanism: Through the price transmission mechanism, the cost of carbon is included in the electricity price on the power generation side (for example, coal power needs to purchase carbon allowances), and the electricity price transmission guides users to choose green electricity.

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