What is the relationship between the voluntary emission reduction market and the green electricity and green certification mechanism? How to connect? Let's listen to what Tsinghua University experts say

In the past year, important progress has been made in the institutional construction of the carbon market and green electricity and green certificates. In terms of the carbon market, in January 2024, the National Voluntary Greenhouse Gas Emission Reduction Trading Market was officially launched, working with the National Carbon Emissions Trading Market to achieve a "two-wheel drive" for carbon emission reduction. On May 1, 2024, the "Interim Regulations on the Management of Carbon Emissions Trading" will be officially implemented, becoming my country's first special regulations in the field of addressing climate change. In terms of green electricity and green certificates, the "Notice on Fully Covering Renewable Energy Green Power Certificates to Promote Renewable Energy Power Consumption" issued in July 2023 stated that green certificates are the only certificates for identifying the production and consumption of renewable energy power. At the same time, it is required to achieve full coverage of renewable energy electricity green certificates. In January 2024, the "Notice on Strengthening the Connection between Green Power Certificates and Energy Conservation and Carbon Reduction Policies to Vigorously Promote Non-Fossil Energy Consumption" requires strengthening the effective connection between green certificate trading and policies such as "double control" of energy consumption and carbon emission management to stimulate green certificates. Demand potential, consolidate the foundation for green certificate issuance and trading, expand green certificate application scenarios, and strengthen mutual recognition of domestic and international green certificates.

Core differences between the voluntary emission reduction market and the green power and green certification mechanism

Both the voluntary emission reduction market and the green electricity and green certificate mechanism can effectively support the development of renewable energy. However, there are large differences between the two in terms of policy purposes, supporting logic, and international practice.

From the perspective of policy purposes, the carbon trading system composed of a voluntary emission reduction market and a mandatory carbon market is a major institutional innovation to actively and steadily promote carbon peak and carbon neutrality. It is the internationally recognized main channel for carbon reduction and is responsible for internal control. Greenhouse gas emissions and external demonstrations to actively respond to the tasks of major countries with climate change can also promote my country's energy and low-carbon transformation. The green power and green certificate system focuses on promoting the development of renewable energy.

From the perspective of support logic, the voluntary emission reduction market emphasizes the "additionality" of voluntary emission reductions, that is, the emission reductions brought about by project implementation are additional relative to the "baseline" of not implementing the project. Without additional support, it is difficult for the project itself to overcome obstacles in terms of specific financial benefit indicators, financing channels, technical risks, market penetration and resource conditions. The green certificate mechanism emphasizes "full coverage" of renewable energy, that is, the scope of issuance includes all renewable energy power generation projects that have been established and registered, achieving full coverage of the issuance of green certificates for renewable energy electricity. At present, there is no effective plan for domestic and foreign green power and green certificate systems to fully demonstrate their additionality. Therefore, when enterprises use green electricity and green certificates, they can only reduce indirect electricity emissions in Scope 2 during emission accounting, and cannot "offset" Scope 1 or Scope 2 emissions like using voluntary emission reductions with additional nature. The difficulty in demonstrating "additionality" has also led to the question of "green-bleaching" for some companies that use the green power certificate mechanism to reduce emissions.

From the perspective of international practice, the current mainstream international voluntary carbon emission reduction mechanisms can be divided into two categories. The first is a carbon credit mechanism established based on international treaties and managed and supervised by corresponding United Nations agencies. A typical representative is the Clean Development Mechanism (CDM), which was established under the Kyoto Protocol and allows developed countries to purchase carbon credits from developing countries. By 2024, more than 6000 renewable energy power generation projects will be registered under the CDM mechanism, accounting for more than 70% of the total number of projects under the CDM mechanism. The second is an independent third-party carbon credit mechanism, a carbon credit mechanism established and managed by non-governmental organizations (private institutions or public welfare organizations). Typical representatives are the Gold Standard (GS) and the Certified Voluntary Carbon Standard (VCS). By 2024, about 900 renewable energy projects will be registered under GS, accounting for 27% of the total number of projects; about 1000 renewable energy projects will be registered under VCS, accounting for 24% of the total number of projects. It can be seen that international voluntary emission reduction mechanisms all recognize renewable energy projects and regard them as an important source of emission reduction. As a traceability tool for electricity, the green power and green certificate mechanism can realize the quantification, confirmation, transaction and use of the environmental value of electricity. It is a certificate to identify the production and consumption of renewable energy electricity. If recognized by relevant international initiatives, the Green Power Green Certificate can be used to meet the requirements for increasing the proportion of renewable energy, such as the renewable energy quota system and the enterprise-independent renewable energy proportion target under the RE100 initiative; it can also be used to complete indirect power emission reduction requirements, such as the enterprise-independent emission reduction targets proposed by the Science-Based Carbon Targets initiative (SBTi), the EU Battery and Waste Battery Regulation, etc.

Policy synergy between voluntary emission reduction market and green power and green certificate mechanism

Based on the above differences, the voluntary emission reduction market and the green electricity and green certification mechanism have their own focuses in supporting renewable energy development methods and application scenarios, which can form a policy synergy to provide market entities with rich choices.

In terms of supporting renewable energy investment, the voluntary emission reduction market provides targeted and strong support for projects with clear emission reduction mechanisms and strong additionality; the green power and green certificate mechanism provides incentives for a wider range of renewable energy projects. The two can synergistically promote the development of renewable energy.

In terms of responding to various emission reduction needs, renewable energy emission reductions under the voluntary emission reduction market mechanism can be offset by carbon markets and international voluntary emission reduction mechanisms (such as the International Aviation Industry Carbon Offset and Reduction Mechanism CORSIA). The scope of offset is not limited to indirect electricity emissions in Scope 2. Green electricity and green certificates can support enterprises to reduce indirect emission levels under carbon barrier-related accounting rules at lower costs on the premise of being recognized by relevant international mechanisms. However, according to the draft rules for calculating the carbon footprint of electric vehicle batteries issued by the European Commission on April 30, 2024, green certificates cannot be used in the accounting of carbon emissions related to battery carbon footprints. Only by combining the voluntary emission reduction market and green electricity and green certificates can it be expected to meet the various needs of market entities and support enterprises in coping with the complex international trade competitive environment.

In terms of improving my country's voice in addressing climate change, voluntary emission reductions from renewable energy have effectively supported the development of my country's renewable energy in history and will also be an important part of the international mainstream voluntary emission reduction mechanism in the future. High-quality voluntary emission reduction methodology is an important starting point for my country to participate in and lead international voluntary carbon trading. It can provide high-quality local voluntary emission reductions to demanders of voluntary emission reductions and provide more additional renewable energy projects. Support channels. In the future, Article 6 of the Paris Agreement can be used to transfer carbon emission reductions from the Belt and Road countries to our country to better support our country in achieving the nationally determined contribution (NDC) goal.

Effective connection between the voluntary emission reduction market and the green power and green certification mechanism

Effective connection is a necessary prerequisite for the voluntary emission reduction market and the green electricity and green certification mechanism to form a policy synergy. Although there is some controversy in different contexts whether the environmental value of voluntary emission reductions and green power certificates involves double counting, in order to seek the greatest common denominator of various domestic and foreign stakeholders and reflect my country's determination to deal with climate change, we can adopt a "parallel and coordinated advancement" approach to connect green certificates and voluntary emission reduction markets to avoid double counting.

Considering that the voluntary emission reduction market and the green certificate system have different starting points, the two markets can operate under their respective frameworks and connect by strengthening information sharing to solve the issue of international recognition of green certificates. It is recommended to establish an information sharing mechanism between the voluntary emission reduction trading market and the competent department of the green certificate system. After relevant projects complete project registration through the voluntary emission reduction trading market, relevant information can be pushed to the green certificate authority. The green certificate authority can freeze or cancel the green certificates related to the project according to the circumstances. Projects that have already traded green certificates can be required to buy back and cancel the same amount of green certificates and disclose them to the public. Due to strict additionality requirements, qualified voluntary emission reduction projects are the projects that most need policy support in this field. Once relevant technologies are commercialized and popularized, the methodology will be revised and revised, or withdrawn from the voluntary emission reduction mechanism. Exit. Voluntary emission reduction methodologies will also gradually expand the areas of support to include more methodologies that are energy-related, have high social expectations, have little technical controversy, reliable data quality, and have both social and ecological benefits, providing additional support for energy transformation. The data base accumulated by the Green Electricity and Green Certification Mechanism on renewable energy will also provide strong support for improving the quality of voluntary emission reduction market data and updating methodologies. The positive interaction of policy mechanisms will support the "China Plan" to gain more international recognition and lead the international discourse system on climate change.

Author's unit: Institute of Energy, Environment and Economics, Tsinghua University