As the founder of Hangzhou Chaoteng Energy Technology Co.,Ltd, Tina Wang is well versed with the ins and outs of the Chinese carbon markets. She has seen them evolve into their present form over her decade long involvement with CDM, VER, and CCER projects. ChinaCarbon.net.cn caught up with Tina to seek clarity on the many issues surrounding CCERs and emissions trading in China.
CC.net.cn: Hello Tina, thank you for agreeing to talk to us. Before we delve into the subject of CCERs, could you briefly outline the origins and key functions of Hangzhou Chaoteng?
Tina: Hangzhou Chaoteng is a pioneer in the climate change sector. The company covers all the aspects of a carbon market advisory and specializes in CCER projects development. We provide carbon advisory service and GHG inventory compiling at regional and enterprise level, and aid in the development of various GHG programs and conduct policy research for the market.
Initially we started off as a CDM consultancy in China in 2006. With carbon markets gaining pace globally and at home, we have effectively developed over 40 CDM projects, as well as hundreds of compliance and offset projects.
Due to our pioneering efforts and expertise we have carved a strong reputation as innovators in this industry. Hangzhou Chaoteng is now one of the most vibrant companies in the market. In July 2015, our company was successfully listed on the national equities exchange with the stock code 833059.
CC.net.cn: Among the seven pilots operating in China, which one is the most favorable for CCER projects in your opinion?
Tina: Comparatively, we think Hubei market is the most favorable because of the tighter allocations provided to the covered entities in Hubei, compared to the other six schemes, which in turn encourages regulated enterprises in Hubei to get CCERs from the market as a cost effective compliance strategy.
Shanghai, on the other hand, is quiet singular since such a big gap between allowance and CCER prices has never been observed before, not even in the European ETS which has been operating for many years. So this creates a higher risk-reward scenario for all stakeholders in the market.
Lastly, some pilots like Guangdong and Shanghai could see an over-supply of allowances. However, in the process these pilots will expose a variety of issues that policymakers can address when the national scheme is being formulated and thus design a more practical and robust carbon market to reduce emissions and fight climate change.
CC.net.cn: You mentioned that Shanghai CCERs are trading at a big gap over emission allowances. The former has been escalating while the latter is actually sinking to fresh depths. What is your opinion on such an astounding market phenomenon?
Tina: Actually, I think that it’s unimaginable too. Let’s leave the big gap between allowance and CCER prices behind for now. First off we should reason why the allowance prices in Shanghai are losing value and hitting historical lows. In my opinion there seems to be an oversupply of emission credits in Shanghai and these prices simply reflect where the market is right now with the whole supply and demand situation.
As for the healthy CCER prices, it’s hard to pinpoint the driver with absolute surety. I think it shows that some CCER projects traded in the Shanghai exchange meet the market necessities and investors welcome these projects with a long term perspectives.
Currently, prices for allowances and CCER s in Shanghai appear to go in opposite directions. It’s a strange phenomenon that shows that this market is still maturing. I expect that prices for both instruments will be more stable when the national market regulations are clarified.
CC.net.cn: Many CDM project developers are now looking to convert to CCER projects provided that they meet the criteria set by NDRC. What are the key issues that such developers should keep in mind when converting?
Tina: Many developers are placed in perplexity because of the duality that exists in the national and sub-national level regarding the eligibility of projects and the acceptance of credits. Take pre-CDM projects for example, as I know some companies converted a lot of pre-CDM projects since they met the standards set by NDRC for issuance. However, after being issued, these credits were not eligible for compliance in the regional carbon markets and hence have no tradable value as CCERs.
It is not known whether sub-national governments will have the same authority to define their own rules for acceptance of CCERs after the national market is established. If they do, then the CCER market will be more complex to navigate for project developers. For instance, some provinces give preference to household methane projects, while some other provinces like Jiangsu and Zhejiang have doubts about the transparency of methane projects, and it’s possible that they may exclude such projects. Hence the eligibility of emissions reductions from a particular project will be subject to two levels of scrutiny if sub-national standards exist in the national scheme.
That being said, challenges do present themselves with some opportunity. For now it’s hard to say how one can avoid or eliminate the associated risks since there are a lot of uncertainties in the national market design, but on the other hand, prospects to buy CCERs at a lower price could always crop up because of it. I must also point out that strict policies go a long way in maintaining the health of the market in the long term. If we don’t restrict the usage of pre-CDM or hydro power projects the price of CCERs will likely be very low, probably below RMB 5.
CC.net.cn: The NDRC has announced that China will launch its national ETS in 2017, and the seven pilots will be integrated and unified into a national market. How will this amalgamation affect the CCER market?
Tina: As discussed above, Shanghai CCER prices give us a level of insight into what may occur in the national carbon market. Currently CCER prices in Shanghai are relatively higher, over double the allowance prices, which provide some signal regarding the bullishness of investors. So I’d consider the conversion as an opportunity rather than a difficulty. From my perspective it’s a positive catalyst for the development of both allowance and CCER markets.
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