With the passage of the Climate Change Response Act, China has derived many corresponding laws and regulations related to carbon management, including levying carbon fees on regulated emission sources, encouraging unregulated enterprises to implement voluntary reduction projects to obtain carbon reduction credits, and establishing a national carbon trading. The platform provides an open platform for enterprises to trade carbon credits and obtain domestic and foreign carbon rights. Policies mostly target large-scale domestic enterprises (emission sources). As small and medium-sized enterprises, although they currently face less regulatory risks, as one of the supply chains, they will also face customer requirements for carbon reduction. At the same time, if carbon management is not carried out in a timely manner and economic development is decoupled from environmental impact, the economic growth of small and medium-sized enterprises will inevitably bring corresponding carbon emissions. At the same time, with the tightening of regulations in the future, the risks faced by small and medium-sized enterprises will be no less than that of large enterprises. . Therefore, small and medium-sized enterprises must simultaneously understand the relevant laws and regulations in my country, analyze the impact on themselves in real time, and make countermeasures to prepare for the future. This article will explain my country's carbon fees, voluntary reduction projects, and carbon trading platforms, and briefly outline how companies can easily assess the related risks and opportunities they face.
1. Carbon fee collection
In order to control carbon emissions, various countries have established "carbon pricing" systems, which aim to price carbon, include greenhouse gases generated by production activities into costs, and include environmental costs in calculations, thereby controlling carbon emissions caused by production activities. The carbon pricing system is further divided into “cap control” and “carbon fee/tax”.
Total emission control mainly involves the government setting a total emission limit for the country and allocating emission quotas for managed emission sources. Their emissions must be limited within the allocated emission quotas. If they exceed the allocated emission quota, they must be purchased through the carbon trading platform. Comply with regulatory requirements, otherwise you will be punished. The advantage is that the country can effectively limit emissions, and in the future, it can further control prices and quantities through auctions that limit total emissions and emission credits. As the first region to implement a cap and carbon trading system, the EU statistics in August 2023 showed that its greenhouse gas emissions in the first quarter of 2023 decreased by 3% compared with the same quarter, but the economy grew by 1.2%, proving that the carbon The potential for pricing strategies to decouple economic growth from environmental impacts.
The main principle of a carbon fee/tax is to impose a tax on emissions from regulated emission sources. As another carbon pricing strategy, the collection of carbon fees/taxes has the advantages of a simple system, low construction costs, and rapid implementation. According to the national tax system and revenue application, a dedicated carbon fee or a carbon fee included in national taxation can be selected. It is suitable for all taxes and has also been adopted by many countries such as Canada, Singapore and Ireland. In the future, emissions can also be controlled through increases in taxes and fees.
As the Climate Change Response Act comes into effect, my country is expected to impose carbon fees on nearly 300 regulated emission sources with annual carbon emissions exceeding 25,000 metric tons starting from 2024. Regarding the setting of rates, it is necessary to consider the carbon tariff credits that companies need to pay when exporting goods to the EU, as well as a reasonable carbon price that can effectively mitigate greenhouse gas emissions without harming economic development. It is currently estimated that the rate will fall below 100 -300 yuan/ton, and will be adjusted year by year. Another sub-law also plans preferential rates for managed emission sources that are actively engaged in carbon reduction efforts.
2. Greenhouse Gas Voluntary Reduction Project
In 2015, the Environmental Protection Agency promulgated the Management Measures for Greenhouse Gas Offset Projects, aiming to open up enterprises to implement greenhouse gas reduction projects in accordance with international reduction methodologies, and apply for reduction credits (carbon rights) from the competent authorities accordingly as an independent measure. Declare carbon neutrality or offset the use of incremental emissions, and at the same time open companies to trade and resell with each other through private contracts.
Its main execution process is as follows:
- Reduction project writing: Select an applicable reduction methodology for project writing, which must comply with the principle of additivity and provide estimated reduction results.
- Confirmation application: Submit the project to a third-party verification unit for project verification and obtain a statement.
- Registration application: Submit a project registration application to the competent authority.
- Project execution: Start the project, collect relevant parameters according to the monitoring plan, perform reduction calculations, and produce a monitoring report.
- Verification application: Submit the monitoring report to a third-party verification unit for verification and obtain a statement.
- Quota application: Submit a verification statement to the competent authority and apply for a reduction quota. After passing the review, the quota will be distributed to the registered corporate account.
In response to the implementation of smaller-scale offset projects in the country, the bill was amended in 2018 to add micro-scale offset projects, open smaller-scale reduction methodologies and applications, and allow small-scale projects to only comply with the principle of regulatory additivity. .
In 2023, with the amendment of the Climate Change Response Law, the Management Measures for Greenhouse Gas Offset Projects will be revised and renamed "Management Measures for Voluntary Greenhouse Gas Reduction Projects". The reduction methodology that is in line with national conditions will be re-examined and the application process will be simplified. A draft amendment was promulgated at the end of June, and applications are expected to be reopened in the second half of the year.
3. Taiwan Carbon Trading Platform
In order to assist Taiwanese companies in purchasing carbon rights in the face of future carbon fee collection and to make the price of carbon rights for voluntary reduction projects transparent, the Ministry of Environment established the Taiwan Carbon Trading Platform in August 2023, intending to provide a domestic and foreign carbon rights trading platform. , currently in the process of functional construction, the first service provided is carbon consulting. Business operators can learn about carbon rights trading and other related information through the official website of the carbon trading platform.
It is expected that the carbon trading platform will provide two types of carbon rights in the future, one is domestic carbon rights obtained by enterprises implementing my country's voluntary reduction project, and the other is voluntary carbon rights purchased from international carbon rights issuance organizations. It is planned that the two will be used to offset the carbon fee that will be levied in 2025, and the offset ratio is still under discussion.
Regarding the procurement of international voluntary carbon rights, the carbon trading platform is currently negotiating cooperation with Gold Standard, an international carbon rights issuance organization, and is expected to purchase carbon rights issued by the organization for corporate procurement; however, issues such as the type, standard, and price of purchased carbon rights are unclear. Still under discussion.
4. Comprehensive and Suggestions
Looking at the carbon management policy tools planned by the Climate Change Response Act, there is less urgency for small and medium-sized enterprises whose annual greenhouse gas emissions do not reach 25,000 tons. However, in the face of international sustainability trends, small and medium-sized enterprises still must prepare for the future as soon as possible. To prepare for potential risks and opportunities, small and medium-sized enterprises can conduct a simple enterprise risk and opportunity assessment based on internal corporate needs, external supply chain needs, external regulatory requirements and other risk factors, as shown below:
Through a simple assessment, companies can roughly understand the risks and opportunities that internal and external risk factors bring to themselves. Domestic and foreign regulations and supply chain requirements will affect the company's climate risks. However, if the company has completed its internal greenhouse gas inventory, it will even begin to reduce the risk. With a lot of work, this risk can be significantly reduced and even increase new business opportunities under the green trend. As my country's climate change response law comes into effect, small and medium-sized enterprises can also find new needs and opportunities.
1. Complete greenhouse gas inventory data:
-Can assist downstream customers who have plans for sustainable development or are required by regulations to calculate carbon emissions. If completed in advance, it can also attract more demands from the same type of customers.
-Know your own emissions as early as possible so you can respond quickly to regulations that are tightening year by year.
-Understanding the carbon footprint of products or services will help reduce carbon tariff risks in future export planning.
-Provide industries with more accurate emission coefficients and promote the integrated development of industrial carbon emission data.
2. Greenhouse gas reduction actions:
-Obtain reduction credits (carbon rights) through voluntary reduction projects. With the launch of my country's carbon trading platform, the demand for credits from managed enterprises will increase in the future, and small and medium-sized enterprises that are currently not subject to regulation can benefit from this.
-The application and implementation procedures for voluntary reduction projects will be revised and simplified in the future to encourage more business units to participate.
-The implementation of the reduction project will bring long-term reduction results, sustainably reduce the company's greenhouse gas emissions, and help reduce future regulations and supply chain risks.
-Lead the company to establish a carbon management mechanism and become an industry green benchmark, that is, establish a brand image early in the green consumption trend.
Most of the climate risks faced by small and medium-sized enterprises at this stage are not as significant as those of large enterprises. At the same time, they have the advantage of responding early to bring green business opportunities. However, as the requirements of downstream customers in the supply chain gradually increase, and the scope of regulatory compliance expands year by year, such green The profits will become less and less. If we can act as early as possible, in addition to mitigating existing supply chain risks, we can also improve corporate identification and attract the favor of brand owners.
Author: Lin Biyu, Team Leader, Policy Research and Analysis Group, Quality, Environmental and Safety Department, Plastic Industry Technology Development Center
