The Green Electricity Certificate (GEC) scheme and China Certified Emissions Reduction (CCER) scheme are market-based means to promote China’s green development. What is the difference between the two schemes? Why do we need to connect the two? How will these measures help China achieve the goals of peak carbon and carbon neutrality? To this end, Zhang Xin, Chief Economist of the National Centre for Climate Change Strategy and International Cooperation, and Zhang Xiliang, Director of the Institute of Energy, Environment and Economics of Tsinghua University, gave an in-depth interpretation of these issues.
Green Electricity Certificate and China Certified Emissions Reduction mechanisms provide economic incentives for renewable energy development
As a key institutional framework to actively respond to climate change and advance the green and low-carbon transformation of the economy and society, the voluntary emission reduction trading market worked with the national carbon emission trading market to build China’s national carbon market system. In this system, the China Certified Emissions Reduction (CCER) scheme plays multiple roles including:
• Allowance settlement and offsetting of the carbon emission trading market
• Green supply chain management, social responsibility fulfillment, and carbon neutrality of large-scale activities, enterprises and products
As of July 15, 2024, the market has traded about 472 million tons of CCER credits, with a turnover of about 7.092 billion yuan.
The GEC, as a digital “ID card” of renewable energy green electricity, is the only certificate that confirms the production and consumption of renewable electricity, and each GEC represents 1,000 KWh (or 1 MWh) of renewable electricity. According to the latest data, as of end-August 2024, China has issued a total of 1.841 billion green certificates, with a trading volume of 314 million, with trading activity has increasing significantly.
Zhang Xin, chief economist of the National Centre for Climate Change Strategy and International Cooperation, pointed out that China’s carbon trading mechanism and GEC mechanism are important green and low-carbon development means to promote the goals of carbon peak and carbon neutrality. They play an active role in promoting the development of renewable energy and optimising the power supply structure. Although these two mechanisms are still being improved, they have achieved initial results in promoting the green and low-carbon energy transition and provide strong economic incentives for the development of renewable energy.
Avoiding duplication of project benefits
However, renewable energy projects may face the problem of duplication of benefits under the Green Electricity Certificate scheme and China Certified Emissions Reduction mechanisms. Zhang Xin explained that the GEC mechanism provides indiscriminate incentives for all types of renewable energy projects. In contrast, the National Greenhouse Gas Emission Reduction Trading Market selects renewable energy projects that have additional emission reduction effects, require more economic support, and have more significant social impacts, and are voluntarily developed according to strict technical specifications to provide economic incentives.
In October 2023, the Ministry of Ecology and Environment (MEE) issued the Administrative Measures for Voluntary Greenhouse Gas Emission Reduction Trading (Trial), which sets out methodologies for deep-sea offshore wind power and solar thermal power generation projects. By September 2024, the first batch of CCER projects will be officially launched, including five solar thermal projects and 22 offshore wind projects.
The newly released Notice on Connecting Renewable Energy Green Electricity Certificates with the Voluntary Emission Reduction Market clearly points out that for deep-sea offshore wind power and solar thermal power generation projects, if the project chooses to participate in GEC trading, the corresponding amount of electricity shall not apply for CCER. If the project intends to apply for CCER, after the completion of the validation and registration of the voluntary emission reduction project, the Qualification Centre of the National Energy Administration will freeze the GECs that have not been traded during the accounting period; After the verification and registration of emission reductions is completed, the Qualification Centre of the National Energy Administration will cancel the untraded GECs corresponding to the corresponding emission reductions and disclose the relevant information.
Zhang Xiliang, stressed that this measure avoids the duplication of benefits of deep-sea offshore wind power and solar thermal power projects under the GEC and CCER mechanism, clarifies the boundary between the two markets, and also helps to accelerate the speed of China’s GEC to obtain international recognition.
It is worth noting that the Notice also provides for a two-year transition period from 1 October 2024. After the end of the transition period, the requirements for the connection between deep-sea offshore wind power and Concentrating Solar-Thermal Power (CSP) projects in the two markets will be adjusted in a timely manner according to the operation of the GEC and CCER markets.
Synergistic development
With the progress of the peak and carbon neutrality goals, and the deepening of the reform of the electricity market, the coordinated development of GEC and the carbon market is particularly crucial. The recently released “Opinions of the Central Committee of the Communist Party of China and the State Council on Accelerating the Comprehensive Green Transformation of Economic and Social Development” clearly states that it is necessary to improve the GEC trading system and strengthen policy coordination between market-oriented mechanisms such as green electricity, GECs, and carbon markets.
According to the current rules, China’s GECs are mainly aimed at the environmental rights and interests of enterprises in the purchase of electricity, and their emission reduction attributes belong to Scope 2, that is, indirect emissions. Currently, companies participating in the Science Based Targets initiative (SBTi) can reduce their Scope 2 emissions by purchasing GECs. Regarding the application of GECs in carbon emission accounting, Zhang Xiliang pointed out that the national carbon dioxide emission factor for fossil fuel electricity jointly released by the Ministry of Ecology and Environment and the National Bureau of Statistics has deducted non-fossil energy electricity, including the amount of GEC trading. Therefore, companies that use GECs can calculate their carbon emissions based on this factor.
In terms of the carbon market, the emission reductions of CCER projects can be classified as Scope 1 (direct emissions), Scope 2 (indirect emissions) or Scope 3 (other indirect emissions), depending on the actual situation. At present, the carbon emission trading market only covers direct Scope 1 emissions, and has not yet included indirect Scope 2 emissions.
In September 2024, the Ministry of Ecology and Environment (MEE) solicited public comments on the “Work Plan for the National Carbon Emission Trading Market to Cover the Cement, Iron and Steel and Electrolytic Aluminum Industries (Draft for Comments)”. The plan clarifies that the direct emissions of the cement, steel, and electrolytic aluminum industries will be included in the scope of control, and it is expected that about 1,500 new key emitting enterprises will be added, covering about 3 billion tons of new emissions, while indirect emissions generated by electricity will not be included in the control for the time being.
Find out more about GECs
As awareness in sustainability issues increase in China, the demand for renewable energy and China RECs or Green Electricity Certificates (GECs) will grow as well. To meet demand for China RECs or GECs, the liberalisation of China’s market is set increase the supply of GECs and meet demand.
Contact REDEX at enquiry@redex.eco to find out more.
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