China Offers Chance to Cash in on Green Energy

Zhang, of the Hunan CDM Project Service Center, says the biggest challenge now comes from the U.N.-issued methodology. "Some methodologies are hard to implement in reality," he said. "In China, some policies and rules are in conflict with [CDM Executive Board] rules."

Another headache for Zhang is the number of unqualified brokers. Many don't have the capability to develop projects but ask for generous commissions because of their project connections. "Worldwide, the carbon market attracts a lot of speculation," Zhang said. "These brokers have increased our development cost, cut the price for the whole business, and their incomplete and unstable service has destroyed the reputation of the whole industry. Now the factory owners are bewildered on whom they should trust, because there are too many agencies. Sometimes there is just one single person promising them they could do the project for them. The market needs to be regulated further," he said.

Though Odenbro says Tricorona has smooth processes in place, some glitches are inevitable. "With a portfolio our size, not everything can run smoothly," he acknowledged. He pointed out that Tricorona's largest competitor, Britain's Ecosecurities, the largest global purchaser of CERs, wrote down the value of its portfolio in November, citing bottlenecks in the U.N. registration system. "There are a lot of bottlenecks in the process," he said. "I think the U.N. has been overburdened by the sheer growth." Additionally, a shortage of Designated Operational Entities, the UN-accredited CDM project validators, means a long backlog of projects awaiting validation. The European Union, among others, is working to boost the number of accredited DOEs.

"The major challenge right now, to be honest, is education," Odenbro said. When he first arrived in China 15 months ago, awareness was negligible. "A lot of our time goes into some sort of informal capacity-building for CDM where we actually travel around and teach potential project owners about CDM and help them to recognize the potential." Now, thanks to the efforts of carbon buyers, the United Nations, the European Union and the NDRC, awareness of CDM in China is increasing "very rapidly."

The next challenge, Odenbro said, will be to find individual projects in Western China that might require education. "We are really looking with interest at Xinjiang, some projects in Gansu and Qinghai." However, he is realistic about the West's suitability for CDM. "CDM is, I think, in one way coupled with industrial growth," he said. Western China, with its less developed power grids and industry, is a much smaller potential market.

Zhang said that improving energy efficiency in industrial projects had the biggest potential. "China, overall, has a 30% lower energy efficiency compared with industrial countries, which provides a huge potential in this respect, although methodology still plays an uncertain role in these projects." As for his own company's competitiveness, Zhang is fully confident: "We are very stable and we are very much local. If you are to fully understand and communicate with these CDM project owners, you have to have a lot of local knowledge."

Odenbro noted the potential in China's renewable energy scene. Wind and hydropower are big, he said, and are the focus for Tricorona's business. Looking to the future, however, he pointed out that there can be only a limited number of wind farms and hydropower plants. "Solar is getting increasingly interesting," he noted, thanks to the advent of more efficient sun panels and larger projects. But currently solar projects are small. Biofuels operations are similarly limited in scale, and do not form a significant component of China's CDM market. Much will depend, Odenbro said, on how the technologies develop. "New methodologies for new renewable and more efficient energies--say, solar power--create new markets for us to get our reductions from."