The value of carbon in China - Carbon finance and China’s sustainable energy transition

Jul 2008

Renewable energy has achieved in China spectacular growth in recent years, making significant progress toward achieving policy targets for 2010, which were published last year. However, given the dramatic increases of total domestic energy consumption, which increased four times faster than predicted in 2006, as well as government policies focused on controlling inflation by subsidising the price of electricity, it is clear the contribution of renewable energy as a meaningful player in the Chinese energy portfolio faces significant challenges. As long as production costs for renewable solutions remain higher than coal, it will be difficult to make an impact on an energy mix which currently relies on meeting 70% of its demand through the use of coal.
For CDM, a booming market has seen a rising number of projects, confirming China’s role as the key player in the global carbon market. However, viewed in the context of overall energy related investments, the size of the market in terms of CER revenue is relatively minute (approx. 5%) compared with investment in new power plants, energy infrastructure and fuel imports.
The biomass sector in China has mainly been developed through combined heat and power (CHP) from sugar industry waste (bagasse) or rice husks. Technologies on combustion of agricultural waste are available locally but with a lower efficiency than international standards. Agricultural and forestry waste are potentially abundant, but supply consistency is a major factor and subject to external considerations including weather, transportation, and global food prices. This limited economic feasibility of projects is compounded further by most domestic commercial banks inability to provide loans for CHP, which is misunderstood as a small thermal power plant. Most CDM methodologies have been developed for the Latin American context and are thus less suitable for China.

By: WWF Hong Kong / Beijing

 
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