Recently, the long-awaited national voluntary emissions reduction trading market in China, known as the CCER (China Certified Emission Reduction), has officially resumed operationsThis development marks a significant step in the establishment of a comprehensive national carbon market system, which now includes both the CCER and the national carbon emission trading scheme that began in July 2021.

Experts suggest that with the reactivation of the CCER market, various types of enterprises will have opportunities to participate, enhancing the overall activity in China's carbon marketThis return is expected to invigorate a sector that has been closely monitored and regulated as part of China's larger goals for carbon neutrality.

Prior to the CCER's launch, financial institutions began exploring innovative carbon financial products related to CCERLooking ahead, the newly re-established market is set to assist project financiers in reducing their costs primarily through preferential loan rates

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If a financing project is recorded in the CCER system, it can enjoy these lower rates, leading to reduced financing costs and attracting a broader pool of investors.

The establishment of a complete carbon market system has taken shape

According to Liu Huixin, director of the Climate Finance Research Center at the International Institute of Green Finance at Central University of Finance and Economics, the resumption of CCER trading signifies the parallel functioning of both compulsory and voluntary emissions reduction trading markets within ChinaThe national carbon emission trading scheme operates on a mandatory basis, regulating annual emissions for designated enterprises, while the voluntary trading market focuses on activities that facilitate carbon reduction, allowing various entities to engage in emission reduction initiatives and participate in market transactions.

PwC anticipates that the revival of CCER will further bolster domestic carbon market dynamics, optimizing emissions reduction costs across society

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The progression toward effective communication between the CCER and international carbon reduction initiatives will gradually align China's efforts with international voluntary carbon markets, attracting more foreign capital to contribute to China’s dual carbon goalsThis impact can be seen in two primary areas:

Firstly, the reactivation of CCER allows diverse participation from enterprises, substantially raising the carbon market's level of activity and enhancing carbon pricing efficiencyCurrently, the national carbon trading scheme is predominantly participatory by controlling enterprises, while the CCER welcomes a wider array of participants including financial institutions, carbon asset management bodies, non-regulated companies, and even individuals willing to invest in or develop CCER projectsFrom a demand perspective, firms not classified as regulated entities that have adopted carbon neutrality strategies can also use CCER credits to meet part of their carbon neutrality objectives

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Hence, resuming CCER will elevate the market's activity and improve carbon pricing efficiency, contributing to the advancement of China’s carbon market framework.

Secondly, post-CCER reactivation, companies can strategically choose the most cost-effective avenues for reducing carbon emissionsRegulated enterprises can utilize CCER to offset their annual carbon emission quota, with the national market permitting a maximum offsetting ratio of 5% of the quota due, while different locales may have varying usage ratiosThis framework encourages regulated entities to pursue cost-effective emissions reduction methods, opting for CCER investment or purchase rather than bearing the potentially higher costs of direct emissions reduction solutions, thereby streamlining expenses related to national emissions reduction.

Liu Huixin forecasts that with the current market dynamics focused solely on the power generation industry, the potential trading volume for CCER could reach between 2 to 3 billion RMB, given the anticipated supply and trading recovery, as well as the rising need for carbon neutrality initiatives among enterprises

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As the national carbon market expands further and an auction mechanism for quotas is introduced, alongside rising expectations for sustained carbon pricing growth, the CCER market size is expected to broaden significantly.

How can enterprises seize the opportunities provided by the CCER market?

In recent years, banks have increasingly focused on green financeFor instance, on January 16th, Shanghai Pudong Development Bank issued a 10 million RMB two-year revolving loan specifically for Shenzen Shengshi Environment Technology Co., Ltd to develop, certify, and verify emissions reductions under CCER projects.

What implications does the CCER trading resumption hold for financial institutions and borrowers?

Liu Huixin pointed out that under the existing trading management measures, financial entities are empowered to partake in voluntary emission reduction trading as market participants, engaging in CCER transactions and mobilizing societal resources in carbon reduction activities

Furthermore, financial institutions can innovate a series of carbon financial products linked to CCER, developing financing loans backed by CCER, supporting the issuance of bonds tied to CCER returns, offering insurance products relevant to CCER trading processes, and exploring other related financial derivatives.

Yu Fenghui, a special researcher at the Chinese Financial Think Tank, believes that financial institutions can engage in the CCER market primarily through investments and managing carbon reduction projects, providing loans, equity investments, and taking part in the operational management of these projectsAdditionally, financial entities can offer clientele services related to carbon trading, including carbon credit trading and carbon risk management.

For borrowers, the resumption of CCER trading will prove beneficial in reducing financing costsBai Wenxi, vice-chairman of the China Enterprise Capital Alliance, highlighted that through CCER trading, enterprises can convert their emissions reduction achievements into market values, thereby gaining recognition from lending institutions and obtaining better interest rates

To secure these favorable conditions, companies must proactively design and execute green finance projects, such as adopting environmentally friendly technologies, optimizing production processes, and undertaking carbon reduction activitiesMoreover, establishing a robust carbon emissions monitoring and reporting system will solidify their case for successful registration within the CCER marketCompanies also need to stay informed about relevant policies, standards, and market trends to effectively capitalize on the opportunities presented by the CCER market.

Liu Huixin advises that in light of nationwide efforts toward a green and low-carbon transition, enterprises with the capacity to do so should enhance their management of carbon emissions and carbon assets expedientlyThis could mean appointing specialized personnel or departments focused on carbon management, reinforcing strategic planning for energy conservation and emissions reduction, and utilizing various carbon financial tools to explore sustainable value preservation and growth for their carbon assets.