Expert interpretation! Zhang Xiliang: Some views on green electricity trading, green certificate trading and carbon trading

In global product trade, product carbon emissions have become an unavoidable and important issue and will have a profound impact on the future evolution of global trade rules. In addition, my country is also embarking on establishing a national carbon emission control system. Green electricity trading, green certificate trading and carbon trading are three market-based policy tools to promote the low-carbon transformation of the energy economy. They are very important for my country to deal with carbon emission problems in international trade and establish a national carbon emission control system. Therefore, although the construction of these three trading systems is still in its infancy in our country, all sectors of society are highly concerned about it. At the same time, it was also noted that there is still a lack of consensus on the understanding of these three systems, especially on the relationship between these three systems. I would like to make a few personal views here.

1. Green electricity trading

Renewable energy green power trading, referred to as "green power trading", is a power trading institutional arrangement based on the Power Purchase Agreement and reflecting the Renewable Energy Attribute. Green power transactions often involve three types of market entities: power generation companies, power traders, and power users. They can confirm the renewable energy attributes of the entire power supply chain from power generation to transmission and distribution to final use. Green electricity trading is not only a trading system that integrates electricity value trading and renewable energy attribute trading, but also a trading system that organically combines electricity trading and renewable energy power traceability. Therefore, green electricity trading is a trading system that can simultaneously promote the production, consumption and use of renewable energy electricity. It should be noted that limited by the boundaries of the green power trading market, there may be certain obstacles for some power users to directly participate in green power trading.

2. Green certificate transaction

Renewable Energy Green Power Certificate Trading, referred to as "Green Certificate Trading", is a Renewable Energy Attribute trading system based on Renewable Energy Certificates. Green certificate trading is a trading system that separates electricity value trading from renewable energy attribute trading, and is mainly used to replace fiscal subsidies for renewable energy projects. Some multinational companies hope to use green certificates to meet the relevant requirements for traceability of indirect emissions from products when putting forward low-carbon requirements for their own supply chains. However, the green certificate itself does not contain traceability information on renewable energy power. Although green certificate trading also involves three types of market entities: power generation companies, power traders, and power users, under the current institutional arrangements, the renewable energy attributes of electricity can only be confirmed from the power generation link, and cannot be effectively confirmed in the transmission, distribution and use link. Confirm the renewable energy attributes of electricity. One of the major problems in green certificate trading internationally is the so-called "green-bleaching" risk. If an electrolytic aluminum plant actually uses electricity from its own coal-fired power plant, but purchases the same amount of green certificates to declare that the electricity used is green, it is a typical "green bleaching". Due to the chaos of the international green certificate market, different standards, and low credibility, many international environmental protection organizations have recently publicly criticized the recognition of green certificates by some multinational companies as "greenwashing". Since the green certificate cannot fully attach the electricity consumption attributes of green electricity, the draft rules for calculating the carbon footprint of electric vehicles 'batteries in the supporting rules of the "EU Battery and Waste Battery Regulations" issued by the European Union in April 2024 proposed that green certificates should not be used when calculating the carbon footprint of batteries. Reduce emissions.

3. Carbon trading

In my country, carbon trading can be divided into mandatory carbon trading and voluntary carbon trading. Mandatory carbon trading is based on government-issued carbon emission allowances, and voluntary carbon trading is based on Certified Emission Reductions. Mandatory carbon trading is mainly a policy tool that encourages about 7500 high-emission companies in the power generation and industrial industries to complete mandatory carbon emission reduction obligations. Voluntary carbon trading encourages organizations and individuals that are not within the scope of mandatory carbon trading control to voluntarily participate in the carbon emission reduction trading system. Both mandatory carbon trading and voluntary carbon trading aim at reducing carbon emissions and are also market-based low-cost carbon emission reduction policy tools.

4. The relationship between the three trading systems

Green electricity trading and green certificate trading are both trading systems to promote the development of renewable energy power, but there are great differences between the two and it is not easy to completely replace them. The main differences between the two are: first, whether electricity value trading and renewable energy attribute trading are separated, and second, the recognition scope of renewable energy attributes of electricity is different. Green power transactions based on power purchase agreements can determine the renewable energy attributes of the entire power supply chain from power generation to transmission and distribution to final use, while green certificate transactions itself can only confirm the renewable energy attributes of electricity in the power generation process, so in many cases, the power traceability credibility of green power transactions is higher than that of green certificate transactions.

Although green electricity trading and green certificate trading can also promote carbon emission reduction, they and carbon trading are two different trading systems: First, they are different in nature. Carbon markets are generally established by governments of various countries. Article 6 of the Paris Agreement specifically stipulates the requirements for the connection of carbon markets in various countries. Specific operational details are currently under negotiation. Green certificates are mainly initiated by non-governmental certification organizations. Different organizations have different green certificate standards. There is no international consensus and no authoritative intergovernmental organization has been established. my country's green certificate is striving to gain recognition from overseas green certificate issuing agencies and organizations. Second, the role is different. The carbon market is an effective main channel to deal with the EU Carbon Border Regulation Mechanism (CBAM). CBAM proposes product carbon emission accounting requirements for products exported to the EU, and exemptions or exemptions for carbon costs already paid in the domestic carbon market. Green certificates are low-carbon requirements for some multinational companies in their supply chains. Whether green certificates can help companies deal with carbon barriers depends on obtaining recognition from countries rather than non-governmental organizations. At present, CBAM mainly needs to be aligned with EU carbon market rules. The EU carbon market currently does not recognize various green certificates, but recognizes the carbon market.

Just because we say that green electricity trading, green certificate trading and carbon trading are three different trading systems does not mean that the three systems are not related. First of all, the price correlation between green electricity trading and green certificate trading is very high, and the transaction price of green certificates will affect the transaction price of green electricity, and vice versa; second, under the carbon trading system, the scarcity of carbon emission resources can continue to manifest, and the rising trend of carbon prices will also affect the prices of green electricity and green certificates; Third, if the carbon emissions controlled by carbon trading include indirect emissions from electricity, the trading information of green electricity can provide important data and vouchers for calculating corporate carbon emissions and issuing quotas to enterprises.

5. Three trading systems and dealing with trade carbon emissions issues

After the EU decided to implement the Carbon Border Adjustment Mechanism (CBAM), all sectors of society, especially companies exporting to the EU, paid close attention to this issue. It should be recognized that the main motivation for the EU to implement the carbon border adjustment mechanism is the EU's plan to gradually transition the quota allocation method of the industrial sectors covered by its Carbon Trading System (ETS) from free allocation to full auction. The essence of the EU's implementation of the carbon border adjustment mechanism is actually to expand the scope of control of its carbon trading system to companies that export related industrial products to the EU. Therefore, among the three trading systems, carbon trading is the most direct and effective system to deal with CBAM. There are two specific methods: one is to expand the industry coverage of national mandatory carbon trading from power generation to industrial industries as soon as possible; the other is to introduce a paid quota allocation mechanism as soon as possible.

In response to the problem of green trade barriers based on product carbon footprints created by the European Union and other Western countries, these three trading systems can play the following two roles: First, accelerate the construction of a national carbon pricing system with national mandatory carbon trading as the core., this is also a strategic measure to deal with the carbon emission problem of all product trade in the future; Second, the two systems of green power trading and green certificate trading cannot be separated. Instead, the two systems must be organically combined to establish a highly credible renewable power traceability system.

6. Construction of carbon trading system and national carbon emission control system

One of the main paths in the current construction of the national carbon emission control system is to shift from "dual control" of energy consumption to "dual control" of carbon emissions. The core task is to achieve conversion in four aspects: first, target conversion, from total energy consumption and intensity goals to total carbon emission and intensity goals; second, product standard system conversion, from energy consumption standards to product carbon emission standards; The third is the transformation of enterprise statistics, measurement and accounting systems, from energy consumption statistics, measurement and accounting to carbon emission statistics, measurement and accounting; the fourth is the transformation of policy means, from administrative means to market means. The core of carbon market construction is the construction of three systems: total carbon emission setting, carbon emission quota allocation and carbon emission MRV (Monitoring, Reporting and Verification). By accelerating the construction of a mandatory carbon trading system, it is entirely possible to take the lead in realizing the shift from "dual control" of energy consumption to "dual control" of carbon emissions among the 7500 companies that account for 70% of the country's carbon emissions. Therefore, the construction of a national carbon market can fully play a leading role in the gradual shift from "dual control" of energy consumption to "dual control" of carbon emissions.

The author is the chairman of the Carbon Emissions Trading Professional Committee of the Chinese Society of Environmental Sciences