Zhitong Finance App learned that Guosheng Securities released a research report stating that China's carbon market continues to be established and improved, and CEA and CCER are the main trading types. Currently, the local pilot carbon market is in parallel with the national carbon market. The main types of transactions are carbon quotas (CEA) and China Certified Voluntary Emission Reduction (CCER). CEA credits are mainly distributed free of charge by the government; CCER credits are applied for by emission reduction entities and issued by the government, which rewards voluntary carbon emission reduction activities. Currently, CCER restart expectations within the year continue to heat up. As an important part of China's carbon market, CCER has broad scope for long-term development. The bank believes that the forestry, waste incineration, and ocean wind sectors are all expected to focus on benefiting from CCER development.
Guosheng Securities's main views are as follows:
China's carbon market continues to be established and improved, and CEA and CCER are the main trading types.
Since the “Paris Agreement” in 2015, countries around the world have successively clarified the pace of dual-carbon development and accelerated the construction of carbon markets. Currently, the global carbon market has covered 17% of greenhouse gas emissions, and 25 carbon markets are already in operation. China launched a pilot carbon emissions trading project in 7 provinces in 2011, launched the construction of a national carbon emissions trading system in 2017, and launched trading on the national carbon market in 2021. Through inclusion in the power generation industry, it covered 45% of the country's carbon emissions. Currently, the local pilot carbon market is in parallel with the national carbon market. The main types of transactions are carbon quotas (CEA) and China Certified Voluntary Emission Reduction (CCER). CEA credits are mainly distributed free of charge by the government; CCER credits are applied for by emission reduction entities and issued by the government, which rewards voluntary carbon emission reduction activities. In 2021, China's pilot carbon market+national carbon market traded a total of 16.9.68 million tons of CCER (including online+offline), accounting for 41% of the total volume of CEA+CCER.
The restart of CCER is imminent, bringing new vitality to China's carbon market.
China's CCER began to develop after 2014. In 2017, project filing was suspended due to issues such as low transaction volume and irregularities in individual projects, but the stock of CCER that has already been registered on the market can still participate in transactions. Currently, it has been 6 years since the CCER application for certification was suspended. The stock of CCER in the market is decreasing year by year, and calls for the CCER restart are increasing year by year. In June 2023, the Ministry of Ecology and Environment stated that it would strive to restart CCER within the year and complete the acceptance of the national voluntary greenhouse gas emission reduction registration system and trading system; in July, the Ministry of Ecology and Environment issued the “Administrative Measures on Voluntary Greenhouse Gas Emission Reduction Transactions (Trial)” (draft for comments), clarifying basic systems such as approval, verification, and trading of CCER projects. With the continuous improvement of the CCER infrastructure and policy system, it is expected to restart smoothly in 2023, bringing new vitality to the prosperity of China's carbon market.
CCER development momentum is sufficient, and there is broad room for growth.
There are many driving forces for CCER development in China: 1) China still has high-carbon emission industries such as steel, building materials, chemicals, and paper, etc. waiting to be included in the national carbon market and continue to open up the CCER market space; 2) Free CEA credits will gradually be tightened in the medium to long term, driving the CCER value increase; 3) There is still plenty of room for increase in CCER payment limits (some carbon trading pilots stipulate that the CCER offset ratio can reach up to 10%); 4) EU carbon tariffs will begin to be levied in 2026 and fully implemented by 2034, which is expected to guide domestic carbon prices to be integrated into the international carbon price (currently EU carbon prices) Appointment 89 Euros/ton). Looking at the market space, if all eight major carbon emission industries are included in the carbon market, estimated at 5% of the CCER offset quota ratio, the potential annual demand for CCER in China is expected to reach 350 million tons in the future. If the carbon price is 60 yuan/ton, the corresponding CCER market value can reach 21 billion yuan.
The forestry, waste incineration, and ocean wind sectors are all expected to benefit primarily from CCER development.
1) In terms of forestry, forestry carbon sinks are an important method for generating CCER at low cost and high efficiency (every 1 m³ of biomass grown in a forest absorbs an average of 1.83 tons of CO2). Garden enterprises are expected to focus on benefiting from increased demand for domestic forestry carbon sink project construction and carbon sink benefits generated by garden operation projects. 2) Waste incineration. We estimate that CCER can bring an additional income of about 150,000 yuan per 10,000 tons of household waste disposal to waste incineration power generation companies every year. 3) In terms of ocean wind, we estimate that if leading offshore wind power companies actively apply for CCER, each MW of offshore wind installed capacity can bring in an additional 40,000 yuan of CCER related revenue per year.
Key recommendations and concerns:1) Forestry resource holders and cooperative developers: Yongan Forestry (000663.SZ), Yueyang Forest Paper (600963.SH), Dongzhu Ecology (603359.SH), Fujian Jinsen (002679.SZ), etc.; 2) Waste incineration companies: Green Power (), Bright Environment (00257), Wiley (300190.SZ), etc.; 3) Ocean Wind Operators: Longyuan Electric Power (001289.SZ), Three Gorges Energy (), etc. 601330.SH 600905.SH
Risk warning:There is a risk that the CCER approval progress and methodology adopted fall short of expectations, there is a risk that the CCER price will fluctuate, the project development progress will fall short of expectations, and there is a risk of error in data estimation.