China Offers Chance to Cash in on Green Energy

According to the World Bank report, the carbon market grew to an estimated $30 billion in 2006, three times greater than a year earlier. Project-based activities primarily through the CDM and Joint Implementation grew sharply, to more than $5.3 billion from about $2.7 billion in 2005.

According to the report, Asia continued to dominate the CDM market with about 80% of volumes transacted, led by China, which contracted to supply 61% of the CERs purchased by industrialized nations since 2002. According to the U.N.'s Web site, there are 2,883 CDM projects in the pipeline globally, with 2,137 in the Asia-Pacific region. China accounts for 961. China's NDRC had approved 1,028 CDM projects through December 28, double the number as of mid-July.

The NDRC, at every provincial level, is facilitating CDM projects. Zhang Hanwen, chairman of the Hunan CDM Project Service Center and Hunan Xiangke Clean Development Co., has been developing CDM projects for more than two years. His company is backed by the science and technology office and the Development and Reform Committee of Hunan Province. "In the carbon market, China has a lot of opportunities because the country has relatively lower energy efficiency," Zhang said. "In Hunan Province alone, the potential CDM projects to be developed up to 2012 are estimated at around a 4 billion RMB (US$ 556 million) trading value. We have now achieved total emission reduction at around 40 million TCO2e, which is worth 300 million to 400million RMB ($42 million to $56 million). So there is a lot of potential here."

China's Market Power

Through measures that took effect in October 2005, the Chinese government will take a percentage of the CER transfer benefit from CDM projects. The percentages are 2%, 30% and 65%, based on different emissions types.

According to the World Bank report, carbon-market prices remained strong throughout 2006. Project-based emission reductions attracted an average price of $10.90 per TC02e for CERs, a 52% increase over 2005 levels.

China sets a relatively stable price floor for the global supply of CERs, the report's authors noted. "A major factor in this stability was the market power of China, which maintained an informal pricing policy by raising the minimum price floor in the $10.40 to $11.70 range. This policy was clearly acceptable to private European buyers who continued to show strong demand at that price range in 2006, although some Japanese buyers shied away at the top end of the range."

Bjorn Odenbro, general manager of the Beijing office of Tricorona Carbon Asset Management, said it was difficult to predict how the market would develop over the next few years, even though China's CDM market has grown rapidly as CER prices have risen. Tricorona, with headquarters in Stockholm, Sweden, is one of the world's largest carbon trading companies.

Odenbro sees two main causes for the rising prices. One is an increasing awareness among Chinese project owners of the high prices at which CERs can be sold in Europe. The trend starts with the big electricity companies and trickles out into the provinces. The other is Chinese government intervention in the market, particularly through a minimum price mechanism. "They are working very actively to see to it that these emission reductions sell at the value which they perceive as being fair," Odenbro said. Rumor has it that the minimum price may be raised further, he said. If prices do rise "considerably above" current levels, that will make it attractive for carbon buyers to start looking at other countries. "But China will continue to be the dominant market," he predicted, probably continuing to account for more than half the world's CER supply.