A new study, 'The Value of Carbon in China', commissioned by WWF Hong Kong, provides fresh insights into the growing value of carbon finance to the Chinese sustainable energy market. With over 1000 projects across 15 project types and an estimated of USD 2.5 billion annually in revenue, the Clean Development Mechanism (CDM) is demonstrating that putting a price on carbon can support sustainable energy.
'Carbon finance is now bringing substantial new revenues to sustainable energy in China', said Liam Salter, Head of WWF Hong Kong's Climate Programme. 'China's carbon entrepreneurs are rapidly expanding the market's sphere of influence'.
The data in the new report also informs the debate around the additionality issue. All CDM projects are required to demonstrate 'additionality' in order to generate carbon offsets1. Earlier research by WWF has suggested that as many as 20% of CDM carbon offsets worldwide are questionable from the additionality perspective2. The report highlights the problems in demonstrating the additionality of some project types, such as wind power and small hydro power, and the on-the-ground market barriers they face in becoming realised.
According to Salter, 'The problem of demonstrating additionality with the CDM is real. In WWF's opinion action is required by CDM regulators such as the Executive Board or the Chinese national CDM authorities to ensure that future projects are developed using the highest additionality standards if the credibility of the CDM is to be maintained.'
Carbon revenues can account for anywhere from 10% to 240% of renewable energy project capital costs and is proving particularly valuable to technologies such as biogas and energy from landfill gas. The CDM also has secondary benefits such as increasing transparency in sectors such as wind power, giving investors more confidence and improving the technical quality of projects.
The report also emphasises the importance of a supportive government policy framework in making new sectors attractive for carbon financiers. Looking into the future it identifies opportunities for offset projects in the area of energy efficiency as a promising opportunity. In particular energy intensive industry sectors such as oil refining and iron and steel production, which have experienced rapid growth in China in recent years, could provide major opportunities for carbon finance to support energy efficiency upgrades.
The full report and the executive summary are now available.
1 Additionality is the technical term used to assess whether a project would have occurred without carbon finance or the CDM. If a project would have occurred without carbon finance or the CDM it is classified as non-additional and is not eligible to receive carbon credits. Non-additional projects that do qualify for carbon credits are leading to increases in global greenhouse gas emissions, because the credits they generate are used to offset emissions in industrialized countries.
2See Schneider (2007). Is the CDM fulfilling its environmental and sustainable development objectives? An evaluation of the CDM and options for improvement. Report prepared for WWF. http://www.panda.org/news_facts/publications/index.cfm?uNewsID=118000
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