There are three stages in the development of China’s carbon offset mechanism: 1) CDM project stage (2005-2012): CDM project is the main way for China to participate in carbon trading, and the projects are mainly concentrated in wind energy, hydropower and other fields; 2) carbon trading pilot stage (2013-2020): nine regional pilot projects have been launched successively. 2871 CCER approval projects and 861 filing projects have been released. CCER participates in transactions in the pilot areas, and the offset proportion of each pilot is between 5% and 10%. The cumulative trading volume of CCER is nearly 300 million tons. In 2017, the national development and Reform Commission suspended the project filing application; 3) the stage of national carbon trading market (after 2021): the interim regulations have not yet defined the quantitative indicators for certifying the offset proportion of emission reduction, and have been reintroduced into the voluntary emission reduction certification mechanism. Beijing undertakes the national CCER management and trading center. The development process of CCER project mainly includes project document design, project approval, project filing, project implementation and monitoring, emission reduction verification and certification, and emission reduction issuance.
Quantitative analysis of supply and demand: the short-term CCER supply is far less than the demand, the price shows an upward trend, the medium and long-term supply and demand will be in balance, and the price will remain stable. 1) In terms of demand, at present, the demand side of CCER is mainly emission control enterprises participating in the national carbon trading market and foreign emission reduction organizations. It is expected that the demand of CCER will be 135-450 million tons / year in the short term, and will gradually increase to 311-1046 million tons / year in the following years. In the long term, the future demand of CCER will be greatly affected by policies; 2) In terms of supply, assuming that the approval of CCER project is resumed from 2022, the supply of four types of potential CCER will be released to the market in batches. It is expected that the supply of CCER will be 06-35 million tons / year in the short term, and will gradually increase to 486-991 million tons / year in the following years. It is expected that the supply of CCER will be tight first, then loose, and then tend to grow steadily in recent years, and will be basically balanced with demand in the future.
From the perspective of CCER’s performance contribution, under the neutral condition when the carbon price of CCER is 30 yuan / tco2e: 1) renewable energy: CCER’s performance contribution to renewable energy projects is between 2.41% – 6%; 2) Forestry carbon sequestration: the performance contribution of CCER to forestry carbon sequestration project is between 1.21% – 5.72%; 3) Methane recovery: the performance contribution of CCER to methane recovery project is between 18.92-24.86%.
Investment suggestion: the construction of national carbon emission trading market will be gradually improved. The national carbon trading center and carbon quota registration system are set up in Shanghai and Hubei respectively. Beijing undertakes the national CCER management and trading center, and the national carbon market framework has been preliminarily established. On the one hand, renewable energy enterprises will benefit from the promotion of the voluntary certification mechanism and realize the revaluation of enterprise value through CCER transactions. On the other hand, the emission reduction issued by CCER is about 53 million tons. With the cancellation of performance in recent years, the stock emission reduction is further reduced. After the opening of the national carbon trading market, the estimated quota of the power industry is about 4 billion tons, According to the offset ratio of 5%, the offset amount of CCER required is about 200 million tons / year. The supply and demand of CCER is relatively tight, and the transaction price is expected to return to a reasonable level, further thickening the company’s profitability. Focus on investment opportunities in relevant fields such as renewable energy enterprises holding assets of CCER project, third-party examination and verification institutions, carbon monitoring, equity holding enterprises of stock exchanges, etc.
Risk tip: the progress of policy promotion is less than expected, the national promotion of carbon trading is less than expected, and the activity of the trading market is less than expected.
