November 27, 2014 / 8:14 AM / 5 years ago

Guangdong carbon market to restrict access to offset credits

BEIJING, Nov 27 (Reuters) - China’s biggest carbon market in Guangdong is going to clamp down on the use of cheaper credits generated by large government-regulated mitigation projects in an attempt to prop up prices in an oversupplied market.

China’s seven regional pilot carbon markets cover the CO2 emissions of around 2,000 companies, and handed out a total of 1.2 billion permits in 2013 that can be used to trade or are handed over to the government to fulfil carbon emission targets.

The National Development and Reform Commission (NDRC) runs a scheme allowing developers to finance carbon-cutting projects through the use of emission credits known as CCERs (China Certified Emission Reductions).

In theory, CCERs can be used to offset 5-10 percent of the total emission cut obligations of companies covered by the trading schemes, but local authorities are allowed to decide for themselves what sort of credit can be traded.

Guangdong is moving to ban the use of credits generated from projects like hydropower, waste heat utilization as well as any power or heat generation project using fossil fuels, according to draft regulations circulated among market players for consultation.

Under the NDRC scheme, low-carbon projects can apply for credits to cover the period before they have officially registered with the UN Clean Development Mechanism, but these could also be banned by Guangdong under the new proposals, three market sources who have seen the draft regulations said.

“It is to protect the market, with permits already in abundance,” said a manager with a trading company, who asked not to be named.

The NDRC approved the first issuance of 6.5 million credits this week, with 78 percent generated by hydropower projects.

But none of the credits can be used in Guangdong, if the proposed restrictions are accepted.

“A maximum of 1-1.2 million credits satisfying the restrictions can be supplied to Guangdong by the next compliance deadline in June,” said an analyst with ICIS, a market information provider, in a note.

Guangdong handed out 370 million permits for 2014 compliance, 5.7 percent higher than last year, and it allows the use of the cheaper credits to offset 10 percent of the companies’ obligations. However, only 30 percent of them can be sourced from other provinces.

Permits were trading at around 23 yuan on Wednesday, down 3 yuan compared to the government-set auction price. (Reporting By Kathy Chen and David Stanway)

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