NDRC prescribes procedures for voluntary emissions reduction trading

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The National Development and Reform Commission (NDRC) issued its Tentative Measures for the Administration of Voluntary Greenhouse Gases Emissions Reduction Trading on 13 June. The trading measures took effect the same day.

Shanghai on a bad day. Emissions trading measures are aimed at clearing these skylines.
Shanghai on a bad day. Emissions trading measures are aimed at clearing these skylines.

China plans to launch various greenhouse gas emission trading pilot schemes in selected regions (Beijing, Tianjin, Shanghai, Chongqing, Guangdong, Hubei and Shenzhen) in 2013, which should be followed by the implementation of a nationwide cap-and-trade regime after 2015. The trading measures only apply to trading of voluntary emissions reductions. They will not directly regulate trading under China’s pilot or national trading schemes unless the eligibility of those schemes permits this.

The introduction of these market-based mechanisms are designed to assist China in achieving its emission reduction goal of reducing the carbon intensity of its economy by GDP unit by 40-45% by 2020. The trading measures are an important step in establishing the regulatory framework in which these trading activities could take place. The specific implementation of the various recordal procedures, the establishment of a national registry and the linkage of this registry with the exchanges therefore will be followed with interest as a potential indicator of how China’s greenhouse gas trading platform is taking shape.

Trading process

The trading measures describe the various elements for the trading of certified voluntary emission reductions, referred to as China certified emissions reductions (CCERs), all of which fall under the supervision of the NDRC. The framework they provide seems to heavily use NDRC’s experience with the general procedures of clean development mechanism (CDM) projects.

In short, the process involves: (i) recordal of a project as a CCER project with the NDRC, based on a methodology filed with the NDRC; (ii) recordal of the CCERs in a national registry under the NDRC; (iii) trading of the CCERs in exchange centres recorded with the NDRC and linked with the national registry of the CCERs and subsequent retiring of the CCERs, after being used for set-off purposes.

The trading measures apply to the trading of CCERs of CO2, CH4, N2O, HFCs PFCs and SF6, whereby the emissions are to be expressed in TCO2 equivalent. Only legal enterprises established in the PRC may register as a CCER project and be issued CCERs, but the trading measures allow for both domestic and foreign organisations, enterprises, groups or individuals to engage in the trading of the CCERs.

Project categories

Construction for CCER projects must have started after 16 March 2005 (the date on which the Kyoto Protocol became effective). The projects should fall into one of the following categories:

  • CCER projects using methodology registered with the NDRC;
  • CDM projects approved by the NDRC but not yet registered with the UN’s CDM executive board;
  • CDM projects approved by the NDRC and that produced emission reductions before registration with the UN’s CDM executive board; or
  • CDM projects registered with the UN’s CDM executive board, but not having been issued any CCERs.

The relevant recordal application typically should be filed with a project design document, a validation report and other supporting documents to the relevant provincial-level development and reform commission, which will submit the application to the NDRC. Only central-level enterprises (i.e. those enterprises falling under the supervision of the State Council’s State-owned Asset Supervision and Administration Commission – a list of 43 of which is attached to the trading measures) and their subsidiaries may submit recordal applications directly with the NDRC. After approved projects have begun producing reductions in emissions, the projects should engage a certification institute registered with the NDRC to issue a certification report in which the specifics of the reductions are described. The project entity should submit this certification report, a monitoring report and other documents to the NDRC. For those applications that comply with the applicable requirements, the NDRC will record the volume of CCERs. The CCERs then should be registered in the national registry.

The trading of CCERs should only occur at exchanges that are recorded by the NDRC, and in accordance with the applicable rules of the exchanges. Interestingly, each exchange’s trading system should be linked with the national registry, allowing for the recordal of any changes to the CCERs in real time.

Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mail at: Zhang Danian (Shanghai) danian.zhang@bakermckenzie.com