Climate Bridge: Bridging The Gap Between Carbon Markets

China is home to seven emissions trading programs, and that’s forced local companies to contend with emission caps. Opportunities abound for local project developers — yet they may have to wait a while longer for the compliance markets to fully come into effect. Here’s what they can do now, says Climate Bridge’s Senior Project Manager, Wenjie Zhuang.  

2 July 2014 | Policy makers and project developers alike have intensely followed the progress of China’s first pilot emissions trading schemes (ETS) ever since they launched last year.  The schemes could have a direct impact on existing offset projects, as some  voluntary and most compliance projects have the opportunity to convert their offsets into  Chinese certified emissions reductions (CCERs).

However, the current lack of liquidity and other regulatory hurdles  means that most are taking a wait-and-see approach.  Climate Bridge’s Senior Project Manager, Wenjie Zhuang explains how  project developers can  capitalize on the pilot projects in indirect ways.  Climate Bridge has worked with both compliance and voluntary markets since 2005, and currently holds a portfolio with more than 180 emissions reductions projects.

Kelley Harmick: What does Climate Bridge look for in Chinese projects?

Wenjie Zhuang: We actually do not have specific requirements on the types and locations – but we pay great attention to the social benefits and environmental benefits. We are very interested in those Verified Carbon Standard (VCS) and Gold Standard (GS) projects that have great benefits to local environment, community and biodiversity. We also have Climate, Community and Biodiversity (CCB) projects in our portfolio which requires us to conduct a detailed evaluation on the impact on community and biodiversity. Our clients wish that the carbon credits they buy come from projects that can bring more social and environmental benefits to the local region.

KH: How have the pilot trading schemes affected the voluntary market?

WZ: I think the pilot schemes in China have actually promoted the voluntary market. Previously, not many people in China were familiar with carbon markets. But now, because of the pilot schemes, a lot of people are talking about the market. You can see the updates of the pilot trading schemes on the press very often. More and more people are caring about carbon reduction and want to study the market. Most capped enterprises in the pilot regions have started to establish a specialized team to work on carbon trading and emission reduction projects.

Previously, most of our clients came from the U.S. and European countries, and a lot of experts from developed countries researched on methodologies and guidelines of the standards. Project developers in China used to only adopt methodologies developed by those experts in developed countries. But now more and more Chinese experts do research on the methodologies. Yesterday, I received a new methodology developed by Chinese experts on grasslands, with VCS as a standard. So I think it’s really an improvement.

KH: I’ve heard voluntary projects in China can switch to CCERs. Do you think many projects will do that?

WZ: Projects that have registered as Clean Development Mechanism (CDM) projects but not issued can switch to CCER projects. These are CDM projects but not voluntary projects such as VCS and GS projects. If you are wondering whether CCER market will have an impact on VER market, I think the impact is small. One reason is that the buyers of CCERs and VERs have different purposes. Another reason is that there are some important differences between them. The categories of VCS/GS projects and CCERs don’t totally overlap. VCS projects emphasize social impact, while CCER projects have more requirements on location and categories. According to the policy, some pilot trading schemes in China only accept CCER projects developed in their regions, and some of them do not accept certain types of emission reduction projects.

From project developers’ point of view, they adopt standards based on the project implementation cycle and market price of credits. This depends on future CCER market development.

KH: Where does demand come from?

WZ: Our companies’ clients are primarily international. But there is increasing domestic demand – some conferences, workshops and concerts in China want to be carbon neutral and they buy some carbon credits to offset their emissions.

I think that more and more Chinese companies are interested in the co-benefits but they are not so sure what they really are. So, we provide them with relevant training like a workshop or offer professional consulting services. After this, these companies will understand what kind of benefits that emission reductions can bring to them, and then emission reduction project implementation or carbon credits trading will follow up to fulfill their specific requirement. Also, in China, corporate social responsibility is calling for great attention now. Emission reduction and environmental protection are  important parts of corporate social responsibility (CSR).

KH: It’s interesting that Chinese buyers are also interested in co-benefits. It’s a trend we’ve been seeing a lot in North America and Europe.

WZ: This is a trend also taking place in China, but enterprises and individuals need more training at the current stage. You need to tell the credit buyers what they [offsets] are and what benefits they can get from buying credits and reducing the emissions. At the current stage, many Chinese enterprises are interested in these co-benefits, but they don’t quite understand the procedure and long-term benefits. So some of them only do a one-time voluntary offset.

We will tell the buyers the specific benefits that the projects bring to local community and environment, not just sell them the credits. We interview local people and shoot small videos for our clients. Sometimes our clients join us to do on-site visits. That’s quite beneficial and interesting to the buyers. Carbon reduction is comparatively abstract, but with onsite visits clients can talk to project owners to understand the emission reduction procedure better.

KH: How much do Chinese consumers care about environmentally-friendly products?

WZ: Chinese people really care about the environment at the current moment. Our government makes a lot of efforts in ensuring effective implementation of environmental policies on problems like air pollution, water pollution and soil pollution. At current stage, not all the people are familiar with carbon emission reduction, but if you connect the air pollution with carbon market, people can understand this issue better. I believe more enterprises and individuals will be involved in the carbon market in the future as the market expands and becomes mature.

People would like to learn more about environmentally-friendly products– especially in the city  like Shanghai, where people are more wealthy and more educated. For example, people are more willing to buy local food and energy-saving products now. And green buildings and electric automobiles are also hot topics in China.