Green Economy - Voluntary Carbon Markets

The release of a report on "Internationalising China's Voluntary Carbon Markets" (interestingly funded by the Washington Think-tank Environmental Defense Fund) provides key recommendations for the establishment of international links to China's nascent Voluntary Carbon Market.

The key to establishing such a trading mechanism is to establish pricing mechanisms that reflect abatement costs in each region.

Australia and RCEP?

Australia may not have bought into the BRI, however this would be just the sort of initiative that would provide us with a platform to lead in the Regional Comprehensive Economic Partnership (RCEP).

An area Australia should be leaning in to engage with on Tech, Standards, Financial products, Governance and Innovation.

Step by Step 一步步

The first step is the promotion of the development of an innovative financial model.

There are two key areas of focus to deliver this - 1. supporting the development of Belt and Road carbon emission reduction financing tools and Carbon Emission Reduction support tools. And 2. - encouraging greater integration between climate investment and financing products with Belt and Road carbon reduction efforts.

The second key task is the exploration of a facilitated support system for cross-border factor flows.

International voluntary emission reduction trading will involve the cross-border circulation of funds and voluntary emission reductions, necessitating a structured system for the trading of emission reductions to ensure the effective operation of voluntary emission reduction trades.

The program will need to leverage the advantages and experiences of China's domestic carbon market in the development of any cross-border carbon trading.

ie: International participants will need to get their head around (and help shape) China's domestic voluntary carbon market (CCER's).

Of course any cross-border payment and settlement system will be built around the use of RMB for payment and settlement.

A trade settlement system that uses RMB for pricing and settlement will link more seamlessly with the relevant Chinese Government authorities who will be issuing guidance on cross-border capital flows in the field of carbon trading.

So let's get very clear - an international voluntary trading system linking to China's industrial emissions reductions will bump up against a centrally-managed financial and carbon trading system. (ie: Anglosphere carbon market operators had better comfortable working with Chinese government entities to accelerate China's decarbonisation and release funds into international projects).

Internationally Transferred Mitigation Outcomes (ITMO's) will require to be presented thoroughly with government authorities regarding international transfer of carbon credits, and follow rules for the transfer of ITMOs under the Paris Agreement.

China wants to promote the establishment of management and operational mechanisms for the transfer of ITMOs and open channels for the cross-border circulation of the voluntary emission reductions originated from their "Belt and Road" projects to plug into domestic capital markets.

Supply and Demand

The second key area of focus for internationalising of China's Voluntary Carbon Markets is improvement of the supply and semand of voluntary emission reductions.

A reasonable balance between supply and demand should anchor the marginal emission reduction cost within a certain range.

China aims to expand the supply of emission reductions in a steady manner. by analysing the characteristics of emission reductions in projects along the Belt and Road.

For a non-signatory like Australia, this might mean getting creative about the opportunities within the Regional Comprehensive Economic Partnership to get involved.

Green Economy Agreement

Or hey, here's a crazy idea, maybe set this out as a key objective in our Australia-China Green Economy Agreement.

By leveraging the function of climate investment and green finance China aims to facilitate the implementation of low-carbon projects and collaboratively advance the development of emission reduction projects to ensures a stable supply of emission reductions.

Looking to the future, China aims to establish a dynamic adjustment mechanism for emission reduction development creating benchmarks that match climate ambitions and stages of social development.

This is a huge area of opportunity for innovation in FintTech, ClimateTech, SpaceTech and AgTech.

China wants to fully assess the quality of emission reductions, including the additionality, the permanency and the social-benefits to ensure that supply and demand are matched in both quality and quantity.

Establishment of mechanisms for risk prevention and control.

The potential risks of voluntary emission reduction cooperation internationally will raise themselves across the entire process, across regions and stages, requiring the development of a clear and collaborative mechanism for risk prevention.

China wants to work with International partners to develop a process-oriented and modular approach to analyse the sources of risks, carbon emission reduction cooperation, establish checklists and identify responsible departments domestically.

They want to establish with international partners a cross-border joint management body, a joint risk response group, and form standardised procedures for handling risks.

The joint management body would help to communicate with domestic management authorities and establish regular communication channels and working mechanisms to provide timely feedback on risk occurrence and management.

Plenty to do. Plenty of carbon to mitigate and reduce.

Let's go...