Challenges to Implementing CDM in China
July 28 (Friday) 2006
Reiji Takeishi
Senior Fellow
SUMMARY
- In October 2005 the “Measures for Operation and Management of Clean Development Mechanism Projects in China” (hereafter “Measures for CDM Operation and Management”) came into effect with the goal of promoting the implementation of CDM (Clean Development Mechanism) projects in the China. The details of implementing CDM were decided at the COP11 held in Montreal in 2005. The first stage of the agreement starts in 2008, and so it is becoming necessary for China to begin fully engaging the issue of implementing CDM. Until now, however, China, along with many other countries, has been very slow in regards to CDM. The new “Measures for CDM Operation and Management” recognizes CDM for both HFC (Hydrofluorocarbon) and PFC (Perfluorocarbon) kinds of CFCs (chlorofluorocarbons), concludes the approval of CDM methodologies, and raises the likelihood of implementing CDM initiatives that can efficiently reduce greenhouse gases. The information gap between central and regional areas in China is huge, and thus the Japanese government must play an extremely important role in promoting CDM. The implementation of CDM projects in China requires conducting meaningful dialogues on a variety of levels.
Institutional Reform toward the Implementation of CDM in China
On October 12, 2005, the Chinese government implemented the “Measures for Operation and Management of Clean Development Mechanism (CDM) Projects in China” (hereafter “Measures for CDM operation and Management”) in order to promote CDM toward the reduction of GHG (Greenhouse Gas) emissions as stipulated in the Kyoto Protocol. In accordance with the new measures, the previous “Interim Measures for Operation and Management of Clean Development Mechanism Projects in China” was abolished.
The new “Measures for CDM Operation and Management” define the ratio for distributing profits on the sales of emissions credits earned through CDM between the state and companies. The distribution is as follows:
- HFC (Hydrofluorocarbon) and PFC (Perfluorocarbon) projects: The state will earn 65% of transfer profits resulting from emissions reductions.
- N2O (Nitrous Oxide) projects: The state will earn 30% of transfer profits resulting from emissions reductions.
- CDM projects stipulated in Article 4 of the “Measures for CDM Operation and Management”, including priority regions, plantations, etc.: The state will earn 20% of transfer profits resulting from emissions reductions.
The profits from implementing CDM projects that are distributed to the government in this way are to be used for supporting activities related to climate change. The “Measures for CDM Operation and Management” also clearly states the government's policy that the actual collection and use of these profits is to be established separately by relevant divisions within the Ministry of Finance, the NDRC (National Development and Reform Commission), and other organizations.
The head of the NDRC describes the planned method of using the moneys received as “for capacity building in order to create funds and pursue the reduction of GHG emissions.” The fact that this sort of policy has been agreed upon implies the potential for increased momentum in implementing CDM in China
The Potential for Japanese Companies to Implement CDM in China
The details of CDM were finalized at the COP11 (Conference of the Parties to the UN Framework on Climate Change) held in Montreal at the end of 2005. In addition to the participants in the conference, on a global level as well companies and regions in the U.S. and Australia-two countries that didn't ratify the Kyoto Protocol-have also begun working in earnest toward developing CDM initiatives.
Efforts toward CDM in China have been ongoing since the Marrakesh Accords came into effect in 2001, and analyses of implementing CDM in China have been conducted from early on by various countries. The approval of CDM that deal with HFC and PFC chlorofluorocarbons denotes an important step forward and signals the emergence of China's potential to gain vast CER (Certified Emissions Reductions).
It must be noted, however, that out of the 63 projects around the world that were approved by the CDM executive board at the end of 2005, only three were in China. The potentiality for implementing CDM in China is enormous, and so the sole constraint to its actualization can only be its lack of support as a host country. India, a fellow Asian nation and China's neighbor, already has 17 of the 63 approved projects, demonstrating the glaring gap in CDM efforts in China.
The three projects in China that were approved by the CDM executive board include: a wind-power generation initiative by the Netherlands (in Huitenqxile), a U.K. initiative for gas recovery and gas power using landfill sites (in Nanjing Tianjingwa), and a small-scale hydroelectric project (in Yuzaikou) also developed by the U.K.
Japan earned approval for 11 out of the 63 CDM initiatives approved by the executive board. The countries where these 11 are to be implemented include India, South Korea, Bhutan, Chile, Armenia, Brazil, and Argentina. Japan has yet to make any progress on CDM in China.
There are, however, two proposals by the Japanese government for CDM initiatives in China that have not yet been approved. Both proposals deal with a project for breaking down HFC23, and the Chinese government is already in the process of authorizing the projects as a host country. One of the two projects is sponsored by JMD GHG Reduction Co., and the remaining project is co-sponsored by Mitsubishi Corporation and Nippon Steel Corporation.
There are other Japanese organizations involved in CDM in China as well. Japan Carbon Finance (JFC) is gathering funds for CDM Joint Implementation (CDM/JI) through CMM (Coal Mine Methane) recovery initiatives. JCF has already signed an ERPA (Emission Reduction Purchase Agreement) with Shanxi Jincheng Anthracite Mining Group, and it is estimated that approximately 2 million tons of CMM will be recovered through CO2 conversion. Given the high levels of CMM emissions and the large number of emissions locations, this initiative is gaining extremely widespread attention.
It must be noted, however, that the Chinese government currently views CDM projects as being projects that are fundamentally between governments, not between companies. One example of China's position on this issue is stipulated in Article 15-2 of the “Measures for CDM Operation and Management”, which states that the level of emissions reductions will be reported in the Chinese government's account in cases where the out-of-state buyer has not been decided by the time of the final approval of the CDM project. On both the Japanese side and the Chinese side, the promotion of CDM implementation cannot be achieved without government support.
