China has revealed its plans to relaunch the China Certified Emissions Reduction scheme (CCER). The plan to reboot the CCER has been in the works as early as last year. However, it is now ready for operations to start.

In 2017, China had suspended the CCER scheme due to low trading volumes. The country now plans to reboot its voluntary carbon market through CCER. 

China Beijing Green Exchange (CBGE) manages the relaunching project. On February 4th, the CBGE revealed that the registration and trading schemes for CCER were complete. The systems are ready for inspection before operations commence. 

There is a lot of focus on China’s carbon emissions policies as the country is one of the largest economies in the world. It is also the number one carbon emitter in the world, with more than 10,000 million tonnes of CO2 emitted in 2020. It is responsible for almost 30% of the world’s carbon emissions. 

This means that if the world wants to meet its net zero goals, China must successfully manage its CO2 emissions.

A World Bank report revealed last year that China would require $17 trillion in investments to achieve their net zero targets. These investments are in the power and transport sectors alone.

CCER will supplement China’s ETS in reducing carbon emissions

The CCER and China’s ETS (Emissions Trading Scheme) are crucial to China’s goals to reduce carbon emissions. The ETS began trading in 2021 and has completed its first compliance period. 

The ETS is a scheme to limit or reduce carbon emissions. It is particularly prominent within the country’s power generation sector. It allocates emissions allowances to coal and gas-fired power plants but it will expand to other industrial sectors over time. The Shanghai Environment and Energy Exchange oversees the ETS.

In terms of capacity, ETS is currently the largest carbon market in the world. It is three times the size of the EU carbon market. Its capacity is close to an annual 4.5 billion tonnes of CO2. This represents 40% of the country’s total carbon emissions per year.

The way China allocates the allowances differs from the EU. In the EU, allowances are capped and decided upfront. China determines allowances based on emissions intensity.

One allowance for a company means that it can emit 1 tonne of carbon. 

In the first year of operation, the ETS was off to a slow start, which is not unusual for these schemes. In 2021, it traded 412 million tonnes worth of carbon allowances. For comparison, the EU’s ETS traded 321 million tonnes of CO2 allowances in its first year.

The current ETS only allows fossil-fuel based Independent Power Producers (IPPs) to benefit by trading credits. It leaves no room for renewables-based IPPs to benefit. This is the issue the CCER hopes to address. The current ETS will expand beyond the power sector into other industries.

China’s CCER scheme broken down

CCER was a scheme where the Chinese government certified voluntary carbon emissions reduction activities by companies. These include projects such as renewable energy, waste-to-power generation and forestry. These projects generated carbon credits which can be sold and traded. 

CCERs could be used to offset carbon deficits or China Emissions Allowances (CEAs) deficits. Hence, companies with high emissions will pay entities like renewable power companies for credits.

However, there is a cap on CCER credits. It can offset 5% of emissions that exceed the ETS targets.

The CCER was first established in 2012. The country’s central economic planner, the National Development and Reform Commission (NDRC) introduced measures to encourage voluntary carbon emissions reduction activities. 

With this scheme, both foreign and domestic entities were able to carry out transactions for different greenhouse gasses. These included carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride. 

Why the CCER was suspended

According to the NDRC, the CCER had some issues that caused its suspension. Firstly, there were low trading volumes on the CCER. Secondly, there was little standardization when it came to carbon audits. As a result, CCER registrations were temporarily suspended.

What to expect with the relaunch

It was announced at the end of 2021 that the Beijing Green Exchange will oversee the CCER trading. The exchange will also be open to foreign investors. 

Once launched, analysts predict that CCERs worth 300 million tonnes will be traded. The previous issue of low trading volumes in the CCER is also expected to be resolved. As the ETS expands to include more energy-intensive sectors, the CCER’s trading volume will increase.

However, the CCER relaunch does pose some challenges. How the ETS will incorporate the CCER scheme is not entirely clear yet. Currently, only wind and solar projects with an internal rate of return (IRR) of lower than 8% can apply for the CCER. 

This requirement leaves out a lot of renewable energy projects. It means that only new renewable projects with low IRRs can truly benefit from the CCER relaunch.

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Nine global banks have invested a sum of $45 million in a new carbon credit platform to help ramp up transactions in the voluntary carbon market (VCM) and give the banks’ clients easier access to the market.

Banks’ $45M Climate Commitment

Demand for carbon offset credits is estimated to grow significantly as businesses are using them to achieve their net zero emissions targets. 

Right now, carbon credits change hands bilaterally on a project-by-project basis as well as through exchanges. 

Each of the nine banks entrusted $5 million into the carbon credit trading platform Carbonplace. The trading platform will connect buyers and sellers of carbon credits through the banks, namely.

BBVA
BNP Paribas
CIBC
Itaú Unibanco
National Australia Bank
NatWest
Standard Chartered
SMBC 
UBS 

Their $45 million capital injection shows a commitment to help tackle climate change. Those nine world’s largest bankers represent about $9 trillion in total assets. With their investment, each bank shares equal equity ownership in Carbonplace.

With this technological solution, each bank can now offer its customers committed to decarbonize direct access to carbon credits to offset their footprint. 

Carbonplace stated in its statement:

“The capital injection represents a commitment from some of the world’s largest financial institutions… to achieve Carbonplace’s vision of accelerating corporate climate action by providing transparent, secure and accessible carbon markets.”

The Carbonplace Platform  

Carbonplace is a trading platform launched in 2021 to connect buyers and sellers of carbon credits through their respective banks. The company received its seed funding from its founding institutions that developed its technology.

Carbonplace’ headquarters is in London under the leadership of its new CEO, Scott Eaton. He’s a financial tech veteran who chaired Nivaura, a capital markets fintech. Eaton described Carbonplace as transforming the way carbon credits are bought, distributed, and held. 

The trading network will use the $45m investment to scale up its platform’s infrastructure and grow its team. It will also seek more partnerships with other major market players such as stock exchanges and carbon registries worldwide.

The carbon tech firm said the carbon credits available would be from existing carbon offset standards bodies like Gold Standard and Verra.

Hailed as the “SWIFT of carbon markets”, Carbonplace has done pilot transactions with several buyers, sellers, exchanges, and registries. Some names include the global payments tech giant Visa and Climate Impact X, a carbon marketplace based in Singapore.

In summary, here’s what Carbonplace is all about. 

The network is seen as Xpansiv’s new carbon credit rival. It will facilitate the simple, secure, and transparent transfer of certified carbon credits. And that happens in real time.

Digital wallets allow the ownership of a credit to be reliably proven to the market, which lowers the risk of double counting and simplifies transparency.

Driving Corporate Climate Action

Large companies have been setting lofty net zero pledges such as these major airlines, T-Mobile, Disney, Stellantis, Lenovo, and more. Most of them follow the world’s goal to hit net zero emissions by 2050 while others have targets 10 years ahead. 

As the number of companies pledging to cut their emissions grows and investor pressure for clear plans intensifies, the importance of voluntary carbon market becomes even more obvious.

A representative from BBVA, Ingo Ramming, commented:

“Carbon markets are a fundamental pillar of our sustainability strategy and an enormous business opportunity… Carbonplace strengthens our value chain. Its modern, flexible, and secure technology will enable carbon markets to realize their full potential to drive large-scale climate action.”

The VCM has a key role in driving corporate climate action and helping companies achieve their net zero goals. Firms buy carbon credits to offset emissions they can’t avoid or reduce. 

As per BloombergNEF’ projection, demand for carbon offset credits can grow 40x to 5.2 billion tons of CO2 in 2050. That represents 10% of current global carbon emissions.

Investments in VCM projects grew to $10 billion last year, up from $7 billion in 2021, according to a report. While the volume of carbon credits bought as offsets (155 million) went down 4% from 2021, global supply jumped 2% (255 million). 

Carbonplace’ carbon credit platform will be available to the banks’ corporate customers later this year. It can also be open to retail customers in the future, the firm’s chief technology officer says. 

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Voluntary carbon credit markets (VCM) have a big role to play in financing climate actions but the actual amount of money that intermediaries earn and goes to climate projects remains unknown. 

According to a study commissioned by the Carbon Market Watch, 9 out of 10 intermediaries don’t reveal the fees they charge or profits they earn. Their role in the VCM has been increasingly scrutinized.    

Opaque Financial Transactions Involving Carbon Credits 

Intermediaries – brokers, retailers, or exchanges of carbon credits – have been under interrogation. 

Last year, an investigation noted that several brokers in the VCM are buying carbon credits from forestry projects in poorer nations and selling them at big margins. Likewise, an inquiry on SouthPole showed that the company was earning millions of dollars from brokering low-quality carbon credits.  

In a similar finding, Carbon Market Watch released a report saying that 90% of the intermediaries under investigation don’t reveal the exact fees or profits earned from selling carbon credits on the VCM. 

This lack of transparency in the financial transactions involving carbon credits is alarming. It doesn’t give the market players the true insight whether the VCMs are indeed successful in financing climate actions. 

Plus, it also makes it impossible to measure the real amount of earnings and speculation on the part of the intermediaries. These include the emerging craze among carbon crypto companies.

This opacity has to change. 

Checklist in Buying Carbon Credits

Being transparent about the information on the middlemen’s earnings per credit will allow buyers to support projects where the gap between how much they pay and what the project owner gets is the smallest. This will greatly benefit the project owners or developers, with more bargaining power with intermediaries.

So, carbon credit buyers should not be lenient anymore on demanding transparency from intermediaries. They must know what questions to ask to make informed decisions.

According to Carbon Market Watch, here are the questions that buyers must ask to channel their money to the right projects.

Carbon markets are a tool to channel finance to climate related projects. Yet, there’s limited data available to quantify it. 

There is not enough data on how much finance is going to climate action through the VCM.

The value of market size is determined by multiplying the number of trades by the estimated price.

Apart from carbon credit price transparency concerns, where the money paid by the final buyers goes is also unclear. This includes the amount of money that stays in the hands of the intermediaries and the cash that project developers make as profits.

In a best-case scenario, project developers sell directly to end buyers without the need for an intermediary. In this case, as much as 60% of revenues goes back to the climate project or local communities.

Under a worst-case scenario, brokers can take as much as 78% of the revenues of the carbon credit sales.

So why do project developers still work with brokers? Some think that they help connect with buyers and it’s convenient for price discovery.

The Role of Intermediaries in the VCM

Intermediaries have a big role to play in the VCM. They help connect project developers and carbon credit buyers.

Speculative intermediaries, in particular, are investing to buy carbon credits at a time when demand is extremely low at cheap prices. In effect, they’re still providing a lifeline to projects. But that was the case before.

Today, those speculative intermediaries are now cashing in, by reselling the credits at several times more the price they bought them. Though nothing is wrong in earning a profit, it would be if most of the money paid supposedly to finance climate action get stuck on intermediaries’ wallets. 

In a report by Thallo on scaling up the VCM, $650 million went to the pockets of investors and brokers – not project developers – out of the 500 million carbon credits traded in 2021, 

That accounts for 1/3 of the revenues the VCM generated in 2021.

This is where the concept of “fair deals” comes in. It offers a floor price to project developers and includes a means to ensure that they will benefit as well if market prices rise before the credit is used.

This calls for a discussion defining “fairness” in the carbon market, which has a positive societal and environmental impact. 

But if intermediaries still won’t disclose their fees and mark-ups, the real path that a carbon credit takes and the number of times it changes hands will remain secret. Keeping this information hidden will raise suspicions about who really benefits. 

Thus, intermediaries must improve transparency in their transactions to also improve trust in the VCM.

The post Transparency in Intermediaries’ VCM Transactions is Critical appeared first on Carbon Credits.

ExxonMobil announced the major step of its plan to develop the world’s largest low-carbon hydrogen production facility, with a contract for front-end engineering and design (FEED) awarded to Technip Energies. 

The oil giant will build the largest low-carbon hydrogen production plant in the world in Baytown Refinery near Houston, Texas. ExxonMobil awarded its FEED contract to French-headquartered Technip Energies.

Technip Energies is an engineering and technology company for the energy transition that has long had a strong presence in the area. 

Exxon says it plans to come to a final investment decision in the Baytown hydrogen plant in 2024. Stakeholder’s support, permits, and market conditions will dictate how the project goes. 

World’s Biggest Low-Carbon Hydrogen Plant

The proposed facility will cost Exxon $7 billion to develop. The plant can produce 1 billion cubic feet (bcf) of low-carbon hydrogen daily, making it the world’s largest facility. 

It will also produce an undisclosed volume of ammonia, a key fertilizer ingredient. 

The oil and gas corporation also adds that it will capture and permanently store over 98% of the facility’s carbon emissions. That amounts to around 7 million metric tons (Mt) of carbon dioxide each year. 

Such goal is in coordination with its major carbon capture and storage (CCS) project it’s currently developing in the Houston and Gulf Coast area. It has the capacity to store up to 10 million Mt of CO2 each year.

The current global CCS capacity is 63 million tonnes per year (Mtpa).

The planned pipeline is 14x that amount – 1 billion tonnes. The bulk of capacity as of Q2 2022 resides in the U.S. and Canada as seen in the chart below. But by 2030, capacity in Asia and Europe will be higher, according to energy intelligence firm Woodmac.

The CCS network for Exxon’s project will be made available for use by 3rd-party CO2 emitters in the area. The firm has offtake agreements under discussion with these third party customers. 

According to Dan Ammann, President of ExxonMobil Low Carbon Solutions, the project allows them to offer “significant volumes of low-carbon hydrogen and ammonia to third party customers in support of their decarbonization efforts”. He further said that:

“In addition, the project is expected to enable up to a 30% reduction in Scope 1 and 2 emissions from our Baytown integrated complex, by switching from natural gas as a fuel source to low-carbon hydrogen…”

The announcement comes after Exxon unveiled last week that it has stopped routine flaring of natural gas in its Permian Basin operations. It’s also part of the company’s advocacy for stronger regulations to reduce flaring in the industry overall.

Exxon’s Carbon Reduction Plans

Exxon aims to reduce its Scope 1 and Scope 2 GHG emissions from its operated facilities. The end goal is to reach net zero emissions in those categories by 2050. 

“It levels the playing field. We need strong regulations so it doesn’t matter who owns the facility,” says Exxon’s chief environmental scientist Matt Kolesar.

In 2021, the company revealed its carbon emissions reduction plans for 2030 compared to 2016 levels.

The plan is to achieve these targets:

20-30% reduction in corporate-wide greenhouse gas intensity;  
40-50% reduction in greenhouse gas intensity of upstream operations; 
70-80% reduction in corporate-wide methane intensity; and 
60-70% reduction in corporate-wide flaring intensity. 

Moreover, Exxon also announced last year that it expects to capture as much as 50 million Mt of CO2 by 2030. And with various CCS projects worldwide, that capacity will increase to 100 million Mt by 2040. 

In its Houston Ship Channel, the company said that it’s working with 14 other firms to boost their CCS efforts.

The CCS network is worth $100 billion initially. It will capture CO2 from the tailgates of those plants and store it in underground formations. Storage options would be below the Gulf of Mexico or the nearby coastal areas.

Exxon’s next move is to launch a satellite later in 2023 to help it track its GHG emissions in the Permian Basin and to cut them. It will pair the world’s largest low-carbon hydrogen facility with the biggest olefins plant in the country to make more sustainable, lower-emissions products.

Hydrogen is a hot topic on clean energy transitions. Green hydrogen, in particular, gets a lot of traction and is hailed as the energy of the future. Subsidy programs this year will help ensure that this low-carbon hydrogen becomes a large-scale source of renewable energy.

The Baytown low-carbon hydrogen plant will be commissioned between 2022 and 2027. Its initial startup is sometime in the 2027- 2028 timeline, says Exxon.

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