CLEAN DEVELOPMENT MECHANISM IN CHINA - INFRAS Edition CDM... · CLEAN DEVELOPMENT MECHANISM IN CHINA F IVE Y EARS OF E XPERIENCE (2004–09) Conference Edition The World Bank The

CLEAN DEVELOPMENTMECHANISM IN CHINA

FIVE YEARS OF EXPERIENCE (2004–09)

Conference Edition

THE WORLD BANKTHE GOVERNMENT OF THE

PEOPLE’S REPUBLIC OF CHINA

CDM Project Management Center

Energy Research Institute, National Development and Reform Commission

Phone: +86-10-63908146 Fax:+86-10-63908146

Block B-1518, Jia No. 11, Muxudibeili, Xicheng Dist., Beijing 100038, China

http://cdm.ccchina.gov.cn/web/index.asp

Carbon Finance-Assist Program

Climate Change Practice - World Bank Institute

Phone: +1 202 458 8338 Fax: +1 202 676 0978

1818 H Street, N.W. Washington, DC 20433, USA

http://www.cfassist.org/

Social, Environment, Rural Development Sector Unit

Sustainable Development Department, East Asia and Pacific Region,

Phone: + 1-202-4737556 Fax: +1 202 477-2733

1818 H Street, N.W. Washington, DC20433, USA

http://www.worldbank.org/eapenvironment/

Sustainable Development Department, China & Mongolia

The World Bank Office, Beijing

Phone: +86-10-5861-7672 Fax: +86-10-5861-7800

16th Floor, China World Tower 2

No. 1 Jianguomenwai Avenue, Beijing 100004, China

http://www.worldbank.org/China/

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Conference Edition

The World Bank The National Clean Development Mechanism CenterThe Energy Research Institute of the China National Development and Reform Commission

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The International Bank for Reconstruction and DevelopmentThe WORLD BANK1818 H. St., N.W.Washington, D.C. 20433

May 2010

All rights reserved

Cover design by Jostein Nygard, Circle Graphics and Shepherd Inc.

Photos by World Bank Photo Library and Anne Arquit Niederberger

This publication is a joint product of staff from the China National Clean Development Mechanism (CDM) Center within the Energy Research Institute of the China National Development and Reform Commission, the World Bank, and others (see acknowledgements).

The publication is available online at www.worldbank.eapenvironment and www.worldbank.org.cn

While consultations have been considerable, the findings, interpretations, and conclusionsexpressed in this paper do not necessary reflect the views of the Executive Directors of The WorldBank or the governments they represent. The World Bank does not guarantee the accuracy of thedata included in this work. The boundaries, colors, denominations, and other information shownon any map in this work do not imply any judgment on the part of The World Bank concerningthe legal status of any territory or the endorsement or acceptance of such boundaries.

Rights and Permissions

The material in this publication is copyrighted. Copying and/or transmitting portions or all of thiswork without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the workpromptly.

For permission to photocopy or reprint any part of this work, please send a request with completeinformation to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923,USA, telephone 978-750-8400, fax 978-750-4470, www.copyright.com. All other queries onrights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher,The World Bank, 1818 Street NW, Washington, DC 20433, USA, fax 202-522-2422, email [email protected]

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iiiC D M I N C H I N A

ACRONYMS vii

FOREWORD ix

ACKNOWLEDGMENTS xi

EXECUTIVE SUMMARY xiii

INTRODUCTION xix

CHAPTER 1 OVERVIEW OF THE GLOBAL AND CHINESE CDM MARKET 1

CDM Background 1Global Carbon Market Overview 2Overview of the Chinese CDM Market 6

CHAPTER 2 IMPLEMENTATION FRAMEWORK OF CDM PROJECT MANAGEMENT AND MANAGEMENT INSTITUTIONS IN CHINA 13

CDM-Related National Circumstances 13Energy and GHG Emissions 13Relevant Measures and Policies for CDM Projects in China 16Key CDM Administrative Institutions 18Domestic Approval Procedure for CDM Projects in China 19

CHAPTER 3 ANALYSIS OF THE CDM MARKET IN CHINA 23

CDM Projects in China 23Evolution of CDM Implementation in China and Underlying Factors 27CDM at the Provincial Level 30Chinese Domestic CDM Market Players 33Foreign Private Sector Actors 37Foreign CER Buyers 39The World Bank’s Role in China’s CDM Market 39Successful CDM Projects 40

CHAPTER 4 IMPACTS OF CDM IMPLEMENTATION 45

CDM Contribution toward National Targets 45Contribution of CDM Implementation to China’s NCCP 46

Contents

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Reducing Kyoto Compliance Cost for Developed Countries 48Promoting Sustainable Development of China 49Technology Transfer 50Energy Conservation 52Climate Investment 54CDM Capacity Building 54China Clean Development Mechanism Fund 58

CHAPTER 5 CHALLENGES AND OPPORTUNITIES 61

Achievements 61Challenges and Opportunities 63Conclusions 68

REFERENCES 71

CASE STUDIES—SELECTED PROVINCES AND SPECIFIC WORLD BANK PROJECTS 75

ANNEX 1: MEASURES FOR OPERATION AND MANAGEMENT OF CDM PROJECTS IN CHINA 89

ANNEX 2: CDM-RELATED POLICY FRAMEWORK IN CHINA 93

ANNEX 3: THE CDM PROJECT CYCLE AND APPROVAL PROCEDURE 97

ANNEX 4: MAJOR CDM CAPACITY-BUILDING PROJECTS 101

ANNEX 5: SURVEY QUESTIONNAIRE FOR CDM FOREIGN PRIVATE ACTORS 111

ANNEX 6: IMPLEMENTATION OF CDM PROJECTS IN THE HKSAR 113

FIGURES

1.1 Relevant Periods Shaping Markets According to the Marrakech Accords (Kyoto Protocol) and the Copenhagen Accord (post-2012) 2

1.2 Transaction Volume in the Different Carbon Market Segments (million tCO2e) 3

1.3 Share of Different Project Types in Primary CER Transactions (MtCO2e CER volume) 4

1.4 Average Price in Different Carbon Market Segments (€) 41.5 Price Trend for EU Allowances & CERs from August 11, 2008

to April 16, 2010 (€) 51.6 Number and Total Cumulative CER Supply Potential Projected for 2012

for Different Types of CDM Projects in the Global Pipeline (URC 2010a, March 1, 2010) 6

1.7 China’s and Other Countries’ Share of Registered Projects According to Numbers (left) and Expected Annual CERs (right) 7

1.8 Cumulative CERs by 2012 for the 751 Registered Chinese CDM Projects, and the Number of Registered Projects by Type, as of March 1, 2010 8

1.9 Projects Approved in China through March 1, 2010 81.10 Expected Annual CER Volume of Projects Approved in China

to March 1, 2010 91.11 Accumulated CERs in the China CDM portfolio issued by March 1, 2010

compared to CERs to be issued between March 1, 2010 and the end of year 2012 11

C O N T E N T S

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1.12 Provincial Distribution of Number of Registered CDM Projects 111.13 Provincial Distribution of Currently Registered CDM Projects

and Cumulative CERs Expected by 2012 12

2.1 China’s Energy Intensity per Year (1990–2009) 142.2 Chinese CO2 Emissions by Fuel (left) and by Sector (right) 152.3 Key Indicators of China’s Emission Development 162.4 CDM Management Structure 192.5 CDM Project Approval Procedures in China 21

3.1 CDM Projects Registered in China According to Different Sectors 243.2 Status of DNA-Approved Chinese CDM Projects on March 1, 2010 283.3 Duration in Days from Start of Public Comment Period under Validation

until Registration for the Global Pipeline and Chinese Pipeline 293.4 Average Duration in Days between Registration and First Issuance 303.5 Number of Global and Chinese Registered Projects (%) with

Different Issuance Success 313.6 Provincial Distribution of Registered CDM Projects

as of March 1, 2010, and Annual CERs Expected 313.7 Number of Projects Registered (left) and Those Approved by DNA

as of March 1, 2010 323.8 Annual CERs from Registered Projects by Province and

Adherence to Chinese CDM Priorities for Registered Projects (left) and DNA-Approved Projects 32

3.9 Type of Domestic Enterprises Hosting DNA-Approved Projects 343.10 Involvement of Domestic Private Sector Consultancies and Academic

Institutes in DNA-Approved Projects 36

4.1 Difference in Registered Projects between March 2009and March 2010 46

4.2 Stock Taking and Projection of Cumulated Issued CERs by 2010 According to the Sectors under the CNCCP 47

4.3 Annex I Countries’ Cost under Different Assumptions 494.4 Distribution of CDM Projects with Technology Transfer 514.5 Regional Distributions of Green Investment 554.6 Low Correlation of CDM Investment and Per Capita Income

of the Recipient Province 554.7 Distribution of Number of CDM Projects with Green Investment 56

TABLES

1.1 Overview of Issued Chinese CERs by Project Types and Expected 2012CERs (of registered projects as of March 1, 2010) 10

2.1 Greenhouse Gas Emissions in China 16

C O N T E N T S

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3.1 Types of Registered CDM Projects in China 243.2 Project Type of DNA-Approved CDM Projects in China 253.3 Overview of Total CER Issuances According to Project Sectors and Selected

Provinces, as of March 1, 2010 (in 000s CERs) 343.4 Distribution of the 751 Registered CDM Projects by CER Buyers 393.5 Overview of World Bank CDM Projects in China 413.6 Characteristic of Successful CDM Projects 43

4.1 Targets of CNCCP in the Renewable Energy Sector 464.2 China’s Emission Reduction Targets 2006–10 and

CDM Contribution by 2010 474.3 Indicators for Assessment of Environmental and Sustainable

Development Benefits 504.4 The First 20 Projects in Energy-Saving and -Efficiency Improvement 53

5.1 Application of Approved Energy Demand Methodologies 655.2 CDM Project Registration Process 66

BOXES

Notes on Estimated and Issued CERS of CDM Projects 7

C O N T E N T S

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AAU Assigned Amount Units CBM Coalbed MethaneCCX Chicago Climate ExchangeCDM Clean Development MechanismCDMF China Clean Development Mechanism FundCEC China Environmental United Certification Center Co.CER Certified Emission ReductionCF-Assist Carbon Finance Assist ProgramCMM Coal Mine MethaneCNCCP China’s National Climate Control ProgramCOP Conference of the PartiesDNA Designated National AuthorityDOE Designated Operations EntityEB CDM Executive BoardEAU EU Allowance UnitERs Emission ReductionsEU-ETS European Union Greenhouse Gas Trading SchemeGEF Global Environment Facility GHG Greenhouse GasHFC HydrofluorocarbonHFC-23 A specific hydrofluorocarbon that is also a potent GHGHKEPD Environmental Protection Department of the HKSAR GovernmentHKSAR Hong Kong Special Administrative RegionIET International Emissions TradingLDC Least Developed Country ME Municipal EnterpriseMOF Ministry of FinanceMOFA Ministry of Foreign AffairsMLTPEC Medium- to Long-Term Plan for Energy ConservationMOST Ministry of Science and Technology

viiC D M I N C H I N A

Acronyms

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NDRC National Development and Reform CommissionNCCCC National Climate Change Coordinating CommitteeNLGCC National Leading Group on Climate ChangeODA Official Development AssistanceOECD Organization for Economic Co-operation and DevelopmentPDD Project Design DocumentPE Private EnterpriseRMB Renminbi, the currency of the People’s Republic of China (also called

the yuan)RGGI Regional GHG InitiativeSASAC Asset Supervision and Administration Commission of the State CouncilSOE State-Owned EnterpriseTA Technical AssistanceTOE Tonnes of oil equivalentTT Technology TransferUNFCCC United Nations Framework Convention on Climate ChangeWHR Waste Heat Recovery WFOE Wholly Foreign-Owned Enterprise

A C R O N Y M S

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The Chinese Government and the WorldBank, supported by the Swiss and GermanGovernments, published the report “CDM inChina: Taking a Proactive and SustainableApproach” in 2004. Since then, China hasundergone tremendous development in itsCDM portfolio, and its position in the inter-national CDM market has changed from entry-level to that of the country with the largestCDM market share.

As part of a program funded by the CarbonFinance Assist (CF-Assist) program of theWorld Bank, this new report reviews China’sCDM development over the last five years. Keythemes include how its CDM policies havetaken shape, the strength of its institutions, toolsavailable to develop CDM projects, the engage-ment of international partners, and the nature ofchallenges lying ahead.

In 2004, when we engaged on the firstCDM-in-China report, a main question was:“How can China learn from other countries

more experienced with the CDM to establishitself as an engaged and proactive player in theinternational CDM market?” And now, sixyears later, this question has turned around180 degrees and become: “How can nowother countries learn from China to become active players in the internationalCDM market?”

Clearly, China has changed from being aninitial “learner” about the international CDMmarket to an experienced “teacher” over the lastseveral years. It has already embraced this role bysupporting South-South learning on carbonfinance and CDM project development, andwill continue to do so.

As this report shows, there are remainingchallenges with regard to how China can bestcope with its rapidly expanding CDM portfo-lio, how to continue promoting CDM projectdevelopment in nationally prioritized sectors,how to further direct China’s CDM activitiestowards geographically prioritized areas, and

ixC D M I N C H I N A

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Foreword

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how to contribute to shaping the future ofCDM and of other related carbon markets post-2012. The issue of delays at many stages ofCDM development, for many reasons, is com-mon not only to China but to many countries.

By reading this report, we hope that you willshare our appreciation for how far and fastChina has travelled since 2004, as recorded in“The Clean Development Mechanism (CDM) inChina: Five Years of Experience (2004–2009).

F O R E W O R D

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Han WenkeDirectorEnergy Research InstituteNational Development and Reform Commission

Ede IjjaszSector ManagerSustainable Development Dept, China & MongoliaThe World Bank

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As with the first edition of the Clean Develop-ment Mechanism (CDM) in China–Taking aProactive and Sustainable Approach report from2004, this report is also the result of a close col-laborative research effort by joint Chinese andinternational staff. The National CDM Centerwithin the Energy Research Institute (ERI) ofthe National Development and Reform Com-mission (NDRC) took on the overall lead inpreparation of the report in collaboration withstaff from the Agenda 21 office within the Min-istry of Science and Technology (MoST).Additional researchers came from INFRAS inZurich in addition to individual internationalresearchers.

We would like to express our gratitude to themulti-donor CF-Assist Trust Fund, which pro-vided the funds to carry out the study and to theNorwegian Embassy in Beijing, which providedfunds for an extensive South-South CDM train-ing program in Hubei Province that discussed afirst complete draft of this report in May 2009.Without this generous support, this study wouldnot have been possible.

The Chinese team at the National CDMCenter was lead by its Director Yang Hongweiand included Feng Shengbo, Gao Hairan, GuoTingzhen, Lu Yiqiong, Xing Weinuo, XiongXiaoping Yin Xia, Zhang Minsi, Zheng Lurong,

Zhang Xiaoqian and Li Suxiao. The team fromthe MoST Agenda 21 office included Li Gao(now NDRC) and Wang Can. Additional Chi-nese researchers included Chen Wenying fromthe 3E Institute at Tsinghua University, JiangKejun from ERI, Wen Gang from the CDMFund Center, and Tian Chunxiu and Li Lipingof the Environmental and Economic PolicyResearch Center of the Ministry of Environ-mental Protection (MEP).

The Chinese team was supported by an inter-national expert team that included OthmarSchwank, Juerg Fuessler, Madeleine Guyer andAxel Michaelowa from INFRAS and AnneArquit Niederberger from Polity Solutions.Under supervision by Ede Ijjasz and MagdaLovei, World Bank staff included Jostein Nygardand Carter Brandon (co-Task Team leaders),Cheng Zhuo and Federica Ranghieri.

In order to prepare and review the draftreport for publication, the Chinese Governmentset up an editorial board, which included Su Wei(Director General of the NDRC ClimateChange Department) as editor in chief, SunCuihua and Yang Hongwei as associate editors,Lu Xuedu, Li Ting, Liu Weihua, Peo Xiaofei,Gao Yun and Wang Shu as editorial boardmembers, and Jostein Nygard and Carter Bran-don as representatives from the World Bank.

xiC D M I N C H I N A

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Acknowledgments

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The report was peer reviewed by VenkataRamana Putti, Zijun Li (both World Bank)and Haakon Vennemo (ECON-Poyry). Addi-tional inputs, comments and review of the textdraft were provided by Johannes Heister,Neeraj Prasad, Nuyi Tao, Susan Shen, JasonSteele and Alexandrina Platonova-Oquab(World Bank staff).

The first edition of the report prior to theSouth-South CDM program was edited byGrammarians while the final edition of thereport was edited by Charles Warwick. Shep-herd Inc did the design and managed typesettingwhile photos have been provided by AnneArquit Niederberger and the World Bank’sphoto library.

A C K N O W L E D G M E N T S

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xiiiC D M I N C H I N A

Following the 2004 publication of “CDM inChina: Taking a Proactive and SustainableApproach”, the Chinese government and theWorld Bank have collaborated again to producethis volume entitled “Clean Development Mech-anism (CDM) in China: Five Years of Experience(2004–2009)”. This study notes recent CDMdevelopments and achievements in China, illus-trates the process by which China has becomethe world’s largest Certified Emission Reduction(CER) supplier, and shows how the country hassuccessfully developed added value by leveragingcarbon finance to support its domestic sustain-able development priorities.

Over the last few years, China has built themost dynamic CDM program in the world.This report highlights the process over the pastfive years by which China has built a solid sys-tem that not only reduces carbon emissions, butalso meets national development targets in the11th Five-Year Plan including energy security,employment creation, reduction of local pollu-tion, and technology transfer demonstrationeffects. An overview of facts and figures of theChinese CDM program is given at the end ofthis Executive Summary.

The CDM, part of the Kyoto Protocol,encourages greenhouse gas (GHG) emissionsreduction through the purchase of “carbon cred-its.” As of March 1, 2010, China is the leading

country in terms of the number of registeredCDM projects (751 projects, 36.4 percent of theworld total), the volume of annual expected certi-fied emission reduction (CER) units (205 milliontCO2e, or 59.4 percent of the total registered),and actual certified emissions reductions (CERs)issued (186 million tCO2e, or 48 percent).Another measure of the size of the China portfo-lio is that the number of cumulative ERs shownin the project design documents of these 751 reg-istered projects through 2012 is 962 milliontCO2e (although in reality, not all of these CERswill be issued by that time).

The development of projects approved byChina’s Designated National Authority (DNA)and still awaiting registration by the CDM Exec-utive Board has been even more impressive. As ofMarch 1, 2010, there were 2,413 DNA approvedprojects in China, or 1,662 more than have beenregistered. This represents an enormous backlog.The DNA-approved projects total approximately450 million in annual expected CERs tCO2e.

In terms of the number of registered projectsas of March 2010, 49 percent are hydro projects,22 percent are wind and 10 percent are energyefficiency projects. The distribution is quite dif-ferent when measured by expected CERs to begenerated by 2012 by the 751 projects currentlyregistered: the majority are HFC-23 projects (38 percent), followed by hydro (16 percent),

Executive Summary

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N2O (10 percent), and wind (9 percent). How-ever, if one reviews the entire pipeline of DNA-approved projects, the pattern shifts, and hydroprojects account for the largest single share inexpected annual CERs (28 percent), overtakingthe expected CERs to be generated by industrialgas projects.

The leading provinces in terms of number ofregistered projects are Yunnan (93 projects,mainly hydro projects), Sichuan (73 projects,also mainly hydro) and Inner Mongolia (56 projects, mainly wind projects). The largest cumula-tive volume of CERs expected by 2012 derivesfrom Zhejiang Province (17 percent of thenational total, of which 88 percent will be gen-erated from HFC-23 projects).

China’s CDM related achievements can becharacterized by the following:

• China’s sound CDM regulatory and admin-istrative framework has facilitated the deliv-ery of significant environmental and localeconomic co-benefits. The Government ofChina appointed several key administrativeinstitutions to be in charge of supervising theCDM market. The National Leading Groupon Climate Change (NLGCC) is responsiblefor formulating CDM policies and definingstandards. It also coordinates the NationalCDM Board—the location of the DesignatedNational Authority. The National CDMBoard reviews and approves CDM projects,and supervises CDM implementation. CDMCenters were created and located throughoutthe country, and a National CDM Fund fur-ther contributes to the country’s effectiveCDM institutional framework.

• CDM projects approved by the DesignatedNational Authority have increasingly beenin the three national priority areas designedto achieve a more sustainable national devel-opment path: renewable energy, energy effi-ciency, and methane recovery and use. Eachof these areas is deemed to have importantspillover (or “win-win”) benefits, including: (i) energy security, (ii) employment creation,

(iii) reduction of local pollution, and (iv) tech-nology demonstration and transfer.

• Consistent with its 11th Five-Year Plan,China has steadily broadened its CDMactivities away from industrial processesinto multiple market areas offering carbonemissions reductions. This steady broaden-ing has enabled China to diversify its carbonmarkets as well as consider using the CDM forincreasingly varied transfers of technology,especially in the energy sector. However, withregard to issued CERs as to date, projectsrelated to industrial processes (especiallyHFC-23) still dominate, but with a differentshare of the market: from 77 percent in 2010to expected 38 percent in 2012.

• China has steadily expanded the CDMportfolio into the poorer provinces ofChina, especially in the west. Yunnan,Sichuan and Gansu in Western China andInner Mongolia and Hunan in Central China,all relatively poor provinces on a per capitaGDP basis, are the top five provinces in termsof numbers of CDM projects.

• China has successfully created the ChinaCDM Fund, with payments from all projectsreceiving CDM revenues. The CDM Fund isreaching the point where it can begin selectingand financing its own projects in China, aunique accomplishment in a developing coun-try. These contributions are beginning toaccrue, and the Fund holds around US$750million as of April 2010.

• There is growing awareness of climatechange and a commensurate movementtoward developing local capacity to takeadvantage of CDM carbon finance opportuni-ties. Moreover, China is sharing its experiencein this regard with other developing countries.

In spite of all of the above positive factors,China still faces challenges in scaling up theCDM market and in achieving CER issuancescloser to those originally projected in projectdesign documents. In particular, it is in China’scontinuing interest to:

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• Work with the CDM Executive Board (EB)and Designated Operational Entities(DOEs) to ensure timely validation andregistration of DNA-approved projects.The inflow of projects to the stock of regis-tered projects has decreased since the 1st quar-ter of 2009. Project owners currently facesignificant economic risks due to the timerequired for validation, and due to the uncer-tainty of the project registration process anddrastically shortened period of CERs to begenerated prior to the end of 2012. Recentpolicy decisions by the EB have clarified theresponsibilities of DOEs (the third-partycompanies certified to validate emissionsreductions under CDM project agreements),which is useful. The challenge for the DOEswill be to fulfill their responsibilities withinthe specified times, and to establish sufficientcapacity to process the peak load of projectsentering the validation pipeline without fur-ther delays and risks. A challenge for projectdevelopers is to address the additionality cri-teria adopted by the CDM EB in a proactiveand efficient manner.

• Strengthen the role of the CDM in facilitat-ing new technology transfer (TT). There arenumerous barriers to TT under the CDM, butthis report finds that under the CDM, TTshould not be regarded as an end in itself. Localsustainable development benefits can alsoaccrue to projects that do not involve transferof advanced technology, such as through therapid dissemination of existing, perhapsdomestically manufactured, technologies.

• Build human and institutional capacity forthe future. Significant efforts will be requiredto counteract loss in skills and trained man-power as a consequence of the financial mar-ket downturn (which has also affected theprofessional community in the Chinese car-bon market). This concern runs throughoutthe CDM project cycle, from project propo-nents, to DOEs and brokers interested indeveloping domestic carbon finance marketsin parallel with international ones.

• Assess challenges in developing the globalcarbon market. Secondary market CER priceshave, after reaching a low of 9–10 euros/CERin early 2009, recovered reasonably above thefloor price for primary CERs set by the gov-ernment of China. Since the summer of 2008,the inflow of new CDM projects to thepipeline has significantly decreased, and maybe coming close to a halt by the end of 2010,mainly due to the uncertain post-2012 policyenvironment. Government and public sectorcompanies, particularly those operating in pri-ority sectors of CDM, could play a role inproactively developing new carbon financeprojects and developing innovative method-ologies, in order to be better positioned to takeadvantage of all voluntary and post-Kyotoopportunities that may arise.

At the international level, continuing changes inCDM rules and changing interpretations ofsome key principles have generated uncertainty.These include uncertainties related to futureemission reduction targets, mechanisms forgenerating tradable units of emissions reduc-tion, and national mitigation actions by devel-oping countries in the context of sustainabledevelopment supported by technology, financ-ing, and capacity building. There are wide-ranging proposals under consideration. Forexample, the EU proposal to restrict the accessof CERs from non-least developed countries(LDCs) to the European Union GreenhouseGas Emission Trading Scheme (EU-ETS) mar-ket, would strongly affect demand for CDMprojects in China.

On the assumption that the global CDMmarket and related carbon markets will con-tinue to operate in a manner that builds on thevaluable experience gained under the KyotoProtocol, China can expand the scope anddepth of its participation in future carbon offsetmarkets. While it is well positioned to capital-ize on future financing in sectors already expe-rienced in carbon finance, such as renewable


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energy, it is also expanding into new marketareas such as advanced fossil thermal technolo-gies and energy-efficiency (EE) technologies, aswell as moving toward program based mecha-nisms such as Programmes of Activities (PoA).For example, expanded EE projects in industry,transportation, building, commerce, and resi-dential energy not only generate greenhouse gas(GHG) emission reductions, but would havethe added value of contributing substantially tothe country’s specific sustainable developmenttargets in the 11th Five-Year Plan.

A critical challenge for China is to help developstrategies for different energy-intensive sectors,including strengthening the application of CDMmethodologies required to boost EE investmentsand savings, particularly among end users.

China supports a continuation of carbonmarkets, both domestically and internationally.Even during this current period of marketuncertainty, strong Chinese commitment willhelp it continue to be a strong participant in thepost-2012 CDM and related carbon markets.

OVERVIEW OF CHINA’S CDMIMPLEMENTATION STATUS

Registered Projects

As of March 1, 2010, China is the leading coun-try in terms of the number of registered CDMprojects (751 projects, 36.4% of the worldtotal), the volume of annual expected CER units(205 million tCO2e, or 59.4% of the total regis-tered), and actual CERs issued (186 milliontCO2e, or 48%). The number of cumulativeERs shown in the PDDs of these 751 registeredprojects through 2012 is 962 million tCO2e.

Sectoral Distribution

In terms of number of registered projects as ofMarch 2010, 49% are hydro, 22% are wind and10% are energy efficiency projects. In terms ofexpected CERs to be generated by 2012 by the751 registered projects: the majority are HFC-23 projects (38%), followed by hydro (16%),N2O (10%), and wind (9%).


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Source: Based on data contained in UNFCCC 2010.

China India Brazil Mexico Malaysia

China India Brazil Korea Mexico Malaysia

36.4% 17.9%

23.7% 8.2%

5.8% 3.9%

2.1% 1.9%

59.4%

11.9%

6.1%

4.3%

2.7% 1.4%

1.4% 1.2%

1.2% 1.2%

9.2%

China’s and Other Countries’ Share of Registered Projects According to Numbers (left) and Expected Annual CERs (right)

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Source: China CDM project management database.

Number of Registered Projects by Province

Source: URC 2010a, and PDDs of registered CERs.

Registered Chinese projects as of 1st March 2010 400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

400

350

300

250

200

150

100

50

0 Hydro

2012

kC

ER

s

Num

ber of projects registered

Wind

EE own generation

Landfill gas

N2O

Coal bed/mine m

ethane

Fossil fuel switch

Biomass energy

HFCs

Biogas (new methane avoidance)

Cement

Solar

Reforestation

2012 kCERs of registered projects 1st March 2010

Number of registered projects 1st March 2010

Cumulative CERs by 2012 for the 751 Registered Chinese CDM Projects, and the Number ofRegistered Projects by Type, as of March 1, 2010

Provincial distribution

The leading provinces in terms of number ofregistered projects are Yunnan (93 projects,mainly hydro), Sichuan (73 projects, mainlyhydro) and Inner Mongolia (56 projects, mainlywind). The largest volume of CERs by 2012 isfrom Zhejiang (17% of the national total, ofwhich 88% from HFC-23 projects).

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C D M I N C H I N Axviii

Source: URC 2010a.

2012

kC

ER

s of

reg

iste

red

Num

ber of registered projects

180,000

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

100

90

80

70

60

50

40

30

20

10

0 Shanghai

Tianjin

Hainan

Beijing

Qinghai

Ningxia

Chongqing

Anhui

Xinjiang

Shaanxi

Jilin Jiangxi

Liaoning

Heilongjiang

Zhejiang

Guangxi

Guangdong

Henan

Shanxi

Fujian

Hebei

Jiangsu

Hubei

Guizhou

Shandong

Gansu

Hunan

Inner Mongolia

Sichuan

Yunnan

2012 kCERs Number

Provincial Distribution of Currently Registered CDM Projects and Cumulative CERs Expected by 2012

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xixC D M I N C H I N A

China and the World Bank agreed that, as partof the World Bank Carbon Finance Assist (CF-Assist) program, it would be useful to review theprogress of China’s Clean Development Mech-anism (CDM) over the last five years, includinghow its CDM policies have evolved, the toolsused in developing the portfolio, and the criticalchallenges ahead.

A significant objective for the government ofChina is to share with other countries, particu-larly those in the initial stages of developing car-bon finance portfolios, its experiences andachievements in developing its own CDM pro-gram. This report examines these experiencesfrom the institutional, political, economic, andtechnical point of view.

This report also identifies the challengesand opportunities for the CDM market inChina. As the CDM market enters a period ofuncertainty, the main challenges China facesare in capacity building and in raising aware-ness, mainly among project developers, insti-tutions and consultants. The institutional andadministrative bodies that were created in2007, such as the National Leading Group onClimate Change (NLGCC), which was estab-lished by the State Council to coordinateCDM-related issues, are now fully operating.

Furthermore, understanding the implicationsof international negotiations on a post-2012climate change treaty is an additional chal-lenge, not only for China. Liaising with theCDM Executive Board (EB) at the UnitedNations Framework Convention on ClimateChange (UNFCCC) and overcoming severalregulatory and administrative constraintsshould also be addressed.

Several opportunities are envisaged in thereport in terms of new sectors and new loca-tions for the development of CDM projects;new mechanisms and broader programs suchas the Program of Activities; and the impor-tance of expanding and using new financialinstruments.

In order to outline and analyze China’s stepsfor developing its “valued-added” approach forCDM, the report is structured into 5 mainchapters. Chapter 1 provides CDM relatedbackground information, an overview of theglobal carbon market and of the CDM projectpipeline development. Chapter 2 outlines Chi-nese CDM related national circumstances, suchas climate change related measures and indica-tors, as well as the regulatory environment ofCDM implementation in China. Chapter 3provides in-depth analysis of the performance of

Introduction

�

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implemented CDM projects in selectedprovinces and in specific sectors addressing dif-ferent trends. It also highlights achievementsand barriers as well as investigates CDM marketactor patterns in China. Chapter 4 outlines theimpacts of the CDM implementation withregard to its national development targets

through the 11th Five-Year Plan period, and itscontributions to national sustainable develop-ment. Chapter 5 provides concluding remarks,noting China’s achievements, and enumeratingthe challenges ahead. Selected project andprovincial level case studies are included at theend of the report.

I N T R O D U C T I O N

C D M I N C H I N Axx

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C D M I N C H I N A 1

CDM BACKGROUND

The ultimate objective of the U.N. FrameworkConvention on Climate Change (UNFCCC) isto achieve stabilization of greenhouse gas (GHG)concentrations in the atmosphere at a level thatwill prevent dangerous anthropogenic interfer-ence with the climate system. The Kyoto Proto-col set legally binding GHG emission reductiontargets for developed countries (Annex I) andcountries in transition (Annex B countries).

The Kyoto Protocol defines three mecha-nisms to achieve these emission reduction targetsin a cost-effective way: (i) international emis-sions trading (IET), (ii) joint implementation(JI), and (iii) clean development mechanism(CDM). This report focuses on the third of thesemechanisms, CDM, in China.

CDM is a project-based mechanism underwhich developed country parties cooperate withdeveloping country parties to assist them inmeeting part of the GHG emission reductionobligations of the developed country parties.The core purpose of CDM is to allow developedcountry parties, in cooperation with developingcountry parties, to acquire CERs (CertifiedEmission Reductions) generated by the projectsimplemented in developing countries. Themechanism is designed to assist parties notincluded in Annex I in achieving sustainabledevelopment and contributing to the ultimate

objective of the convention, and to assist thoseparties included in Annex I in achieving compli-ance with their quantified emission limitationand reduction commitments.

To ensure that emission reductions fromCDM projects are “real, measurable, and longterm” and “additional to any that would occurin the absence of the certified project activity,” acomplex body of rules, including third-partyDesignated Operational Entity (DOE) checks,has been introduced. The application of rules isoverseen by the CDM Executive Board (EB).The EB defines three main types of CDM proj-ects as (i) renewable energy, (ii) energy effi-ciency, and (iii) other types (including methaneutilization, afforestation and reforestation, andthe chemical industry). Details on the interna-tional regulatory framework for the CDM aresummarized in Annex 3.

China is a party to the UNFCCC and KyotoProtocol, and CDM implementation and coop-eration are important for China to implement itsobligation under the UNFCCC and Kyoto Protocol and address climate change with theinternational community. The government ofChina’s National Development and ReformCommission (NDRC) has published “Measuresfor Management and Operation of CDM Projectsin China” (the Measures; see Annex 1), whichestablishes NDRC as the Designated National

Overview of the Global and ChineseCDM Market

1

�

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Authority (DNA). The Measures formulatedthe regulations for CDM project developers tofollow. With government guidance and pro-motion, CDM projects have been widelyimplemented in China. According to statisticaldata as of March 1, 2010, NDRC has approved2,431 CDM projects, 751 of which have beenregistered with the CDM EB.

GLOBAL CARBON MARKETOVERVIEW

As noted, the Kyoto Protocol includes three“flexible mechanisms” that have led to the devel-opment of carbon markets and a price on car-bon. Moreover, there are mandatory domestictrading schemes in some Annex B countries. Thecompliance markets such as the EuropeanUnion Emission Trading Scheme (EU-ETS) aregoverned by periods specified in the MarrakechAccords/Kyoto Protocol and the post-2012period as outlined in Figure 1.1.

This report was completed after the 15th Con-ference of Parties to UNFCCC in Copenhagen inDecember 2009, during a dynamic period ofinternational debate on the post-Kyoto period:

• The international economic crisis led to anoversupplied market and hence to a signifi-cant fall in the price of EU Allowances and ofsecondary CERs by early 2009—from highsover 20 euros per CER a few months earlierdown to below 10—followed by recovery tothe 11–13 euros per CER range. Carbon as acommodity had significantly lost attractive-ness for both investors and project developersby the end of 2009. There are indications thatbuyers are seeking to exit emission purchaseagreements they assess as “too costly.”

• Uncertainty concerning a future internationalclimate agreement, including the prospects forCDM in the post-2012 period, continues. TheUNFCCC negotiation process has shown acommitment to using markets to enhance thecost-effectiveness of global mitigation action,and reforms designed to strengthen the CDMare being negotiated. There is stakeholderinterest in this mechanism in the post-2012period. However, uncertainty prevails, partic-ularly on such topics as CDM efficiency, sec-toral or programmatic CDM approaches, andenhancing CDM’s contribution to nationalpriorities.

O V E R V I E W O F T H E G L O B A L A N D C H I N E S E C D M M A R K E T

C D M I N C H I N A2

Kyoto 1st commitment period

CDM prompt start period

EU-ETS 1st period

EU-ETS 2nd period

Post Kyoto period = CopenhagenAccord EU-ETS 3rd period

Note: EU-ETS = European Union Emission Trading Scheme.

2000–2004

2013–2020

2005 2006 2007 2008 2009 2010 2011 2012

F I G U R E 1 . 1 Relevant Periods Shaping Markets According to the Marrakech Accords (Kyoto Protocol) and the Copenhagen Accord (post-2012)

Note: EU-ETS = European Union Emission Trading Scheme.

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The transaction volume of the global car-bon market has increased rapidly and did notsuffer from the financial and economic crisis(Figure 1.2). Overall turnover witnessed spec-tacular growth from 100 million tCO2e in 2004to 8.2 billion in 2009. The EU-ETS accountedfor 69 percent (more than 5.6 billion t) of the2009 turnover, followed by CDM, with 19 per-cent (more than 1.5 billion t), indicating thatCDM is approximately a third the size of theEU-ETS. JI, IET, and voluntary schemes havebeen responsible for only 3 percent of turnover.The volume of voluntary emission reduction inglobal carbon market is negligible, althoughNorth American demand increased during2008–2009 in response to the emerging regionalcap and trade regimes.

The volumes, in terms of types of projectsfrom which CERs have been transacted, areshown in Figure 1.3. HFC decomposition proj-ects played a key role in 2004–2006, but theirtransaction share gradually dropped over 2007

and 2008. Renewable energy (nearly 45 percent)and energy-efficiency projects (about 35 percent)constituted half of the transaction volumes in2008, indicating that energy projects increasedtheir market share during 2007–2008.

Prices paid for units in the different segmentsof the carbon market have varied widely and beenextremely volatile. Figure 1.4 shows the averageprice in different carbon markets in 2004–2008.The price of CER (secondary) rose quickly untilJuly 2008 while the price of EU-ETS for 2008 EUallowance units (EUA) fluctuated between 17 and25 euro in the period 2005 to the end of October2009. Due to the economic and financial crisis,EUA and CERs prices had fallen under a thresh-old of 10 euros by February 2009. As shown inFigure 1.5, EU allowance and CERs prices recov-ered by April 2009, and EUAs remained around13 euros (CERs around 11–12 euros) in early2010. Generally, prices in voluntary market seg-ments have been substantially lower than in com-pliance markets and affected more strongly by the



Source: Point Carbon (2007a, 2008a, 2010e); World Bank (2006a, 2007) for 2004 CDM and JI volume as well as pre-2007 vintages of voluntary offsets. CCX = Chicago Climate Exchange (voluntary trading system in the USA).EU ETS = EU emissions trading scheme.NSW = New South Wales (mandatory trading system in the Australian state of New South Wales).RGGI = Regional Greenhouse Gas Initiative (mandatory in 10 states of the US north-east).

EU ETS CDM primary CDM secondary JI IET NSW RGGI Voluntary offsets CCX

6,000

5,000

4,000

3,000

2,000

1,000

0 2004 2005 2006 2007 2008 2009

F I G U R E 1 . 2 Transaction Volume in the Different Carbon Market Segments (million tCO2e)

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economic crisis. The substantial drop in the CERprice has slowed the development of new CDMprojects.

Prior to the Copenhagen meeting, China’sState Council unveiled its goal to reduce its car-bon intensity (i.e., the amount of greenhouse gasemission per unit GDP) by 40–45 percent by

2020, compared with 2005. Internationally, thissignals the seriousness of China in seekinggreater commitment from developed countrieson GHG emission reduction. Domestically, itincreases pressure on provincial and local gov-ernments to continually implement energy effi-ciency and fuel switching policies. To meet the



Source: WB 2009.

600

500

400

300

200

100

0 2004

MtC

O2e

2005 2006

Primary CDM annual volumes transacted

2007 2008

Other CMM, fugitive and flaring N2O HFC LFG + waste EE + Fuels Renewables

F I G U R E 1 . 3 Share of Different Project Types in Primary CER Transactions (MtCO2e CER volume)

Source: Point Carbon (2010e, 2009b, 2008a, 2007a, 2006).Note: This includes strongly varying prices according to vintage. By late 2007, EU allowances for 2007 were tradingat 0.03 euros, while 2008 allowances traded at above 20 euros. Secondary CER price has always been lower than thehighest price of post-2007 vintages on the EU market.

CER (primary)CER (secondary)EU allowanceERUCCX

25

20

15

10

5

0 2004

Eur

o

2005 2006 2007 2008 2009

F I G U R E 1 . 4 Average Price in Different Carbon Market Segments (€)

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target, market based mechanisms could be usedto strengthen the effect of administrative instru-ments. In anticipation of a robust Chinese car-bon market, perhaps independent of the futureCDM international trading, China is develop-ing national trading platforms and standards. Todate, three energy/environment exchange cen-ters are being established in Beijing, Tianjin andShanghai, each with different areas of focus.

The proportion of governments buying car-bon credits in the carbon market has graduallydeclined, with private sector and funds graduallyoccupying the main market. According to theWorld Bank (2009), in 2007 and 2008 the shareof governments reached only 10 percent. As theeconomic crisis has reduced the Kyoto gaps of allEuropean countries, governments are drasticallyreducing their CER acquisition budgets. More-over, acquisition of AAUs has now become moredesirable, as governments aim to reduce compli-ance costs. Despite being in surplus in 2009, theEU-ETS has maintained a relatively stable pricebecause EU allowances can be used in its post-2013 commitment period.

As of March 1, 2010, the global CDM pipelineis expected to deliver 2.8 bn CERs until 2012according to the projects’ PDD estimations. Thetwo largest sectors in terms of expected 2012kCERs are HFC and hydropower, jointly corre-sponding to 28 percent of the total number of proj-ects (see Figure 1.6 ). The global pipeline accountsfor almost 5,000 projects as of March 1, 2010.

However, it is projected that slightly below 1 billion in CERs will actually be issued by theend of 2012 (URC, May 5, 2010). There areseveral reasons for the steady decrease of theprojected total CER supply potential in 2012,including: (a) increased regulatory scrutinyleading to increased rejections and time lags inregistration, (b) problems of project developersto actually commission projects due to theglobal financial market crisis, and (c) underper-formance of some projects under implementa-tion. The current projected level of 1 billion inCER issuances is only 35 percent of the 2.8 bil-lion CERs listed in the PDDs, and the variousreasons for this difference will be a recurringtheme of this report, primarily in Chapter 3.

Source: Point Carbon (2010b)

CER EUA

30

25

20

15

10

5

0

Eur

o

11-A

ug-0

8

24-S

ep-0

8

07-N

ov-0

8

23-D

ec-0

8

10-F

eb-0

9

26-M

ar-0

9

13-M

ay-0

9

29-Ju

n-09

12-A

ug-0

9

25-S

ep-0

9

10-N

ov-0

9

29-D

ec-0

9

12-F

eb-1

0

30-M

ar-1

0

F I G U R E 1 . 5 Price Trend for EU Allowances & CERs from August 11, 2008 to April 16, 2010 (€)

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OVERVIEW OF THE CHINESE CDM MARKET

The CDM market in China is burgeoning at arapid pace and has made a major contribution tothe world carbon market, (see Figure 1.7) bothin registered projects (left) and expected annualCERs to be generated (right). As of March 1,2010, China has 751 registered projects, repre-senting 205 million tons of expected annualCO2e emissions reductions (a measure ofexpected annual ERs over the entire creditingperiod, see the box on the next page for defini-tions). The number of cumulative ERs shown inthe project design documents of these 751 regis-tered projects through 2012 is 962 million. Ofthat total, 49 percent are hydro, 22 percent arewind and 10 percent are energy efficiency pro-jects (see Figure 1.8).

A review of practices in the past five yearsshows that CDM in China can be characterizedby three main features. First, the number of proj-ects approved by the government of China has

increased steadily ever since the first projectobtained host country DNA approval in Novem-ber 2004. In fact, China currently has 2,413(Figure 1.9) DNA approved projects, or overthree times the number of projects approved bythe EB. Not only is China the dominant countryin the international CDM market, but it has anenormous backlog of projects with the EB thathas been a source of concern.

Second, in parallel with the large number ofDNA-approved projects, there has been stronggrowth in the volume of the total CER commit-ments associated with these approved projects(Figure 1.10). This figure shows that the esti-mated annual emissions reductions for all DNA-approved projects is nearly 450 million tCO2e,or twice the amount of the currently registeredprojects. The quarterly number of approved proj-ects, as well as the volume of CERs, peaked at the end of 2008, and then slightly declined in2009 and 2010. The causes of this decline canbe mainly attributed to the uncertain CDM



Note: The blue bars; projects at validation stage, the green bars; request registration, red bar; registered projects.Source: URC 2010a.

600,000

500,000

400,000

300,000

200,000

100,000

0

1,600

1,400

1,200

1,000

800

600

400

200

0 Hydro

2012

kC

ER

s

Total number of projects

in the global pippeline

Wind

Biomass energy

Methane avoidance

EE own generation

Landfill gas

EE industry

Fossil fuel switch

Coal bed/mine m

ethane

EE supply side

N2O

Reforestation

Solar

Cement

EE households

Fugitive

HFCs

Transport

EE service

Energy distribution

PFCs and SF6

Geothermal

Afforestation

CO2 capture

Tidal

Agriculture

Registered 2012 kCERs Request registration 2012 kCERs At validation 2012 kCERs Total expected number of projects

F I G U R E 1 . 6 Number and Total Cumulative CER Supply Potential Projected for 2012 for Different Types of CDM Projects in the Global Pipeline (URC 2010a, March 1, 2010)

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Source: Based on data contained in UNFCCC 2010.

China India Brazil Mexico Malaysia

China India Brazil Korea Mexico Malaysia

36.4% 17.9%

23.7% 8.2%

5.8% 3.9%

2.1% 1.9%

59.4%

11.9%

6.1%

4.3%

2.7% 1.4%

1.4% 1.2%

1.2% 1.2%

9.2%

F I G U R E 1 . 7 China’s and Other Countries’ Share of Registered Projects According to Numbers (left) and Expected Annual CERs (right)

Notes on Estimated and Issued CERS of CDM Projects

The annual estimated average emission reduction for a given CDM project is the total of its pro-jected emissions reduction (defined as the difference in greenhouse gas emissions after implemen-tation of a CDM project vs. those that would have occurred without the CDM activity—the“baseline scenario”) divided by the length of the project’s crediting period. The crediting period isthe period selected by the project participants during which the CDM project activity will generategreenhouse gas emission reductions (and consequently CERs). The crediting period for a CDM proj-ect activity may be either (a) a 7-year crediting period, renewable twice; or (b) a single 10-yearcrediting period.

The annual expected ERs for a group of CDM projects, such as all CDM projects in China, is thesum of the individual project annual estimated average ERs, and is a measure of the total size ofthat “portfolio.” However, it is independent of any given year, since the individual projects withinthat portfolio start and stop in different years, and have different durations. One cannot calculatethe total amount of expected ER reductions for that set of projects since the crediting periodvaries by project. Also, the annual expected ERs does not give an idea of CER supply (or demand)for any given year, since the concept is independent of any given year.

Finally, for either a given project, or for a portfolio of projects, the total of its projected emis-sions reductions is typically greater than the actual number of ERs to be issued over the life ofthe project. First, most crediting periods extend beyond 2012, and there is uncertainty over whowill buy (issue) CERs post-2012 (and so are not likely to be included in any current contracts).Second, many projects may experience delays or otherwise under-perform. Third, not all CERsgenerated by a project may be contracted for purchase, even prior to the end of 2012. (TheWorld Bank, for example, will only purchase up to 80% of the expected CERs to be generated bya project.) For all of these reasons, comparisons in this report between annual expected andcumulative issued CERs have to be made carefully.

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Source: URC 2010a, status March 1, 2010. 962 million cumulative CERs projected by 2012 according to the PDDs ofregistered CERs.

Registered Chinese projects as of 1st March 2010 400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

400

350

300

250

200

150

100

50

0 Hydro

2012

kC

ER

s

Num


Wind

EE own generation

Landfill gas

N2O

Coal bed/mine m

ethane

Fossil fuel switch

Biomass energy

HFCs


Cement

Solar

Reforestation

2012 kCERs of registered projects 1st March 2010

Number of registered projects 1st March 2010

F I G U R E 1 . 8 Cumulative CERs by 2012 for the 751 Registered Chinese CDM Projects, and the Number of Registered Projects by Type, as of March 1, 2010


350

300

250

200

150

100

50

0

3000

2500

2000

1500

1000

500

0 1Q/2005

2Q/2005

3Q/2005

4Q/2005

1Q/2006

2Q/2006

3Q/2006

4Q/2006

1Q/2007

2Q/2007

3Q/2007

4Q/2007

1Q/2008

2Q/2008

3Q/2008

4Q/2008

1Q/2009

2Q/2009

3Q/2009

4Q/2009

1Q/2010

Quarter approved number Accumulated number

F I G U R E 1 . 9 Projects Approved in China through March 1, 2010

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market post-2012 that has restricted the devel-opment of new projects.

Third, as a result of international and domes-tic procedures, there are inherent lags in theprocess of registering CDM projects as well asin issuing CERs. Chapter 3 illustrates and dis-cusses the status of the DNA-approved Chineseprojects and identifies possible barriers in theproject cycle. As of March 1, 2010, the ChineseDNA had approved 2,413 projects, of whichonly 751 (31 percent) had been registered bythe CDM EB. Of the registered projects, only206 (27 percent) have started to issue CERs.Since the first Chinese CDM project—theHuitengxile Wind Farm Project—was regis-tered on June 26, 2006, the quarterly numberof Chinese CDM projects being registered hasreached a plateau of about 40 projects.

186 million CERs have been issued byMarch 1, 2010, which represents only 19% ofthe expected CERs of currently registered projectsthrough 2012 (see Table 1.1 and Figure 1.11).This implies that 81% of estimated issuancesthrough 2012 will have to occur over the period

April 2010–Dec 2012—i.e., 776 million addi-tional CERs. However, for reasons given in thebox above, in reality this extremely high level ofissuance will not be reached. In fact, as mentionedabove, total issuances under the CDM world-wide, including China, are projected to be lessthan 1 billion.

Of current issuances, 77 percent are fromHFC-23 projects, around 7 percent from N2Oprojects, 5 percent from wind projects, and 4 percent each from hydro and energy efficiencyprojects (see Table 1.1). By 2012, however, thesepercentages will be quite different, as issuancesunder other projects “catch up” and reduce thedominance of the industrial gas projects. By theend of 2012, HFC-23 may account for around38 percent of the total, followed by hydro (16 percent), N2O (10 percent), wind (9 per-cent), and energy efficiency (8 percent).

While the earliest registered non-CO2 proj-ects like HFC23 already have about 40% of theirCERs issued by March 1, 2010, most sectorshave the large majority of CERs still to be issuedbetween March 1, 2010 and the end of 2012




60,000

50,000

40,000

30,000

20,000

10,000

0

500,000

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0 1Q/2005

2Q/2005

3Q/2005

4Q/2005

1Q/2006

2Q/2006

3Q/2006

4Q/2006

1Q/2007

2Q/2007

3Q/2007

4Q/2007

1Q/2008

2Q/2008

3Q/2008

4Q/2008

1Q/2009

2Q/2009

3Q/2009

4Q/2009

1Q/2010

Quarter approved CERs (kTCO2e) Accumulated annual CERs (kTCO2e)

F I G U R E 1 . 1 0 Expected Annual CER Volume of Projects Approved in China to March 1, 2010

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TABLE 1.1 Overview of Issued Chinese CERs by Project Types and Expected 2012 CERs (of registered projects as of March 1, 2010)

Cumulativeestimated CERs Share of Share of Expected shareof registered Issued CERs estimated issuances as of issuances

projects by end by 1st March CERs still to of 1st March by De 20122012 (000s) 2010 (000s) be issued (%) 2010 (%) kCERs (%)

Hydro 154,953 7,483 95% 4% 16%

Wind 85,777 9,641 89% 5% 9%

EE own generation 73,665 7,029 90% 4% 8%

Landfill gas 21,675 450 98% 0% 2%

N2O 98,715 12,794 87% 7% 10%

Coal bed/mine methane 62,747 2,753 96% 1% 7%

Fossil fuel switch 83,499 1,994 98% 1% 9%

Biogas (new methane 1,733 0 100% - 0%avoidance)

Cement 4,461 0 100% - 0%

Biomass energy 11,754 444 96% 0% 1%

HFCs 362,784 143,366 60% 77% 38%

Solar 380 0 100% - 0%

Reforestation 312 0 100% - 0%

Total 962,455 185,954 81% 100% 100%

(e.g., hydro with 95%, wind with 89%, fossilfuel switch with 98%). Other smaller sectors likebiogas, cement, solar and reforestation sectorshave still not issued any CERs. A tremendousnumber of CERs are still to be issued, not leastin China’s prioritized sectors.

Figure 1.12 illustrates the provincial distribu-tion of registered CDM projects. This mapclearly shows that the central regions are rela-tively well represented in the CDM, in spite ofbeing less developed in terms of GDP per capitathan the eastern regions. To date, however, thefar western provinces are less well represented.

More province-specific details are given inFigure 1.13, which shows that more registeredprojects are located in Yunnan Province (93 proj-ects, 12 percent of the total) than in any otherprovince. These are mainly hydro projects, fol-

lowed by three N2O and two landfill gas proj-ects. 73 projects, mainly hydro, are located inSichuan Province (10 percent), while 56, mainlywind projects, are located in Inner Mongolia (7 percent). The largest share of expected CERs(in the period up to 2012) come from ZhejiangProvince, which is expected to generate 15 per-cent of CERs, mainly from HFC-23 projects.Jiangsu Province, with a total of 28 projects, isexpected to produce 14 percent of the totalCERs, mainly from renewable energy and HFC-23 projects. Shandong Province is expected togenerate 10 percent of the total CERs from 34 projects, mainly from the wind sector. Liaon-ing Province is expected to produce 7 percent ofthe total CERs deriving from 17 projects distrib-uted equally among wind, landfill, energy effi-ciency and N2O sectors.

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The government of China has appointed sev-eral key CDM administrative institutions tosupervise the CDM market. The National Lead-ing Group on Climate Change (NLGCC) isresponsible for formulating CDM policies anddefining standards. It is the highest level com-mittee that coordinates the National CDMBoard where the Designated National Authorityis located. The National CDM Board reviewsand approves CDM projects and supervisesCDM implementation. More recently, otherinstitutions have been created to ensure effi-ciency and effectiveness throughout the CDMapproval process. Chapter 2 analyses the rolesand responsibilities of each agency. All otherCDM market players, i.e., national and localagencies, international organizations, privatesector, consultants, donor community, etc., arereviewed in Chapter 3.



Source: URC 2010a.

KCERs by March 2010KCERs from registeredprojects (from 2010 to 2012)

250,000

200,000

150,000

100,000

50,000

0 Hydro

Wind

EE own generation

Landfill gas

N2OCoal bed/m

ine methane

Fossil fuel switch

Biomass energy

Biogas

HFCs

Cement

SolarReforestation

F I G U R E 1 . 1 1 Accumulated CERs in the China CDM portfolio issued by March 1, 2010 compared to CERsto be issued between March 1, 2010 and the end of year 2012


F I G U R E 1 . 1 2 Provincial Distribution of Number of Registered CDM Projects

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Source: URC 2010a.

2012

kC

ER

s of

reg

iste

red

Num

ber of registered projects

180,000

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

100

90

80

70

60

50

40

30

20

10

0 Shanghai

Tianjin

Hainan

Beijing

Qinghai

Ningxia

Chongqing

Anhui

Xinjiang

Shaanxi

Jilin Jiangxi

Liaoning

Heilongjiang

Zhejiang

Guangxi

Guangdong

Henan

Shanxi

Fujian

Hebei

Jiangsu

Hubei

Guizhou

Shandong

Gansu

Hunan

Inner Mongolia

Sichuan

Yunnan

2012 kCERs Number

F I G U R E 1 . 1 3 Provincial Distribution of Currently Registered CDM Projects and Cumulative CERs Expected by 2012

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The success of CDM in China is due to the gov-ernment having established a sound institutionaland regulatory system. In addition, complemen-tary policy measures that promote sustainabledevelopment have helped generate opportunitiesfor CDM development in China.

CDM-RELATED NATIONALCIRCUMSTANCES

Recent economic growth in China has beenstrong. In 2009, total GDP exceeded US$ 4.9trillion, 8.7 percent higher than in the previousyear. However, compared to developed coun-tries, the economic development level of Chinais still low, with GDP per capita only about one-quarter of the world’s average. Substantive dis-parities in economic development and urbanand rural resident income exist in many regionsof the country. Poverty reduction thereforeremains an important challenge.

The population of mainland China was 1.33billion in 2009 (not including Hong Kong,Macao, and Taiwan), corresponding to one-fifthof the world’s total. China’s urbanization levelremains below the world’s average, with theurban population accounting for 46.6 percent ofthe national total. However, strong urbanemployment demand is resulting in large-scalerural-urban migration, leading to an urban pop-

ulation increase of more than 300 million peo-ple between 2005 and 2030.

In addition to the pressures of a huge popu-lation and a growing economy, China is a coun-try with vulnerable ecosystems. The nationalforest area in 2008 was 195 million hectares—acoverage rate of just 20 percent. China’s grass-land area for the same year was 400 millionhectares, most of which are high-cold prairie anddesert steppe, while the temperate grasslands innorthern China are on the verge of degradationand desertification due to drought and environ-mental deterioration. China, with a continentalcoastline extending over 18,000 kilometers andan adjacent sea area of 4.73 million square kilo-meters, as well as more than 6,500 islands, ispotentially threatened by rising sea levels. Also,China’s relatively harsh climatic conditions,with more drastic seasonal temperature varia-tions than other areas at the same latitude suchas North America and Western Europe, requiremore energy to maintain a relatively comfortableroom temperature.

ENERGY AND GHG EMISSIONS

The growth of greenhouse gas emissions inChina is driven by economic development, pop-ulation growth, and energy consumption, asshown in the following equation:

Implementation Framework of CDM Project Management andManagement Institutions in China

2

�

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In this representation, GDP/population repre-sents the level of economic development, energy/GDPrepresents energy intensity, and GHG/energy repre-sents GHG emissions intensity of the energy mix.

China’s economic development has long beenconstrained by the scarcity of per capita resourcesand this is likely to continue. Economic develop-ment trends in many countries reveal a generalpositive correlation between per capita commercialenergy consumption, per capita CO2 emissions,and level of economic development—althoughbeyond a certain threshold some economies havemanaged some degree of decoupling. If China fol-lows this traditional path of economic develop-ment, it will inevitably lead to growing energydemand and increased CO2 emissions. The twinissues of energy security and GHG mitigation posea challenge for China to create an innovative andsustainable development pattern.

The energy intensity of the economy islargely a function of economic structure and the

energy efficiency of supply-side and demand-side technologies. The share of primary indus-try in the GDP declined steadily to 10.6 percentin 2009, with a corresponding increase in thetertiary sector to 42.6 percent, whereas the sec-ondary sector, consisting mostly of manufactur-ing industries, has remained the dominantcontributor to GDP, with a share of 46.8 per-cent (NBS China 2009).

The Chinese government has been attentive toenergy conservation and efficiency improvement,introducing policies and measures to reduceenergy intensity. Figure 2.1 demonstrates thatfrom 1990 to 2006 the energy intensity of Chinahas continually decreased, despite remainingsteady from 2002–2005. In the 11th Five-YearPlan (2006–2010), the Chinese government hasset an overall target of a 20 percent decrease inenergy intensity as well as implementing nation-wide energy-saving and emission reduction pro-jects and relevant public actions (see Annex 2 fordetails). Energy intensity decreased 12.45 percentafter the first 3 years of the 11th Five-Year Plan,but fell only 2.2 percent in 2009, short of theannual goal of 4 percent. During the first 4 years

I M P L E M E N T A T I O N F R A M E W O R K O F C D M P R O J E C T M A N A G E M E N T A N D M A N A G E M E N T I N S T I T U T I O N S


Source: NBS (2010) and the study team’s own estimates.Note: The energy intensity data in this figure were estimated at 1990 prices.

6.00

5.00

4.00

3.00

2.00

1.00

0.00 1990

Ene

rgy

inte

nsity

(tc

e/10

000

Yuan

GD

P)

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

2009

F I G U R E 2 . 1 China’s Energy Intensity per Year (1990–2009)

Δ =

×⎛⎝⎜

⎞GHG emissions population

GDP

population⎠⎠⎟× ⎛

⎝⎜⎞⎠⎟ ×

⎛⎝⎜

⎞⎠⎟

energy

GDP

GHG

energy

7275-CH02.pdf 5/24/10 1:31 PM Page 14

of the 11th Five-Year Plan, the accumulateddecrease of energy intensity was 14.38 percent.The central government has indicated that“tremendous efforts are needed” to meet thecountry’s 2006–2010 energy conservation target.1

China’s average efficiency levels are signifi-cantly below the world best practice levels, butthere is increasing evidence of best practices beingimplemented as new industrial and power plantsare built. Chinese best practice examples have beenidentified for various process configurations forsupercritical power generation, iron and steel mak-ing, non-wood pulping, and coal gasifier-basedammonia plants (Worrell et al. 2007). Althoughnew capacity increasingly uses best available tech-nology, there is significant potential to reduce theaverage energy intensity of most sectors.

Fuel mix is largely determined by national fos-sil fuel endowments, and China is heavily relianton coal, the most carbon-intensive fossil fuel, tomeet its energy needs (see Figure 2.2). Coal’s car-bon content per unit calorific value is 36 percenthigher than oil and 61 percent higher than gas. 80percent of China’s electricity is produced by coal-fired power plants. In 2009, the shares of coal, oil,and natural gas in final energy consumption

accounted for 68.8, 17.5, and 3.8 percent, respec-tively, while other renewable energy accountedfor 9.9 percent (NBS, 2009b). China faces chal-lenges in decreasing its carbon intensity per unitof energy because (i) its energy mix adjustment isconstrained by the mix of energy resources; (ii) itsenergy-efficiency improvement is subject to theavailability of advanced technologies and financialresources; and (iii) its coal-dominated energyresources and consumption structure will notchange substantially over the long term.

China’s historical GHG emissions are verylow. According to the World Resource InstituteClimate Analysis Indicators Tool cumulativeemissions of CO2e of industrialized countriescontributed 76 percent of the world’s totalbetween 1850 and 2004. Cumulative emissionsper capita over this period are 1105.4 tCO2e(USA), 1135 (UK), 963 (Germany), and 334(Japan). In contrast, China’s cumulative percapita emissions are only is 68.9 tCO2e, or lessthan 10 percent of USA and Europe. Recently,however, with rapid economic development andcontinual improvement in living standards,China’s GHG emissions have increased rapidly.According to IEA statistics (2009) annual CO2



1 http://hzs.ndrc.gov.cn/newjn/t20100316_334874.htm

Source: IEA 2009

7000

6000

5000

4000

3000

2000

1000

0

Mill

ion

tonn

es o

f CO

2

Electricity and heat Manuf. ind. and construction Residential Other energy industries Transport Other

Coal/peat Oil Gas

1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

7000

6000

5000

4000

3000

2000

1000

0

Mill

ion

tonn

es o

f CO

2

1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

F I G U R E 2 . 2 Chinese CO2 Emissions by Fuel (left) and by Sector (right)

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emissions from fossil fuel combustions in Chinaexceed the emissions from the USA, althoughper capita emissions in China are in the range ofonly 25-30 percent of the USA. Official GHGemissions for 1994, along with estimates for2004, published by the government (GOC2004; NDRC 2007) show that during thisperiod the annual average growth rate of GHGemissions was around 4 percent (Table 2.1).This is consistent with global trends (the

Netherlands Environmental Assessment Agency2009; Garnaut 2008).

Despite steady social and economic develop-ment, China’s emission intensity, defined as theCO2 emission per unit of GDP, declined (seeFigure 2.3). According to the IEA (2009),China’s emission intensity fell to 2.31 kgCO2/US$ (constant 2000 US$) in 2007, from4.01 kg CO2/US$ in 1990, a 42.3 percentdecrease. For the same period, the emissionintensity of the world average dropped only 14.6percent, while the OECD countries leveldropped 18.4 percent to 0.45 kg CO2/US$.

In China, 204 million people still live belowthe World Bank poverty line of US$ 1.25 perperson per day. Even though China hasimproved living standards for hundreds of mil-lions of people over recent decades, it remains alower middle income country with the largestpoor population of any country in the world,except for India. Its continued economic devel-opment and population growth will continue todrive energy needs as well as both absolute andper capita emissions increases, despite its currentlow per capita emissions and overall decreasingenergy intensity.

RELEVANT MEASURES AND POLICIES FOR CDM PROJECTS IN CHINA

The government of China has long recognizedthe importance of developing CDM projects. Itestablished the Designated National Authority(DNA) for the management of CDM projectsand issued the Interim Measures for Operation andManagement of Clean Development MechanismProjects in China on June 30, 2004, in accordancewith the provisions of the UNFCCC ratified andapproved by China.2 The Measures were intended



T A B L E 2 . 1 Greenhouse Gas Emissions in China

Emissions 1994 Emissions 2004Gas (metric tons CO2e) (metric tons CO2e)

Carbon dioxide 3070 5050Methane 730 720Nitrous oxide 260 330Gross emissions 4,060 6,100Net emissions 3,650 5,600

Source: GOC (2004); NDRC (2007).

Source: IEA 2009

250

200

150

100

50

019751971

1990

= 1

00

1979 1983 1987 1991 1995 1999 2003 2007

CO2/TPESCO2/GDPCO2/capita

F I G U R E 2 . 3 Key Indicators of China’s Emission Development

2 Following consultation with the government of the Hong Kong Special Administrative Region (HKSAR), the central gov-ernment notified the United Nations that the Convention and the Protocol were extended to the HKSAR effective May2003. Under the Convention and the Protocol, HKSAR is required to work jointly with the mainland to fulfill the obliga-tions of parties not included in Annex I to the Convention (non-Annex I parties).

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to strengthen the management of CDM projects,protect China’s rights and interests, and ensurethe proper operation of CDM project activities.After one year of operation, the Measures tookeffect on October 12, 2005 (see Annex 1).

CDM projects must be approved by theDNA. Project implementation institutes, how-ever, are usually not governments and thereforetransparency, high efficiency, and accountabilityare necessary. The Measures represents a cogentinstitutional roadmap for the efficient imple-mentation of CDM projects in China.

The CDM Measures contains five parts: (i) General Provisions; (ii) Permission Require-ments; (iii) Institutional Arrangement for ProjectManagement and Implementation; (iv) ProjectProcedures and; (v) Other Provisions. The detailedtext for all 26 Articles is provided in Annex 1.

The General Provisions state the formula-tion principles of the Measures and the defini-tion of CDM in the Kyoto Protocol. Theyemphasize that CDM project implementationpractices shall be transparent, highly efficient,and accountable. They also rule that CDMprojects implemented in China shall beapproved by NDRC and that priority is to begiven to projects that promote: (i) energy effi-ciency improvement; (ii) development and useof new and renewable energy; and (iii) methanerecovery and utilization. These priority areasare consistent with China’s current status as adeveloping nation.

The Permission Requirements providedetailed regulations on permission requirementsfor the development of CDM projects in China:

• CDM project activities shall be consistentwith China’s laws and regulations, sustainabledevelopment strategies and policies, and over-all requirements for national economic andsocial development planning (see Annex 2),and should promote the transfer of environ-mentally sound technology to China.

• Implementation of CDM project activitiesshall conform to the requirements of the Con-

vention, the Protocol, and relevant decisionsof the Conference of the Parties. It shall notintroduce any new obligation for China otherthan those under the Convention and the Pro-tocol. Funding for CDM projects from devel-oped country parties shall be in addition totheir current official development assistanceand financial obligations under the Conven-tion. Only those CDM projects activities inaccord with relevant international rules can beapproved by the Chinese DNA.

Article 11 of the CDM Measures holds thatonly Chinese-funded or Chinese-holding enter-prises within the territory of China are eligible toconduct CDM projects with foreign partners. Insuch cases, the implementation unit shall submitto the DNA the project design document(PDD), a certificate of enterprise status, generalinformation on the project, and a description ofproject financing. As the purpose of CDM pro-jects is to facilitate sustainable development indeveloping countries, the required documentsassist the relevant departments determine thequalifications of applicants.

The Institutional Arrangement for ProjectManagement and Implementation defines theproject management system and projectapproval procedures for domestic CDM pro-jects. These Arrangements describe the functionof each level of the CDM management system,the obligations of the implementation institutes,and the details of the CDM project managementsystem. The project owner (Chinese-funded or Chinese-holding enterprise) has a range ofduties, including responsibility for constructionof the project, and developing and implement-ing a project monitoring plan to ensure that theemission reductions are real, measurable, longterm, and of added value. This requires theowner to contract designated operational entitiesto validate the proposed project activity and ver-ify its emission reductions. The project ownerwould, on occasions, undertake CDM projectnegotiations with foreign partners. In addition,



7275-CH02.pdf 5/24/10 1:31 PM Page 17

the project owner would submit necessaryinformation and monitoring records to NDRCfor recording purposes, report to NDRC onCERs issued, and abide generally to the super-vision of NDRC.

The Project Procedures component specifiesthe application requirements and approval pro-cedures for domestic projects, and stipulates theregulations and procedures for project imple-mentation, supervision, and verification withreference to relevant international rules.

The Other Provisions enumerate the rev-enue allocation ratios for CDM projects. Whileemission reduction resources are owned by thegovernment of China and the emission reduc-tions generated by a specific CDM projectbelong to the project owner, revenue from thetransfer of CERs is owned jointly by the gov-ernment and the project owner. The govern-ment receives a 65 percent CER transfer benefitfrom HFC and PFC projects, 30 percent fromN2O projects, and 2 percent from projects inpriority areas and forestation projects (see sec-tion 4.9 for details).

These allocations reflect the national natureof the CERs derived from CDM projects, andthe variations among project types conform tothe country’s sustainable development strategy.For priority projects, the government’s lower (2 percent) revenue allocation facilitates devel-opment of these projects. The higher revenuecollected from HFC and other project types hasbecome the main source of funds for China’sCDM Fund, and will be used to support climatechange activities.

KEY CDM ADMINISTRATIVEINSTITUTIONS

According to the CDM Measures, the NationalClimate Change Coordination Committee(NCCCC) is responsible for: (i) formulatingnational CDM policies, rules, and standards;(ii) approving members of the National CDMBoard; and (iii) reviewing other issues as neces-

sary. In June 2007, the State Council estab-lished the National Leading Group on ClimateChange (NLGCC), which replaced theNCCCC in policy making and coordinatingCDM-related issues. Figure 2.4 shows the struc-ture for CDM management.

NDRC and the Ministry of Science andTechnology (MOST) serve as co-chairs of theNational CDM Board, and the Ministry of For-eign Affairs (MOFA) serves as the vice chair.Other board members are the Ministry of Envi-ronmental Protection (MOEP), the ChinaMeteorological Administration, the Ministry ofFinance, and the Ministry of Agriculture(MOA). The National CDM Board is responsi-ble for providing expert review of CDM projectactivities as well as reporting to the NLGCC onthe overall progress of CDM project activities.The National CDM Board is represented byrelated ministries with members holding a levelof minister or vice minister.

Under the direction of NCCCC, NDRC wasappointed to host the Designated NationalAuthority (DNA) for CDM as one of its com-petence centers. As China’s DNA, NDRCassumes a number of responsibilities includingaccepting CDM project applications, approvingCDM project activities jointly with MOST andMOFA, and issuing approval letters on behalf ofthe government. It also supervises the imple-mentation of CDM project activities and estab-lishes the CDM project management institute inconsultation with other departments.

The establishment of the National CDMProject Management Center in 2007 was a keystep in building concrete technical support tothe DNA. To promote the development ofCDM and international cooperation on climatechange, NDRC authorized its Energy ResearchInstitute to establish the National CDM ProjectManagement Center. The DNA, located withinNDRC, allocates day-to-day duties to the CDMProject Management Center and supervises itsoperations. This center is charged with the fol-lowing responsibilities, including



7275-CH02.pdf 5/24/10 1:31 PM Page 18

• establishing a CDM project managementdatabase, providing CDM project develop-ment and management information, andrecording CERs in the database; and

• monitoring and supervising the implementa-tion of CDM projects.

The CDM PMC also conducts capacity-buildingactivities on CDM and provides managementand technical consultation services, manages andcoordinates the international cooperationimplemented by the office of the NGLCC and,under the guidance of the office of the NLGCC,takes responsibility for managing CDM Fund-supported projects. The Center also undertakesresearch commissioned by the office of theNLGCC, manages and implements other inter-national cooperation projects on climate changecommissioned by other organizations anddepartments as well as organizing experts toreview the CDM projects.

The CDM Measures state that the govern-ment will collect a certain ratio of revenues toestablish the National CDM Fund. The fundwill be used to promote domestic CDM projectsand related climate change mitigation and adap-

tation projects and activities. It will be managedby the National CDM Fund Board, consistingof members from NDRC (Chair), the Ministryof Finance (MOF – Vice-Chair), MOFA,MOST, MOA, MOEP, and the China Meteo-rological Administration. A CDM Fund Man-agement Center, established under MOF since2007, to primarily assist with communicationbetween participants and members, will be oper-ated under the guidance of the CDM FundBoard. The regulations on revenue collectionand use will be formulated by MOF withNDRC and other relevant departments. TheCDM Fund Board will review the basic man-agement system of the CDM Fund as well asproject applications and significant CDM proj-ect activities and achievements. In addition, theBoard will audit the annual financial budget andfinal accounting report of the CDM Fund.

DOMESTIC APPROVAL PROCEDUREFOR CDM PROJECTS IN CHINA

The CDM Measures stipulate detailed rules onCDM project approval procedures. (This sectionis supplemented by Annex 3, which provides



National Leading Group on Climate Change (NLGCC)Headed by: Premier Wen JiabaoMembers = 18 State Ministries

Designated NationalAuthority (DNA)

NDRC

National CDM BoardCo-Chair: NDRC and MOST

Vice-Chair: MFA

National CDM Fund BoardChair: NDRC

Vice-Chair: MOFMembers:

MFA, MOST, MOA, MOEP

CDM Fund ManagementCenter

National CDM ProjectManagement Center

F I G U R E 2 . 4 CDM Management Structure

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background on the general CDM project cycle.)The procedures in the Chinese Measures apply toCDM project activities, whether individual orbundled, but do not apply to CDM Programs ofActivities (PoA’s) authorized by the CDM Exec-utive Board in June 2007, after the CDM Mea-sures were issued. (To date, while the DNA hasaccepted PoA applications, it has not yet issuedany LoA.)

In the project development stage, projectowners develop potential CDM projects, andcomplete a PDD. The EB has detailed regula-tions for the format and contents of PDDs toaccommodate different types of CDM projects.The baseline methodologies adopted by a CDMproject must be those approved by the EB, andthe monitoring plan should be establishedaccording to the corresponding monitoringmethodologies approved by the EB.

The application process requires that insti-tutions applying for CDM projects within theterritory of China3 should submit an applicationto NDRC with a prepared PDD and otherapplication documents. Relevant administrativeunits and local governments can organize enter-prises to apply. Application documents includean application letter for CDM projects, anadministrative application form for CDM proj-ect activities and a CDM PDD.

The application should contain an introduc-tion of the project status and its financing, includ-ing general information about the project ownerand foreign partner(s), a brief technical descrip-tion of the project activity, total investment andproject financing, technology process(es), esti-mated GHG emission reductions, economic andenvironmental benefits of the project, theapproval status of the construction of the project,environmental impact assessment (if approved,copies of the approval certificate are required) andthe current status of the project.

NDRC invites relevant organizations to pro-vide expert reviews of project applications. ForCDM projects that have passed the preliminaryapproval process, the DNA will invite experts toreview the project documents for each project.This review process, required within 30 days,includes: (a) methodologies used, includingselection and use of the baseline methodologiesand monitoring methodologies (including fixa-tion of the baseline scenarios); (b) additionalitydemonstration; (c) calculation of emissionreductions; and (d) monitoring plan. In addi-tion, the experts will emphasize adherence toChinese laws and regulations and alignmentwith relevant sectoral policies. They will also val-idate participant eligibility and obtain com-ments from stakeholders.

The DNA arranges a monthly meeting of theNational CDM Board to review all projects inthe application phase. Based on the expertreviews, the Board will focus on the eligibility ofthe involved participants, the CDM PDDs,baseline methodologies and GHG emissionreduction, the CER transaction prices, transac-tion conditions for capital and technologies,crediting period monitoring plan and expectedsustainable development effects.

The CDM Measures, especially Articles 5 to 9(Annex 1), require the CDM Board to evaluateseveral additional facets of the project, includingan examination of the environmental assessmentreply letter and the feasibility report reply letter.These steps aim to determine: (i) eligibility andwhether it will facilitate national sustainabledevelopment; (ii) eligibility in terms of con-struction; (iii) consistency with national laws,rules, and sustainable development strategies;(iv) conformity to the comprehensive require-ments for the national economy and the socialdevelopment plan; and (v) use of official devel-opment assistance (ODA) for financing. If con-



3 The application and approval procedures for CDM projects in HKSAR include many of the same steps and processes as onthe mainland, as well as some exclusive to HKSAR. For more details see Annex 6.

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sensus is reached among all present members,the project is approved.

According to the decision of the NationalCDM Board, NDRC and MOST will approveprojects together while NDRC will work on theadministrative procedure for issuing the Letterof Approval and inform the project participants.NDRC will make a decision on a project appli-

cation within 20 days (excluding the expertreview time) from the date of accepting theapplication. Those projects that receive theapproval of the DNA can continue to the nextapplication step. Those not approved by theDNA may also continue to the next step afterincorporating amendments to their project doc-uments recommended by the CDM Board.



1 Projectdevelopment

2 Submission ofCDM Application

to NDRC

3 Expert review

4 National CDMBoard Meeting

6 Approval Letter

Maybe reconsideredsubject to further

improvement

Non-rejection letter (ifthe buyer demands)

Letter ofRejection

Reject Reconsider5 Decisionmaking

F I G U R E 2 . 5 CDM Project Approval Procedures in China

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The government of China proactively supportsthe development of CDM as one means of imple-menting its obligations under the UNFCCC andKyoto Protocol. CDM opportunities in Chinaare attracting a growing number of foreign CERbuyers, as well as domestic and international proj-ect developers. This chapter provides an analysisof the development of the CDM market in Chinaaccording to different sectors, regulatory patternsand provincial distribution (sections 3.1–3.3),key market players (sections 3.4–3.6), the role ofthe World Bank (section 3.7), and examples ofsuccessful CDM projects (section 3.8).

CDM PROJECTS IN CHINA

Since 2004, when the Chinese government andthe World Bank, together with German GTZand the Swiss SECO, published the report“CDM in China: Taking a Proactive and Sus-tainable Approach,” China has undergone aremarkable transformation from an entry-levelplayer in the global carbon market to domina-tion of CDM supply. The report recommendedthat China (i) adopt a proactive and sustainableCDM policy; (ii) put in place the basic regula-tory framework to facilitate CDM in China;(iii) ensure that critical CDM capacity is devel-oped; and (iv) encourage CDM project identi-fication and implementation. As described in

the previous chapters and evidenced by theproject data provided below these recommen-dations were fully embraced.

There are now many types of CDM projectsin China. The previous CDM in China report(World Bank 2004) estimated China’s CDMpotential—measured by the number of CERs—to be distributed across the economy as follows:electricity generation, 50 percent; steel andcement production, 10 percent each; non-CO2

projects (in particular, HFC-23 decompositionand methane capture), 10 percent; chemicalindustry, 5 percent; and other industries, 15 per-cent (see Figure 3.1). However, actual CDMdevelopment has varied markedly from the origi-nal expectation. The largest share of expectedannual CERs of registered projects as of March 1, 2010 is expected to be generated from industrialprocesses (see Table 3.1).

Table 3.1 shows 205 million CERs regis-tered as of March 1, 2010, which is the esti-mated annual average of the 751 projectsalready registered. As mentioned in Section 1.3, based on assumptions made in PDDs, these751 projects represent “on paper” a cumula-tive total of 962 million CERs by the end of2012. However, actual issuances will be muchless, perhaps only around 600 million CERs(for reasons cited in Section 1.3). As ofMarch 1, 2010, 186 million CERs have been

Analysis of the CDM Market in China

3

�

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A N A L Y S I S O F T H E C D M M A R K E T I N C H I N A



160

140

120

100

80

60

40

20

0 2Q/2005

CementRenewable EnergyEEFossil Fuel SwitchN2OMethaneHFCA/R

3Q/2005

4Q/2005

1Q/2006

2Q/2006

3Q/2006

4Q/2006

1Q/2007

2Q/2007

3Q/2007

4Q/2007

1Q/2008

2Q/2008

3Q/2008

4Q/2008

1Q/2009

2Q/2009

3Q/2009

4Q/2009

1Q/2010

F I G U R E 3 . 1 CDM Projects Registered in China According to Different Sectors

TABLE 3.1 Types of Registered CDM Projects in China

Percentage of CERs/year Percentage ofProject Type No. of Project Total Number (ktCO2-e) Annual CERs

Wind 165 22.0% 19,525 9.5%Hydro 370 49.3% 39,458 19.3%

HFCs 11 1.5% 65,651 32.0%

Methane 61 8.1% 18,582 9.1%

Energy Efficiency 73 9.7% 16,314 8.0%

Afforestation &Reforestation 2 0.3% 49 0.02%

N2O 26 3.5% 20,932 10.2%

Biomass 16 2.1% 2,496 1.2%

Fossil Switch 19 2.5% 20,525 10.0%

Produce Cementfrom CalciumCarbide 5 0.7% 1,199 0.6%

Solar 3 0.4% 112 0.05%

Total 751 100.0% 204,843 100.0%


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issued, the large majority (77 percent) ofwhich have been issued to HFC projects (seeFigure 3.1).

Of the 751 registered projects, 21 projects areregistered as Gold Standard projects. CDM projects that are certified to the Gold Standardprovide measurable and verifiable social and ecological co-benefits and reach a significantlyhigher price on carbon markets. Most of these21 Gold Standard projects are wind projects.

As the CDM is being further developed, newproject types and technologies are introduced,new methodologies are proposed, and existingmethodologies like ACM0002 (for renewablepower generation) are revised. As a result, thebreadth of project types has expanded over time.In China, while CDM projects are being devel-oped in many sectors, the majority, as measured

by the number of projects, are now in the fieldof renewable energy and energy efficiency. Esti-mations of annual CER production of hydroprojects now account for 28 percent followed byother renewables (wind, biomass and solar) with17 percent, and energy efficiency projects with16 percent.

Renewable energy projects constitute themajority of current CDM projects in China. Atotal of 1,665 renewable energy CDM projectshave been approved by China’s DNA, amount-ing to 69 percent of the total. The estimatedannual emission reduction is 202,696 ktCO2e,equal to 45.7 percent of the total expected annualemission reductions of approved projects.

Hydropower and wind power are the twomajor types of renewable projects. As of March 1, 2010 a total of 1,105 CDM projects in



TABLE 3.2 Project Type of DNA-Approved CDM Projects in China

Percentage of CERs/year Percentage ofProject Type No. of Projects Total Number (ktCO2-e) Annual CERs

Produce Cement 21 0.9% 3,550 0.8%from CalciumCarbide

N2O 28 1.2% 16,039 3.6%

HFC-23 11 0.5% 66,798 15.1%

Wind 451 18.7% 57,894 13.1%

Methane Recovery & 189 7.8% 51,733 11.7%Utilization

Energy Efficiency 449 18.6% 72,147 16.3%

Fossil Fuel Switch 42 1.7% 29,519 6.7%

Biomass Energy 103 4.3% 19,243 4.3%

Hydro 1,105 45.8% 125,318 28.3%

SF6 Recovery & 1 0.04% 156 0.04%Utilization

Solar 6 0.2% 242 0.05%

Afforestation and 5 0.2% 118 0.03%Reforestation

Transportation 2 0.08% 429 0.1%

Total 2,413 100.0% 443,187 100.0%


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hydropower had been approved correspondingto 45.8 percent of the total number. These aremostly run-of-the-river hydropower stations. Asof the same date, a total of 451 wind powerCDM projects had been approved, 18.7 percentof the total amount. Combined, the hydro andwind projects account for 183 million tCO2ein estimated annual emission reductions, or41.4 percent of the total expected annual emis-sion reductions of approved projects.

Two factors contribute to this situation. First,China is rich in water and wind resources, andthese projects can be readily developed intoCDM projects. The expected income of CERsfor these types of CDM projects has spurredinvestment, and many enterprises have joinedthis sector. Second, methodologies for theseCDM projects are straightforward. Untilrecently, their baseline and additionality wereclearer than for other types of CDM projects,and most enterprises and consulting firms there-fore selected hydro or wind projects as the start-ing point of their CDM business. However,recent developments in the ruling on the regis-tration of renewable energy projects by theUNFCCC’s CDM Executive Board appear tohave made it more difficult for hydro and windprojects to demonstrate additionality in the con-text of national policies. This recent develop-ment has created some uncertainty in the marketand a drop-off in new renewable energy projects.

Energy-saving and -efficiency improvementprojects constitute the second largest type ofCDM projects approved in China in terms ofnumber of projects. As of March 1, 2010, a totalof 449 CDM projects of this type had beenapproved accounting for 18.6 percent of the totalnumber of projects. The estimated annual emis-sion reductions are 72,147 kt CO2e, correspond-ing to 16.3 percent of the total expected annualemission reductions of approved projects. Thevast majority of these projects are heavy industrialwaste heat and gas projects, in accordance withone of the 10 energy conservation programsincluded in the Medium- to Long-Term Plan for

Energy Conservation (MLTPEC). However, incontrast, there has been little or no CDM activity in key end-use areas included in theMLTPEC such as electric motor systems, indus-trial process efficiency, building energy effi-ciency, or high-efficiency lighting, which aretargeted for large energy savings.

The following categories of CDM projectsconstitute the third largest group: (i) methanerecovery and utilization; (ii) chemical industries;and (iii) other.

Methane Recovery

The CNCCP calls for methane emission reduc-tions, including via CDM, of 200 Mt CO2ebetween 2006 and 2010. As of March 1, 2010,a total of 189 CDM projects of this type hadbeen approved, 7.8 percent of the total number.The estimated annual emission reductions are51,733 ktCO2e/y corresponding to 11.7 percentof the total expected annual emission reductionof approved projects. Most of these projects arelandfill methane capture.

Then, the 11th Five-Year Plan for Develop-ment and Utilization of Coalbed Methane andCoal Mine Methane called for production of 5 billion m3 each of surface-drained coalbedmethane (CBM, with a utilization rate of 100 per-cent) and coal mine methane (CMM) drainedunderground (with a utilization rate of over 60 percent) in 2010. Major incentive policieswere introduced, including exemption of fees, aprice equivalence to natural gas, and preferentialtax policies. After the Ministry of EnvironmentProtection published the CBM/MM law in April2008, 18 CBM/CMM projects have been regis-tered. Four of these projects are from ShanxiProvince with the remainder coming from six dif-ferent provinces. Unfortunately, the registrationof coal mine methane projects is progressingslowly. The complex technologies combined withregulatory environment (incentive schemes)issues have caused delays in the validation processby DOEs.



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Chemical Industries

Industrial greenhouse gases have high globalwarming potential, so although they are emittedin small quantities, they result in significant cli-mate forcing. The CNCCP does not containemission reduction targets for industrial gases,but it does promote CDM projects to controlNOX, HFC, PFC, and SF6 emissions.

As of March 1, 2010, 11 HFC projects havebeen approved (all of which are registered andalready issuing CERs) corresponding to 0.5 per-cent of the total number of DNA approved proj-ects. However, in terms of CERs, these are thelargest CDM projects in the world. Annual CERsare estimated to be as high as 66,798 ktCO2e, or15.1 percent of the expected annual total by2012, and issued CERs constitute 77 percent ofthose issued to date. As per the same date, 28 N2Oprojects have been approved, with annual CERsreaching 16,039 ktCO2e, 3.6 percent of theexpected national total. Currently only one SF6

project has received DNA approval with esti-mated annual CERs of 156 ktCO2e.

Other

There are a few more sectors in which Chinahas developed a small number of CDM pro-jects, including afforestation/reforestation,transport, fossil fuel switching, and cementsector. A total of 70 approved projects fall intothese categories, accounting for about 7.5 per-cent of annual CERs.

Perhaps the most challenging of these is theforestry sector. The 11th Five-Year Plan calls foran increase in the forest coverage rate to 20 per-cent by 2010. As a result of these measures,including afforestation, the return of farmlandto forest and grassland, and forest protection, theCNCCP expects the carbon sink to increase by50 Mt CO2 by 2010 from the 2005 level. How-ever, as of now, only five afforestation and refor-estation projects have been approved in China.The low price of CERs, the small number ofcumulative CERs through 2012, and compli-

cated methodology make it difficult to developthese activities into CDM projects. In addition,most of the forest farms are owned by the gov-ernment, and are therefore ineligible to qualifyas a project participant according to the domes-tic Chinese CDM Measures.

The above profile of China’s CDM projectsdemonstrates that China’s recent CDM imple-mentation is widely distributed across sectors,and is consistent with the guidance of the Chi-nese DNA.

EVOLUTION OF CDMIMPLEMENTATION IN CHINA ANDUNDERLYING FACTORS

As shown in Chapter 1, China is the dominantcountry in the international CDM market.Transparent management policy, awareness-raising, and capacity development efforts, as wellas the overall mitigation potential and associatedscope for CDM in China, have all contributedto the rapid expansion of CDM development. Itshould also be noted that from the beginning of2009, the numbers and expected CERs of DNAapproved projects have tended to decline. Thisis mainly due to the fact that there are systemicdelays throughout the registration, verificationand issuance processes, there is no further poten-tial for developing additional large HFC-23 projects, and there is an uncertain internationalpost-2012 policy environment. The recentglobal financial crisis of the last 18 months hasexacerbated this trend.

Due to the characteristics of internationaland domestic procedures, there are inherent lagsin the process, which begins with approval bythe Chinese DNA, then continues with therequired completion of the international valida-tion and registration process, and ends withissuance of the first CERs from a project once ithas been implemented and the resulting emis-sion reductions are verified. Figure 3.2 illustratesthe status of the DNA-approved Chinese proj-ects as they move through this process. As of



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March 1, 2010, the Chinese DNA had approved2,413 projects, of which 751 (31 percent) hadbeen registered by the CDM EB, of which 206have issued CERs.

Figure 3.3 shows an overview of the durationof the validation period until projects reach reg-istration for the global and the Chinese CDMpipeline as of March 1, 2010. It has been initiallyassumed that this period should take less than ayear and this was the case until mid-2008 (URC2010a). Analyzing the 751 registered ChineseCDM projects as of March 1, 2010, it can beobserved that for 43 percent of the registeredprojects (320) this period took between 400 and600 days. Only 170 projects (23 percent)remained in the validation period for less than ayear, whereas the average duration is 504 daysfor the Chinese pipeline and 443 days for theglobal pipeline. Therefore, two conclusions areevident: first, that the global processing time ofCDM projects is longer than was originally pre-sumed; and second, that China projects takeeven longer than the world average (see Annex 3for details on project cycle).

As shown in Figure 3.3 the validation process(from start of the public comment period undervalidation) by DOEs and the registrationprocess with the EB have been slower thanexpected both for the global as well as for theChinese pipeline. The length of this period(which includes the process for submission ofpublic comments) reduces the appeal of CDMproject development, as the delay reduces thevolume of CERs the project can generate by theend of 2012. Reasons for these delays are man-ifold. First, there is a limited number of eligibleDOEs available processing more projects in theCDM pipeline as well as a limited number ofDOE staff with knowledge of the Chinese lan-guage and CDM-related sectors in China. Sec-ond, the rapid growth in the number of projectssubmitted for validation creates a bottleneckboth within the DOEs and the CDM EB. For-tunately, as the inflow rate of projects for vali-dation has started to decrease since early 2009,and as the EB accredited two Chinese validatorsin March 2009, this bottleneck might diminishin the future. Third, the suspension of some key




F I G U R E 3 . 2 Status of DNA-Approved Chinese CDM Projects on March 1, 2010

Project numberEstimated annual CERs

3000

2500

2000

1500

1000

500

0

500

450

400

350

300

250

200

150

100

50

0DNA Approved

Pro

ject

s

Registered Issued

mil.

CE

Rs

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validators, on which China was reliant, such asDNV, TUV-SÜD and SGS for some monthsduring 2009, created further time lags. Fourth,methodological issues, relating to the addition-ality requirements of wind, hydro or methaneprojects, created further delay and correctionloops regarding validation and registration.There was also increased regulatory scrutiny byUNFCCC and project submissions constrainedby capacity gaps from the project developers/DOEs leading to increased rejections and timelags in registration. However, reforms planned bythe EB during 2010 such as the streamlining ofprocedures are expected to improve the situation.

However, duration until first issuance is alsoinfluenced by project participants. For manyproject types e.g. renewables, an annual issuancecycle is chosen in cases where verification costsare high compared to CER revenues. On theother hand, HFC projects have shorter verifica-tion and issuance cycles, as the costs of verifica-tion are negligible compared to CER value.Therefore, HFC projects had much shorterdurations until first issuance.

Due to the rapid development of the globalpipeline during the last two years (until March 1, 2010), the average performance rate across alltypes of CDM projects world wide (i.e. the com-parison of CERs actually issued in the first yearcompared to estimated CERs in the PDD) is 83percent (see Figure 3.5) while the average per-formance rate in China is marginally higher at84 percent. China also has a higher share in thecategory of “over-performing” projects (i.e.,issuances 100-120 percent of the PDD) mainlydue to well performing N2O and HFC pro-jects, combined with a smaller share in very lowperforming projects (0-20 percent). In China67 percent of projects already issuing CERshave a performance rate of between 60 and 120 percent, showing some sectoral patterns.Industrial gas projects (mainly HFC) show per-formance rates around 100 percent. Wind proj-ects achieve an average of 87 percent, whereashydropower projects show average issuance ratesof 88 percent (the global average for hydro proj-ects is 93 percent). Landfill gas projects remainedat a low performance level of around 28 percent



Source: URC 2010a

45

40

35

30

25

20

15

10

5

0 <200

Per

cent

age

200–400 400–600

Days

600–800 800–1000 >1000

Number of projects of Chinese pipline (%)

Number of projects of global pipeline

F I G U R E 3 . 3 Duration in Days from Start of Public Comment Period under Validation until Registration for the Global Pipeline and Chinese Pipeline

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(below the global average of 45 percent), althoughthis may be due to the methodological approachesused in the PDDs to estimate landfill gas yieldwhich turned out to be overly optimistic.

CDM AT THE PROVINCIAL LEVEL

China demonstrates significant differences at theprovincial level with respect to types of CDMopportunities (sectors, technologies), GHG mit-igation and CDM potential, human and institu-tional capacity to identify and implement CDMactivities, and the local sustainable developmentbenefits resulting from CDM project activities.CDM projects are widely distributed acrossChina: for example, only 7 provinces amongChina’s 23 provinces have fewer than 10 regis-tered CDM projects. (Tianjin, Taiwan andTibet have no CDM projects.) Yunnan Provinceleads with 94, followed by Sichuan with 69, asof 1 March 2010 (see Figure 3.6).

Analysis of the provincial status is based onChina CDM project management database as of

March 1, 2010.1 It is notable that Yunnan, InnerMongolia, Hunan, and Gansu, poorer provinceson a per capita GDP basis, host among thelargest numbers of CDM projects.

In recent years, the geographical distributionof projects has shifted toward the southwest(Figure 3.7). There also is a general trend towardrelatively fewer new projects in the wealthierprovinces compared with projects already regis-tered. This is consistent with the government’saim that CDM should contribute to local sus-tainable development, particularly in the poorerregions of the country. It may, however, alsoindicate that it is more challenging to demon-strate the additionality of CDM project activi-ties with respect to normal business practices inprovinces with better developed human andfinancial capacities.

CER volumes, however, have a more unevendistribution that favors the eastern provinces(Figure 3.8). Eastern provinces that have hostedmultiple large-scale industrial HFC destructionprojects (Jiangsu, Zhejiang, Shandong) have



Source: Calculation from data from URC 2010a as of March 1st, 2010.

600

500

400

300

200

100

0 Hydro

Day

s

Wind N2O EE Own Generation

HFC

Registered global projects

Registered Chinese projects

F I G U R E 3 . 4 Average Duration in Days between Registration and First Issuance

1 Differences in the number of registered projects may occur due to slightly different cut off dates between the RISOE pipeline(URC 2010a) and the Chinese CDM project management database.

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prospered more, whereas provinces that havehosted many small-scale renewable energy proj-ects such as hydro projects in Gansu Province andwind power projects in Inner Mongolia have notbenefited from high CER volumes and the result-ing sales revenues (although other local sustain-able development benefits are likely to accrue).

Figure 3.8 indicates that as more recentCDM projects start getting registered and issu-ing CERs, there is likely to be a dramatic shift inthe number of annual CERs away from thewealthy eastern provinces toward a more bal-anced distribution. This will be consistent withChina’s CDM priorities, moving from an



Source: Calculation from data from URC 2010a as of March 1st, 2010.

35

30

25

20

15

10

5

00%–20%

Per

cent

age

20%–40% 40%–60% 60%–80% 80%–100%100%–120% >120%

Number of globalprojects (%)

Number of Chineseprojects (%)

F I G U R E 3 . 5 Number of Global and Chinese Registered Projects (%) with DifferentIssuance Success


35,000

30,000

25,000

20,000

15,000

10,000

5000

0

1009080706050403020100Shanghai

Hainan

Beijing

Ningxia

Xinjiang

JilinShaanxi

Jiangxi

Chongqing

Anhui

Heilongjiang

Liaoning

Zhejiang

Qinghai

Guangxi

Guangdong

Henan

Shanxi

Fujian

Hubei

Jiangsu

Guizhou

Hebei

Shandong

Hunan

Gansu

Inner Mongolia

Sichuan

Yunnan

Registered Annual CERs (ktCO2e)Registered Project Numbers

F I G U R E 3 . 6 Provincial Distribution of Registered CDM Projects as of March 1, 2010, and Annual CERs Expected

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F I G U R E 3 . 7 Number of Projects Registered (left) and Those Approved by DNA as of March 1, 2010

Source: China CDM project management database, as of March 1, 2010.

F I G U R E 3 . 8 Annual CERs from Registered Projects by Province and Adherence to ChineseCDM Priorities for Registered Projects (left) and DNA-Approved Projects

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industrial HFC-dominated CER portfoliotoward one with more attention to renewableenergy, energy efficiency, and methane projectslocated in the less developed regions.

Of China’s provinces and regions, Yunnanhas the highest number of projects, with anemphasis on hydropower development. InnerMongolia ranks third in terms of number ofprojects and is a leader in wind power devel-opment. Shanxi ranks fourth in terms of CERsand is a leader in coalbed methane develop-ment. Hubei has the tenth largest provincialCDM program in the country in terms ofnumber of projects (81), of which 41 arehydropower, 26 are EE projects, and the other14 are wind power, fossil fuel switching, bio-mass, and methane recovery and utilization.However, as outlined in Table 3.3, issuance ofregistered projects in these four provinces,both in relation to CERs issued nationwide aswell as in terms of expected 2012 CERs to begenerated according to PDD estimation. Morespecifically, by in CERs generated by March 1,2010, hydro projects in Yunnan accounted for13.3 percent; Inner Mongolia is leading onwind, having generated 28.1 percent whileShanxi accounted for more than 78 percent ofCERs for coal bed mine and methane.

For those interested in more information,case studies specific to these four provinces—Yunnan, Inner Mongolia, Shanxi and Hubei—are provided in part II of this report, before theannexes. This section is intended to provide arepresentative overview of provinces with differ-ent characteristics. The case studies give project-specific details on current implementation statusand achievements.

CHINESE DOMESTIC CDM MARKETPLAYERS

Project Entities

Domestic and foreign entities, through their var-ious functions, shape China’s CDM market.

This section offers a brief introduction to theseparticipants and includes domestic entities, proj-ect owners, consultancies and Chinese DOEs.

The development of the Chinese CDMmarket has been supported by targeted capac-ity building. It has also been aided by theorganic pursuit of new business opportunitiesby Chinese enterprises that host CDM projectsas well as market intermediaries that providethe technical, financial, and brokerage servicesthat assist project owners in turning opportu-nities into CER revenues. CDM allows project-based cooperation among private and publicentities according to Article 12 of the KyotoProtocol.

China’s CDM Measures state that only Chinese-funded or Chinese holding (joint-venture) companies within the territory ofChina are eligible to conduct CDM projectswith foreign buyers. This restriction limits thenumber of potential CDM project ownersbecause wholly foreign-owned enterprises andequity joint ventures are excluded.

In China, the owners of CDM projects canbe broadly categorized as state-owned enter-prises (SOEs), municipality enterprises (MEs),and private enterprises (PEs) (Figure 3.9). SOEsare administered by the state-owned AssetsSupervision and Administration Commission ofthe State Council (SASAC); MEs are controlledand supervised by local governments; PEs arewholly owned or controlled by Chinese privatecapital. Two-thirds of all approved CDM pro-jects are owned by MEs.

Some large enterprises in the power sectorhave established internal CDM developmentgroups and implemented a number of large pro-jects. For example, Datang Corporation under-takes CDM project development with the helpof its subsidiary, the China National WaterResources and Electric Power Material & Equip-ment Corporation Ltd. Currently, Datang Cor-poration has more than 80 CDM projectsapproved by DNA, most of which are windpower and hydropower projects.



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Source: China CDM project management database.Notes: SOE = state owned enterprises; ME = municipality enterprises; PE= private enterprisesThis graph was developed in 2008.

5%

CDM project number share ofdomestic enterprises

27%

68%

SoEMEPE

F I G U R E 3 . 9 Type of Domestic Enterprises Hosting DNA-Approved Projects

TABLE 3.3 Overview of Total CER Issuances According to Project Sectors and SelectedProvinces, as of March 1, 2010 (in 000s CERs)

Total KCERs Total kCERsSubtotal Issued in in the Sectorby Sector the Sector in in China

Inner for Selected China as of Expected byYunnan Mongolia Shanxi Hubei Provinces March 1, 2010 2012

Hydro 992 319 1311 7483 154953

Wind 2706 2706 9641 85777

EE Own Generation 306 34 340 7029 73665

Landfill Gas 0 450 21675

N2O 457 457 12794 98715

Coal BedmineMethane 2149 2149 2753 62747

Fossil Fuel Switch 0 1994 83499

Biogas 0 0 11754

Cement 0 0 362784

Biomass Energy 0 444 1733

HFCs 0 143366 4461

Solar 0 380

Reforestation 0 312

Subtotal byProvinces 992 3012 2640 319

Source: URC 2010a.

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The complex international and domestic pro-cedures for implementing CDM projects—fromdeveloping the project design (including base-line study, PDD preparation, and validation)through DNA approval, CDM Executive Boardregistration, project implementation and moni-toring, and certification of the resulting emissionreductions—require technical, financial engi-neering, and managerial capacity. Pointcarbon(2008) reports that upfront investment costs areon the order of US$ 100,000 to develop and reg-ister a CDM project. Project management (typ-ically, a team separate from project developersthat manage a project and monitor data) is evenmore challenging because the concept of CDMis still unfamiliar for domestic enterprises. Man-aging and optimizing the benefits of CDM pro-jects requires diligence and patience for projectowners.

Currently, nearly 50 consultancies are listed inthe official government CDM Web site (http://cdm.ccchina.gov.cn), while the real number ofthese entities in the China CDM market may befar higher. Initially, apart from foreign consult-ing agencies, only governmental organizations oracademic institutions offered such services fordomestic enterprises interested in CDM projects.With the rapid growth of this market, increasingnumbers of domestic private consulting agenciesare now involved. Domestic consultancies havebeen involved in nearly 75 percent of theapproved projects by the China DNA (accordingto the information provided in PDDs). Therapid development of the CDM market in Chinasince 2004 has attracted a growing number ofconsultancies providing services like consulting,PDD writing, and project application-filing forproject owners (see Figure 3.10).

Designated Operations Entities(DOEs)

At the 46th meeting of the CDM EB on March 25, 2009, the China EnvironmentalUnited Certification Center Co. (CEC) and

China Quality Certification Center (CQC)received accreditation from the UNFCCC-CDM—EB-AP, making them the first ChineseDOEs. Subsequently, other domestic entitieshave applied for DOE accreditation. This grow-ing DOE capacity in China is an importantdevelopment that should help ease the bottle-neck created by a lack of sufficient DOE capac-ity to handle the large and growing number ofChinese CDM submissions.

Emerging Carbon Exchanges

There is a growing number of China Environ-ment/Energy Exchange Centers. Although theChinese regulator has not officially endorsed anyof these environment/energy commodityexchanges for CER/VER/voluntary based trans-actions domestically, those exchange centers arepilot efforts to bring emissions trading to China.Their ultimate goal is to service the CER/VERmarket post-2012, or if a mandatory cap-and-trade system in China is introduced. Althoughclarity in market demand and supply is still lack-ing given the uncertainty of the post-2012 car-bon market conditions, the effort of theseexchanges is nonetheless commendable for theirlearning-by-doing approach and for developinga platform for policy dialogue with policy mak-ers and with key stakeholders.

The China Beijing Environmental Exchange(CBEEX) was established on August 5, 2008,with the approval of the Beijing municipal gov-ernment. It is a professional market platform fortrading various environment commoditiesincluding SO2, COD and CO2. The foundingmember includes China Beijing EquityExchange (CBEX), The New Energy Invest-ment Ltd. of China National Offshore Oil Cor-poration, China Guodian Corporation, andChina Everbright Investment ManagementCorp. The advantage of this shareholding struc-ture is that the two major energy companies cancreate demand/supply of carbon credit, while acommercial bank can help attract financing.



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In December 2009, CBEEX launched the“Panda Standard” which set a domestic volun-tary GHG offset standard. To qualify under thisstandard, emissions reduction/removal projectsmust comply with the following seven core prin-ciples of the Panda Standard: real; additional;measurable, reportable and verifiable; unique;permanent; able to demonstrate ancillary bene-fits; and unambiguously owned.

In January 2010, BBEEX instigated a “Car-bon Neutral Alliance” and issued a low-carboncredit card in partnership with Minsheng bank,which allows credit card owners to purchase vol-untary carbon credit to reduce their carbon foot-print. These moves are viewed as creating somedegree of market demand for project-based vol-untary carbon offset credits. It is not clear howmany companies have joined the alliance.

The Tianjing Climate Exchange (TCX)commenced in September 25, 2008 with regis-tered capital of 100 million RMB. The mainfounding members are China Petroleum Chem-ical (CPNP) Asset Management Corporation(holding 53 percent equity), Tianjin PropertyRights Exchange (holding 22 percent equity),and Chicago Climate Exchange (CCX) (with a

25 percent holding). It claimed to be China’sfirst integrated exchange for trading environ-mental financial instruments.

On February 9, 2010, TCX started the Tian-jing Energy Intensity Exchange which is based onintensity targets for the building sector. The firstcontract was signed by three thermal-heat supplycompanies—Tianjing Taida Cogen Company,Tianjin Jinhong Thermal Energy ConstructionCompany and Tianjin Jinqiang Energy Conserva-tion Company. These three companies will sell11,500 tCO2e to be achieved in the winter of 2010through building energy efficiency projects, at aprice of RMB 50/ton (equivalent to US$ 7.4/ton).The buyers are Russia Natural Gas Corporationsand Citi Group. Tianjing Jinhe Building Effi-ciency and Certification Company will providethe verification services.

Similar to the Chicago Climate Exchange,TCX also has a member-based voluntary carbonreduction program. More than 30 industrialcompanies have already signed up for this vol-untary program covering steel, cement, powergeneration, and telecommunication sectors.However, the rules regarding how the voluntarytarget is set for members and also the method of



Source: http://cdm.ccchina.gov.cn

28%

72%

CDM project number share ofdomestic consultancies

Academic institutes Others

F I G U R E 3 . 1 0 Involvement of Domestic Private Sector Consultancies and Academic Institutes in DNA-Approved Projects

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verification of the carbon reduction are both stillunder design.

Shanghai Environment Exchange (SEE) is awholly owned subsidiary of Shanghai PropertyRight Exchange with registered capital of RMB50 million. SEE will provide carbon neutral ser-vices to the Shanghai World Expo 2010.

FOREIGN PRIVATE SECTOR ACTORS

Foreign actors in the Chinese CDM market fallinto two categories: project actors, such as devel-opers and advisors, and final CER buyers. Thissection looks at these the first of these two groups,and the next section looks at foreign CER buyers.The role of one major foreign partner in the CDMmarket—the World Bank—pans both functions,and is discussed separately in Section 3.7.

The data for this section comes from 57 for-eign private sector actors who have disclosed theirinformation on the Web platform established bythe China DNA. Two survey rounds were con-ducted in 2007 and 2010, through phone callsand questionnaires. The instrument used for thequestionnaires is displayed in Annex 5.

Business Environment for CDMForeign Private Actors

There are essentially two models for foreign buy-ers to use in developing CDM business inChina. The first is to make use of an existingbusiness line, such as equipment supply, to actas both CDM project developer and buyer,while the second is to establish strategic cooper-ation with a local CDM intermediary.

80 percent of survey participators indicatedthat they pursued the first approach, and had analready-established a branch in China. 30 per-cent had a branch office in a city other than Bei-jing or Shanghai. In these offices, Chinese staffhave taken on the functions of CDM businessdevelopment, project implementation, andlocal liaison, but the overseas headquarters

remained in charge of decision making andquality control.

Under the second approach, the definitionof intermediary is very broad and includes notonly consultant firms that have solid CDMknowledge in providing support from a techni-cal perspective, but also some entities posi-tioned to locate project resources andcoordinate with industrial associations orquasi-governmental agencies at the local level.This approach has been widely pursued becauseit assists foreign companies overcome network,distance, and cultural constraints. The surveyillustrates that the majority of foreign buyerswould prefer to maintain long-term strategicrelationships with the same intermediary orproject entity with which they have had previ-ous cooperation experience.

All participants in the survey confirmed thatthey recognize many significant low-cost oppor-tunities for emission reduction but that barriersprevent them from pursuing these options. Par-ticipants report, however, that they are confidentthat they will find sufficient potential to developtheir project pipeline.

Policy and Regulatory Environmentfor CDM Foreign Private Actors

China’s domestic regulation framework and pro-cedure for CDM management (see Chapter 2) ishighly regarded. The performance of China’sDNA when compared with other DNAs in regu-lating the CDM market is ranked in the top threeby survey participators. All survey participantssaid they were satisfied with the efficiency of theChina DNA approval process, which enablesevery project to attend the national CDM Boardmeeting within one month of submitting theapplication package.

Floor price and project ownership issues receivedthe greatest attention from survey participants.Generally, the current floor price is consistentwith the market trend, but could be altered toreflect the risk of a different type of project or



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ERPA arrangement. The ownership requirementbecomes an obstacle to CDM implementation insome sectors. Finally, although the governmenthas stated that Hong Kong companies are eligibleto host Chinese CDM projects, respondentsnoted that clear regulations were lacking.2

Some survey participants noted that theywished that the approval criteria for differenttypes of projects could be disclosed in greaterdetail, and that the time required to issue a Letterof Approval could be shortened from the current2-3 months after the national CDM board meet-ing. 20 percent of survey participants expressedtheir concern regarding the strongly competitivesituation among buyers and referred to the exam-ple that competitive bidding procedures areincreasingly being adopted by Chinese projectowners. Although this development indicatesthat the market is becoming more mature, theresult may be a price war among buyers.

The uncertainty of the post-2012 climatecertainly affects foreign companies’ business inChina. Using a fixed price to purchase emissionreductions after 2012 is rarely adopted in cur-rent commercial practice. However, some sur-vey participants are confident that sales willcontinue to be made to the original buyer, ifCERs can be generated after 2012. To avoid therisks of post-2012 uncertainty and maintain aproject pipeline, a number of the leading for-eign companies are becoming involved in proj-ect finance in addition to CER purchases.

Project Environment for CDMForeign Private Actors

Through well-organized capacity-building activi-ties, awareness of CDM among related local com-munities has been raised, although the survey alsoreflects that in some underdeveloped areas, like

western China, there remains scope for improve-ment. In addition to general awareness of CDMopportunities, buyers also seek project counterpartswith international experience—a characteristicwhich greatly assists in conducting business.

Half of the participants surveyed showedconfidence in the implementation capacity ofChina’s project entities, especially in those com-panies that had obtained international qualityand management qualification. However projectentities should be aware that CDM is not sim-ply selling CERs, but is a performance-basedbusiness that requires significant and sustainedoperation and monitoring.

For improved project performance and toincrease the likelihood that the estimated CERswould be achieved, 30 survey participants becamemore involved in project technical design evalu-ation, even acting as the technical designer orprovider. However, providing project finance inparallel to ER purchase is not common. Forthose buyers who do extend project finance, it istypically carefully controlled to amount to lessthan one year’s CER revenue.

During the implementation phase, foreigncompanies view various types of CDM projectsas having different levels of complexity. Windand hydro projects were unanimously viewed asthe most straightforward, with HFC projectsranked second. By contrast, the implementationof energy-efficiency projects is considered asbeing obstructed by baseline data collection,financial additionality analysis, and monitoring.Landfill and coal mine methane (CMM) proj-ects are also viewed as challenges in achievingbetter performance. N2O projects are less prob-lematic than EE, landfill, and CMM projects,but require extraordinary support from the proj-ect entity to meet the extensive monitoringrequirements of the methodology.



2 The government has since issued the “Arrangements for the Implementation of Clean Development Mechanism Projectsin the Hong Kong Special Administrative Region” (June 6, 2008).

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Challenges Emerged after ProjectRegistration 3

All of the survey participants expressed the opin-ion that the duration between CDM registrationand first CER issuance takes much longer thanestimated, regardless of the type of CDM proj-ect. The reasons are: (i) as projects move fromfeasibility study to implementation, additionalwork on the PDD or on the monitoring planmay be required before CERs are issued; (ii) thefinancial crisis may have affected the projectfinancing arrangement and therefore led todelays; and (iii) all of the DOEs are overloaded,and that constraint is compounded with the sus-pension of DOEs. The biomass sector in China,compared with other sectors, faces the most sig-nificant delays in the duration between registra-tion and first ER issuance because of thesereasons.

FOREIGN CER BUYERS

According to information provided by buyers in751 project PDDs, the main countries that pur-chase the CERs generated by China’s CDM proj-ects are the UK, Netherlands, Japan, andSwitzerland taking 21, 15, and 11 percent of totalestimated CERs, respectively (see Table 3.4 ).However, one should take into account the factthat many major carbon trading companies havetheir headquarters in London or Zürich, andtherefore the trader’s country does not necessarilycorrespond with the end buyer’s country.

THE WORLD BANK’S ROLE INCHINA’S CDM MARKET

The World Bank was a major pioneer among allagencies involved in developing the ChineseCDM market. Not only have World Bank car-bon funds purchased about 141 million CERs,

the World Bank helped create the CDM marketwith capacity building, information, methodol-ogy development, and large, early interventions.In addition, the World Bank supported the cre-ation of the CDM Fund (see section 4.9), and



3 Based on survey conducted in 2010

TABLE 3.4 Distribution of the 751 Registered CDMProjects by CER Buyers

Buyers Number of CDM Amount of kCERsProjects Purchased

UK 256 126,143

Netherlands 162 59,461

Austria 24 3,189

Italy 23 38,890

Spain 16 20,943

Canada 6 33,301

Japan 130 65,592

Sweden 99 27,390

Switzerland 119 85,761

Unilateral* 9 875

Germany 51 24,678

Denmark 7 19,372

France 6 19,920

Finland 4 19,202

Norway 3 19,162

Ireland 1 7,865

Portugal 1 128

Luxemburg 1 76

Belgium 4 19,272

Total 922** 591,219***

*Nine projects are unilateral projects.**Some projects have more than one buyer; for example, YangquanCoal Mine Methane Utilization for Power Generation Project has twobuyers, Italy and Spain, therefore the total number is greater than theactual projects registered. This explains why the total number of buyersexceeds 751.*** Also for these reasons, the allocation of purchased CERs of the sameproject between ,multiple buyers is difficult. But as a result, the totalCERs is an approximation of the actual annual registered CERs(204,842.65kCERs).

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has supported an ongoing stream of capacitybuilding activities up to the present. Going backto 2001, the World Bank was active before mostother buyers and donors.

The World Bank’s strategic engagement inChina’s carbon mitigation market began in late2001, at the same time it was launching its carbonfinance business worldwide with the commission-ing of the 2004 study, “Clean Development Mech-anism in China: Taking a Proactive and SustainableApproach.” This landmark study revealed the enor-mous mitigation potential in different economicsectors in China and recommended various mea-sures (legislation, capacity building, institutionaldevelopment) to realize that potential.

As a follow up, the World Bank providedcapacity-building support through its CarbonFinance Assist (CF-Assist) program, initially inthe formulation of the CDM legislation includ-ing the final amendments in 2005. That legisla-tion provided the foundation for China tobecome the leading CDM nation within threeyears. CF-Assist also facilitated participation ofthe Chinese stakeholders at the annual CarbonExpos since 2004. This enabled them to havedirect contact with carbon buyers and othermarket players, thus increasing the exposure toChinese CDM projects.

Starting in 2005, using its various carbonfunds, the World Bank has developed 18 CDMprojects, with a total emission reduction capacityof 141 million tons of CO2e over their lifetime(see Table 3.5). Prominent initial projects, devel-oped jointly with the Ministry of Environmentand aiming at eliminating HFC-23 industrialgas, helped create liquidity in the CDM marketworldwide. Meanwhile, the World Bank’s car-bon finance work in China expanded in varioussectors such as household level biogas, renewableenergies and landfill projects.

A pioneering outcome of the HFC projectsdeveloped by the World Bank in China was theestablishment of the CDM Fund which is beingfed from a specific share of CER revenues, aimedat promoting programs and activities that

directly contribute to sustainable development.The World Bank provided important support inpreparing the appropriate legal documentation,and continues to support further steps in insti-tutionalizing the CDM Fund.

With the Kyoto Protocol drawing to a closeby 2012, new priorities and targets are emergingin using mitigation to address climate change,and the World Bank is also preparing to con-tinue its leading role. A key aspect will be toaccelerate the scaling up of mitigation activitiesfrom the current project-to-project approach ofCDM to large-scale programs.

The Carbon Partnership Facility (CPF), thenew financial mechanism launched by the WorldBank, is the only CDM fund currently offeringto purchase CERs beyond 2012 and is extendingits period to 2022. This Facility is aimed at devel-oping large-scale GHG mitigation activities andthe promotion of clean technologies.

SUCCESSFUL CDM PROJECTS

This final section draws lessons from previous sec-tions to review what factors make for successfulCDM projects. Lessons learned from past experi-ence can be of value to future project developers.

The China DNA approval procedure isintended to facilitate high-quality project pro-posals that meet the requirements for successfulregistration by the CDM EB. Project documentsthat do not meet the Chinese approval criteriaare returned to project owners for improvementto allow them to be eventually approved by theNational CDM Board. Table 3.6 provides anoverview.

Project Selection and AvailableMethodology

The rapid development of CDM in China hasattracted domestic enterprises of different scalesand different industries. However, successfulChinese CDM projects operate in relativelyfocused areas, and project owners should



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TABLE 3.5 Overview of World Bank CDM Projects in China

Total CER Year of LoAContracted from China Date of CDM Year of First

Project Name (tons) Annual CER DNA registration ER Issuance

A. Registered

1 Guangdong HuizhouCombined Cycle GasTurbine ThermalPower Project 4,390,000 1,000,000 2005 2009 April pending

2 HFC-23 Destruction 113,092,086 18,840,000 2005 2006 June 2007 May

3 Nanjing (NISCO) SteelConverter Gas Recoveryand Utilization for PowerGeneration Project 1,293,495 105,000 2005 2009 Dec pending

4 Jincheng Coal-bed Methane 8,050,000 3,000,000 2005 2009 April pending

5 Xiaogushan Hydropower 3,000,000 319,000 2005 2006 Aug 2007 Aug

6 Baotou Steel Coke Dry Quenching 900,000 214,000 2006 2007 Nov pending

7 Guangrun Hydropower Expected Development 485,000 75,000 2006 2007 April Dec 2010

8 Pearl River Watershed Management 462,014 25,000 2006 2006 Nov 2007 May

9 Tianjin Shuangkou Landfill Gas Recovery and Electricity Generation 635,000 130,444 2006 2008 Aug pending

10 Yunnan WhitewatersHydropower Development Project (GYHDP) 2,200,000 274,500 2006 2007 April 2010 March

11 Hubei Eco-farming Biogas 380,000 58,400 2007 2009 Feb pending

12 Shandong Poultry Manure Biogas 465,000 66,000 2007 2009 April pending

SUBTOTAL 135,352,595 24,107,344

B. Signed ERPAs

13 Huitengxile Expected Expected DecWind Farm 1,600,000 213,000 2006 Dec 2010 2011

14 Meishan Coke Expected ExpectedDry Quenching 750,000 198,000 2007 Dec 2010 2011

15 Guangxi Phase II Expected pendingReforestation Project 340,000 87,000 2009 Aug 2010

16 Shihutang Hydro Project 200,000 372,000 2009

17 Liaoning District HeatingProject, Yingkou EDZ 860,000 434,000 pending

18 Luojing COREX Project 1,852,662 370,532 pending

SUBTOTAL 5,602,662 1,674,532

TOTAL 140,955,257 25,781,876

Reg

iste

red

ERPA

sig

ned

bu

t n

ot

reg

iste

red

yet

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develop projects within the framework con-structed by previous domestic successful CDMprojects and adopt approved methodologies toavoid unnecessary delay. Project owners andconsultancies should pay attention especially tothe priority areas defined by the Measures.

As problems emerge during CDM projectimplementation, methodologies get updated.Both HFC-23 and N2O have extremely limiteddirect contribution to domestic sustainable devel-opment yet have large GHG emission reductions.Such projects face high risks when requesting reg-istration. Potential CDM project participantsshould continually follow the EB’s relative activi-ties and adjust the type and scale of CDM projectsaccordingly. Projects that make a real contribu-tion to domestic sustainable development areaccorded higher priority.

Internal Teams, Consultancies and Buyers’ Selection

China does not require that consultants workingon CDM be certified. It is the job of project enti-

ties to select consultants that are appropriate forspecific projects. Similarly, buyer selection is acrucial part of a CDM project application,because an appropriate selection helps guaranteeCERs revenue for project owners when verified.

Project owners should be cautious when select-ing consultancies and buyers in order to guaran-tee successful approval and registration, andconsultation with NDRC or local DRCs is rec-ommended. Participating in relevant capacity-building activities to acquire a full understandingof CDM policies is also a useful approach.

An alternative to hiring consultants is forlarge enterprises with several CDM projects tocreate their own CDM project developmentteams. This may bring advantages like cost sav-ings, time savings, and technical precision withregard to specific methodologies. Project ownersare responsible for project monitoring andreporting to the DOE, and the owners’ team hasan important role in data collection and moni-toring during project implementation.



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TABLE 3.6 Characteristic of Successful CDM Projects

Criterion Do Don’t

Project Selection Developers should target projects for which approved methodologies are available.

Government should support new methodology development in priority areas.

CDM Consultant Project owners should investigateSelection the past development experiences

(project numbers and areas) of consultants for potential cooperation.

Project Preparation Project owners can consult with DNAwhen they are not certain about the capability of certain consultants.

DOE Selection Potential project owners should investigate CDM actively (joining capacity-building activities, consultingwith consultancies of good reputation, reviewing the CDM Web site, etc.) to decide whether or not to develop CDM projects.

Risk Management Owners should consult with professional institutes before negotiating with potential buyers.

Financing Owners should submit to DNA the following documents: CDM PDD, certificate of enterprise status, generalinformation of the project, and adescription of the project financing.

Other Project participants should check the project areas and efficiency of certain DOE. Once decided, PP is suggested to negotiate with DOE in timely fashion to guarantee validation and/or verification procedure.

Developers should not develop projects that have no availableapproved methodology unless newmethodology accompanied by proposed projects will be sent tomethodology panel to be reviewed.

Project owners should not totally relyon consultants without investigationby themselves.

Project participants should not disobey national CDM policies andalso should not omit other basic CDMrules, like additionality, pre-study.

Once the projects are under validation/verification, project participants should not refuse necessary requirements by DOE.

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By engaging with the CDM, China has bothhelped developed countries decrease theiremission reduction costs and created local sus-tainable development benefits. This chapterinvestigates the relationship between CDMimplementation and China’s sustainabledevelopment.

CDM CONTRIBUTION TOWARDNATIONAL TARGETS

The priority areas for CDM project implemen-tation in China are: energy-efficiency improve-ment, development and use of new andrenewable energy, and methane recovery anduse. Of China’s 751 registered CDM projects92 percent are in priority areas. Specifically, 75 percent involve new and renewable energyprojects (370 in hydropower, 165 in windpower, 16 in biomass-based power and 3 insolar); 7 percent involve coal mine gas andmethane recovery and use projects (includinglandfill gas recovery and utilization); and 10 percent involve EE improvement projects(73 in total). The distribution indicates thatCDM development is consistent with China’s

policy aims. However, in terms of estimatedCERs by 2012, those generated from registeredprojects that comprise priority areas constituteonly 43 percent of the national total. Althoughthe share of non-priority project types remainshigh with regard to expected 2012 kCERs,especially of HFC and N2O proj-ects, the shareis decreasing with time.1

To promote the development of projects inpriority areas and carbon finance flows to theseareas, the government of China is promotingrelevant incentive measures, capacity building,and differentiated taxation of CERs. This hascontributed to a steady broadening of theCDM market from non-carbon industrialprocesses to multiple market areas offeringdirect reduction of carbon emissions, primarilyin the energy sector. The result of this steadydevelopment in adding CO2 abatement-relatedprojects, particularly from the energy sector, isshown below in Figure 4.1. Since March 2009,CDM projects in the priority areas have notonly dominated the number of projects enter-ing the pipeline, they have also overtaken HFCprojects with regard to the amount of projectedCERs by 2012.

Impacts of CDM Implementation4

�

1 In terms of CERs issued as of March 1, 2010, non-priority sectors constitute over 80 percent of the total, but this share isexpected to decline to around 55 percent by the end of 2012 (see Table 1.1).

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TABLE 4.1 Targets of CNCCP in the Renewable Energy Sector

Capacity Renewable Goal CNCCP Renewable EnergyTechnology 2005 Energy Law 2010 2010 Law 2020

Wind power 1.260 GW 6.0 GW 20,000 MWSolar energy 0.07 GW 0.3 GW 60 Mt CO2 1,000 MWBiomass 2.0 GW 5.5 GW 30 Mt CO2 20,000 MWSmall hydropower 43.8 GW 53.0 GW 500 Mt CO2 31,000 MW

Note: Implied annual loads for the 2010 reduction levels are 2,100 hours for solar, 3,000 for wind, 3,500 for biomass,and 5,000 for small hydro; the utilized emissions factor is 0.733 tCO2/MWh.

CONTRIBUTION OF CDMIMPLEMENTATION TO CHINA’S NCCP

China’s National Climate Change Programme(CNCCP) which aims to achieve significantreductions in the greenhouse gas emissions,includes two important energy sector targets—one in renewables, and one in energy efficiency.

China’s priority CDM sectors contribute tothese CNCCP targets.

One target, as per China’s Renewable EnergyLaw, is to boost China’s renewable energy capac-ity to 16 percent by the end of 2020. The law’scapacity expansion target for 2010 and 2020 isshown in Table 4.1, together with the CO2 abate-

I M P A C T S O F C D M I M P L E M E N T A T I O N


Source: URC 2009b and 2010a.Note: Project types in priority areas are highlighted in light green.

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0 Hydro

2012

kC

ER

s

200

160

120

80

40

0

Num


Difference in 2012 kCERsMarch 2009–March 2010

Difference in numbersMarch 2009–March 2010

Wind

EE own generation

Landfill gas

N2 O

Coal bed/mine m

ethane

Fossil fuel switch

Biomass energy

HFCs


Cement

SolarReforestation

F I G U R E 4 . 1 Difference in Registered Projects between March 2009 and March 2010

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TABLE 4.2 China’s Emission Reduction Targets 2006–10 and CDM Contribution by 2010

CNCCP Estimated CDM Pipelined Expected CDMGoal Issued CERs by Contribution CERs Contribution to

2006–2010 End of 2010 to target by end 2012 Target (%) by (Mt CO2) (Mt CO2e) of 2010 (%) (Mt CO2e) End of 2012

10 Key Energy Conservation Programs 550 13 2.4 188 34.1Hydropower 500 14 2.7 326 65.2Coal-bed and -mine methane 200 4 2.2 133 66.3Advanced thermal power generation 110 0 0Other renewable energy (wind, solar) 60 15 25.7 203 338.9Biomass energy 30 1 4.4 93 309.4Total 1450 48 3.3 942 65

Source: URC 2008a, 2009a,b and 2010aNote: CERs issued as of 1st of March 2010 by projects from priority areas correspond with 15 percent of total issued CERs. In terms ofexpected 2012 CERs, projects from priority areas account for 43 percent.

Source: URC 2006b, 2007a, 2009a/b and 2010a/bNote: CERs issued as of March 1, 2010 by projects from priority areas correspond with 15 percent of total issued CERsas of March 1, 2010. In terms of expected 2012 CERs, projects from priority areas account to 43 percent.

50,000

40,000

30,000

20,000

10,000

0End of 2007End of 2006

Pro

ject

ed Is

sued

kC

ER

s

End of 2008 End of 2009 End of 2010

Biomass energyOther renewable energy (wind, solar)Coal-bed and-mine methaneHydropower10 Key energy conservation programs

F I G U R E 4 . 2 Stock Taking and Projection of Cumulated Issued CERs by 2010 According to the Sectors under the CNCCP

ment goal for 2010 specified in the NCCP. Theonly significant contribution to this goal by theCDM has been in the area of wind projects,accounting for around 26 percent of the nationalgoal in 2010, followed by biomass energy with4.4 percent (see Table 4.2 and Figure 4.2).

Separately, the government set a goal in thearea of energy efficiency to reduce energy inten-sity per unit of GDP by 20 percent between2006 and 2010, leading to emissions savings of550 million tons of CO2 reductions during the11th Five-Year Plan period. However, CDM

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activities have had a minimal impact in energyefficiency (only 2.4 percent), including in themain areas of concern, such as coal-fired powergeneration, energy-intensive industry (other thanwaste heat reduction in steel and cement produc-tion), and buildings and transportation efficiency(Arquit Niederberger, 2008). In other areas, con-tributions from coalbed and coalmine methaneprojects are achieving only two percent of theCNCCP reduction goal for 2010. But there willbe a gradually growing contribution to the goalsof advanced thermal power generation (such as from ultra-supercritical coal projects), sinkenhancement, and end-use energy efficiency.

It remains unanswered whether CDM canplay a more significant role in China’s transitionto an efficient and low-carbon economy. Cer-tainly, the contribution of CDM to priority sec-tors can be expected to grow, since CERs areissued over a multi-year crediting period, andalso as more projects are registered. The last col-umn in Table 4.3 shows a more substantive con-tribution of CDM CERs on the nationalrenewable and energy efficiency targets by theend of 2012, but this dramatic scale-up remainsto be proven.

REDUCING KYOTO COMPLIANCECOST FOR DEVELOPED COUNTRIES

Due to differences in the economic structure andtechnological level of developed and developingcountries, the marginal abatement costs of GHGemission reduction also differ significantly (Wet-zelaer et al. 2007). Before CDM implementa-tion, many studies simulated the role of thecarbon markets in reducing implementationcosts of developed countries (World Bank,2003). In the absence of actual project informa-tion and data, most of these studies establishedthe average marginal abatement cost curve of dif-ferent countries through a variety of approaches.The World Bank (2004) reviewed and comparedthe simulation results of such research on China’sCDM market potential.

Building on this analysis, Can Wang et al.(2008) further simulated the contribution ofChina’s CDM market to cost of emissionsreductions as paid by developed countries (seeFigure 4.3). The results showed that, in theabsence of China’s CDM market, the averageimplementation costs of Japan, Western Europe,and other OECD countries during the KyotoProtocol first commitment period would be 37,34, and 24 percent higher, respectively, thanunder the current carbon market scenario. Anger(2007), using a more micro-economic approachto estimate mitigation cost functions, reached aconclusion similar to that of Can Wang.

If no CERs were supplied from projects inChina, it may be reasonable to expect thatAnnex I countries would increase their purchasesof other developing countries’ CERs or of tran-sitional economy countries’ “hot air,” or wouldhave to enhance their domestic emission reduc-tion actions. However, this contention is notsupported by all researchers. According toEnkvist et al. (2007), substantial scope remainsfor low-cost GHG reductions in industrializedcountries, mainly in energy-efficiency improve-ment. However, top-down studies such as thosesummarized in Heggedal and Kverndokk (2007)find positive marginal abatement costs of reach-ing the Kyoto commitments. For the EU, stud-ies quote a wide range between 26 and 49 EUR,but highlight uncertainties depending on themodels. It is also shown that the availability ofsurplus AAUs from countries in transition canlead to a price collapse if these countries are will-ing to sell at a low price. Therefore, calculatingthe average cost of EU allowances as the benefitfrom CDM is a very optimistic assumption. Thebenefit would be much lower if “hot air” is soldat lower prices. Instead, the short-term benefit ofCDM is limited to the price level at which coun-tries with “hot air” would be willing to sell.Eventually, the ratio at which “hot air” reachesthe market largely determines the real environ-mental benefit from CDM implementation.Given that “hot air” can be banked, the major



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benefit of the CDM accrues by extending theavailability of “hot air” into the future byincreasing the overall emission budgets of AnnexI countries. Thus, the CDM allows industrial-ized countries with a low willingness to pay tofulfill their commitments at low cost.

A conservative analysis assumes that theaverage cost for Annex I countries taking addi-tional domestic measures would be equal to thecurrent price of EU allowances (and theassumption is conservative since that price haspresumably been drawn downwards by theavailability of CERs). The price of secondaryCERs was 12 euro as of March 1, 2010 (PointCarbon 2010b), while the March 1, 2010 EUallowance (EAU) traded at 13 euro/tCO2e(Point Carbon 2010b). Given this scenario, theestimation by Can Wang et. al. 2008 for AnnexB countries to benefit from China’s CDMimplementation in the region of $1.8 bnappears to be a plausible order of magnitude.China benefits from the revenues generated bythe CDM while simultaneously helping theindustrialized parties to the Kyoto Protocollimit their compliance cost.

PROMOTING SUSTAINABLEDEVELOPMENT OF CHINA

Article 6 of the CDM Measures clearly states thatCDM project activities shall be consistent withChina’s laws and regulations, sustainable devel-opment strategies and policies, and the overallrequirements for national economic and socialdevelopment planning. The emphasis on devel-oping these priority areas is not only because oftheir great potential, but also because of theirbenefits to sustainable development.

CDM projects can promote the sustainabledevelopment of host countries in various ways,such as CER revenue, technology transfer,energy savings, energy mix improvement, cli-mate capital, environment improvement, andemployment increase. Both qualitative andquantitative indicators can be used to measure



Source: Can Wang et al. (2008).

Without China’s CDM

8

6

4

2

0

–2

–4 With China’s CDM

JapanOther Annex IRussiaWestern EuropeEastern Europe

F I G U R E 4 . 3 Annex I Countries’ Cost under DifferentAssumptions

the direct and indirect contribution of CDMprojects in promoting sustainable development.For the purpose of this study, some indicatorshave been defined. Quantifiable indicators like(i) technology transfer; (ii) energy saving andenergy conservation; and (iii) green investmentsare easier to measure because there is detailedinformation in the PDDs (Table 4.3). Due tothe variety of structures of CDM projects, it ismore effective to use a sector-specific indicator,such as hydropower or waste heat recovery.Other contributions to sustainable develop-ment, such as skill training opportunities forstaff and the impacts on resource degradationand poverty reduction, are also important, butthe results are difficult to measure and to con-trol. As a result, there are few specific data pro-vided in the PDDs regarding these indicators.

The next three sections deal with each ofthese issues: Section 4.5 deals with technology

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transfer; Section 4.6 with Energy Conservation;and Section 4.7 with establishing a green invest-ment climate.

TECHNOLOGY TRANSFER

According to the UNFCCC,2 technology trans-fer (TT) is defined as a broad set of processes cov-ering the flows of know-how, experience, andequipment. CDM-driven TT should be envi-ronmentally sound and support sustainabledevelopment. While TT is a secondary objectiveof CDM, for developing countries, in addition toreceiving CER revenues, it is important to obtainadvanced technologies in energy saving and cleanenergy. CDM can contribute to TT by financingemission reduction projects using technologiescurrently not available in host countries.

The government of China specifies in theMeasures for Operation and Management of CleanDevelopment Mechanism Projects that CDM project activities should promote the transfer ofenvironmentally sound technology to China. A number of recent international studies haveinvestigated the contribution of CDM to TT,analyzing the information provided in PDDs(Seres 2007; Dechezleprête et al. 2007). Thesestudies report that TT is claimed for about 40 per-cent of CDM projects investigated, and for morethan 60 percent of the CER potential of the inves-

tigated sample of projects. This indicates that TTis more common in larger projects, which makessense since the level of TT is closely related to economic scale and the characteristics of projectowners. Large enterprises in areas of advancedeconomic development, access to information,and an efficient policy environment have a rela-tively high level of TT. Onsite investigation indi-cates that SOEs pay more attention to TT thanPEs during negotiation of CDM projects.

A more critical view was proposed, however,by a Chinese Energy Research Institute (ERI)in-depth investigation on TT of China CDMprojects. ERI analyzed the PDDs of the first208 China CDM projects registered beforeMay 2008, and surveyed 18 EU enterprises and10 provincial CDM service centers. From thissampling analysis, it concluded that the defini-tion of TT is not clear in the Convention orProtocol, and that PDDs provide differentdescriptions and explanations of TT. It alsofound that the CDM frequently did notachieve the goal of “helping developing coun-tries get advanced technology through CDM.”First, ERI ascertained from reviewing PDDs thatfewer than 40 percent of projects even mentionedTT. Second, even for those projects that specifi-cally claimed TT, this was limited to equipmentpurchases in about two-thirds of the projects.Finally, the remaining one-third that claimed to



2 UNFCCC 2007; Findings of CDM technology transfer report (http://cdm.unfccc.int/Reference/Reports/TTreport/index.html).

TABLE 4.3 Indicators for Assessment of Environmental and Sustainable Development Benefits

Indicator Source of Verification

1 Contribution to Technology PDDTransfer and Improvement

2 Energy Saving PDD, national energy statistics on installed capacity of hydro, wind,biomass power generation

3 Contribution to Leveraging PDD, 5 year planGreen Investment

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have had know-how training actually receivedsimple O&M training. Key knowledge and tech-niques were rarely introduced, let alone the trans-fer of manufacturing technology.

The types of projects that claimed TT aremainly non-CO2 emission reduction projects,like N2O, HFC-23 and CMM. All the HFC-23decomposition projects and 35 (out of 61)energy efficiency projects offered TT. Otherswith a TT component were in landfill gas powergeneration, biomass power generation, and wasteheat power generation (Figure 4.4). The EU,United States, and Japan are major countriesexporting technology and equipment to China inCDM activities, primarily for renewable energy,especially wind power and biomass. Examplesinclude: Gamesa G58 wind turbine TT from theUK in the Jilin Changling Wind Farm Project;wind turbine and O&M TT from GamesaEolica Co. Ltd. of Spain and Vestas Co. Ltd ofDenmark, respectively, in the Ningxia HelanMountain wind power project; and superheatedsteam decomposition facilities, neutralizer, wastegas, and water disposal equipment transferredfrom the JMD Greenhouse-Gas Reduction Co.Ltd. of Japan in the Zhejiang Juhua HFC-23Decomposition Project.

Overall, it is clear that CDM projects showrelatively small amounts of TT for at least fourmain reasons.

• First, because CDM project development is amarket-based activity. In many cases foreignbuyers are interested only in CERs and proj-ect owners also may only need the support ofCERs revenue. For both sides, technical coop-eration is often not the highest priority duringproject development.

• Second, time is limited for project owners andbuyers. The first commitment period definedby the Kyoto Protocol is 2008–12. The proto-col was not valid until 2005, but TT is invari-ably a lengthy process. Therefore, projectswithout TT content are developed firstbecause of their relatively short developmentperiod.

• Third, most registered CDM projects arerenewable energy projects, with medium orsmall hydropower and wind power projectsaccounting for the largest share. During thepast few years, these technologies have expe-rienced rapid development with increasingnumbers of turbines and generators beingproduced domestically. As a result, strong



Source: PDDs of registered projects, UNFCCC CDM website.Note: Some projects are listed as belonging to different sectors simultaneously. For instance, almost all the waste heatrecovery and landfill projects are also shown in the energy/electricity generation sector.

Energy industry/electricityChemical industryWaste heatrecovery & landfillIron & steel

15

35

37

118

F I G U R E 4 . 4 Distribution of CDM Projects with Technology Transfer

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domestic demand created domestic gains farbeyond the CDM sector.

• Fourth, current CDM regulations (bothdomestic and international) have not providedsufficient policy incentives and enhancedfunding support for TT. Barriers to TT asreported by market observers in China (WWFet al. 2008) include the 50 percent local own-ership threshold that limits incentives for for-eign capital investments in advanced powergeneration technologies. This restriction maylimit CDM investment, as wholly foreign-owned enterprises (WFOEs) are often the pre-ferred model for foreign investors from arisk-mitigation perspective. It has beenreported that this restriction is resulting in anumber of projects not being developed, asmany investors are unwilling to cede controlof a project to an unknown or inexperienceddomestic partner. Ultimately, this provisionmay therefore favor the development of uni-lateral CDM and discourage the transfer ofadvanced technology (Arquit Niederberger2006). Similarly, some of the major GHG-emitting enterprises in China are in naturalresources (oil, metals) and natural monopolysectors (electricity) that offer only restrictedaccess to foreign investors (Niederberger2006). Appropriate modification, such as thereconsideration of the foreign ownershipclause, could contribute to more TT-friendlyfuture CDM regulations, thereby enhancingsustainable development in China.

ENERGY CONSERVATION

In the 1980s, China’s government establishedthe principle of “laying equal stress on devel-oping and energy saving, while giving priorityto saving at the current stage.” Since then,China has made significant progress in energyconservation as a result of: implementation of

its Law on Energy Conservation and otherrelated regulations; establishment of an energyconservation plan; establishment and imple-mentation of vigorous policies on energy con-servation technology, economics, finance, andmanagement; establishment and implementa-tion of energy efficiency standards and labels;encouragement of energy conservation tech-nology research, development, demonstration,and dissemination; introduction of advancedenergy conservation technology; establishmentand implementation of new energy conserva-tion mechanisms; and strengthening of policiesand measures for energy conservation key pro-jects. All these efforts have contributed todecreasing energy intensity.

The CDM is part of this drive. Of the 751registered CDM projects, 73 (10 percent) areenergy-saving and energy-efficiency improve-ment projects. These 73 waste heat and gasrecovery projects are all either supply-side effi-ciency or waste heat/gas recovery projects ratherthan end-use (demand-side) energy efficiencyprojects. Current projects are expected to reduceindustrial electricity demand by approximately15,200 GWh annually, equivalent to the annualoutput of ten 300 MW coal-fired power plants(operating 5,000 hours per year). This figure canbe considered relative to China’s total installedthermal capacity of about 550 GW (in 2007), ortotal industrial electricity demand of 18 millionGWh in 2005.3 Table 4.4 lists the first 20 pro-jects in this field.

The main reason for the low total impact ofenergy saving and efficiency CDM projects is thelack of viable applicable methodologies. Manyenergy-saving technologies require significantmethodology development and this makes themmore difficult to implement than renewableenergy sources projects, especially with regard toapplicable baselines, calculations of emissionreduction, additionality, and project boundaries.In addition, most projects generate a small and



3 Source: China Energy Statistical Yearbook 2006.

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uncertain number of CERs. Another deterrent isthat emission reductions from energy-saving pro-jects is closely related to energy production, whichfluctuates, leading to significant uncertaintyabout CERs. Finally, energy-saving projects areusually medium-size or small projects, and insome cases their revenues cannot cover their costs.When this happens, project owners, developers,and buyers are reluctant to implement them.

Nonetheless, in the number of energy-savingand energy-efficiency improvement CDM pro-

jects has increased dramatically recently. China hasgreat potential in these types of projects because ofits national efficiency improvement targets. Thesituation remains, however, that there are nodemand-side efficiency projects approved. ArquitNiederberger (2008) provides a thorough reviewof the barriers to end-use efficiency projects underCDM. The future of such projects is in question,as the CDM EB is considering enhanced barrieranalysis for highly profitable projects, such aswaste-heat and gas projects.



TABLE 4.4 The First 20 Projects in Energy-Saving and -Efficiency Improvement

Province Project Name Annual Saving (GWh)

Gansu Gansu Qilianshan Cement 6000kW Waste Heat Recovery Project 35.7 GWhHainan 6.5MW WHR Project in Huasheng Tianya Cement Co., Ltd. 47.2 GWhAnhui Ningguo Cement Plant 9100KW Waste Heat Recovery and Utilization

for Power Generation Project 65.1 GWhShandong Taishan Cement Works Waste Heat Recovery and Utilization for Power

Generation Project 89.5 GWhShandong BOG and COG Utilization for Combined Cycle Power CDM Project in

Jinan Iron & Steel Works 2295.0 GWhHebei Installation of waste heat recovery system in a coking plant in Qian’an

City 253.5 GWhHainan 8MW pure low temperature waste heat recovery (WHR) for power

generation in SDIC Hainan Cement Co., Ltd 52.7 GWhChongqing Fueling Waste Heat Recovery for power generation project 225.9 GWhInner Mongolia Baotou Iron & Steel Blast Furnace Gas Combined Cycle Power Plant

Project 2057.8 GWhBeijing BBMG Cement WHR for 10.5 MW power generation project in Beijing 72.2 GWhJiangsu Power Generation by Waste Heat Recovery Project in Henglai Building

Materials Co. Ltd. 72.5 GWhHubei Hubei Quzhai Cement 9000kW Waste Heat Recovery Project 58.5 GWhHubei Yichang Yihua Waste Heat Recovery and Utilization project 84.1 GWhInner Mongolia Baotou Iron & Steel Coke Dry Quenching and Waste Heat Utilization for

Electricity Generation Project 166.7 GWhHebei Waste gases utilization for Combined Cycle Power Plant in Handan Iron

& Steel Group Co., Ltd 677.4 GWhJiangsu Waste Gas based Captive power Plant in Liangang Group 351.5 GWhHebei 30 MW WHR Project of Hongshi Group 208.0 GWhHunan Waste heat power generation project at Hunan Anshi XingYuan Power

Generation Co., Ltd. 53.3 GWhShanxi Power Generation (20MW) by utilizing Coke Oven Gas of China Coal

and Coke Jiuxin Limited in Lingshi, Shanxi 68.8 GWhShanxi 24MW Power Generation from Coking Waste Heat Generated in the

Clean-type Heat-recovery Coke Ovens at Shanxi Sinochem Wonder Industries Co. Ltd. 134.2 GWh

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In September 2007, the 34th meeting of theEB, held in Bonn, Germany, approved a “con-solidated methodology for new grid connectedfossil fuel fired power plants using a less GHGintensive technology” (ACM00013). Theapproval of this ultra-supercritical powermethodology allowed the development of thistype of CDM project in China. Through March2010, the China DNA has approved twelveultra-supercritical CDM projects.4 As of early2010, only China, Brazil, India and Iran haveUltra-Supercritical power projects in thepipeline, while only India has one registered.The reasons for the lack of registered projects inChina may lay in the complexity and compre-hensive data requirements of the methodologyACM00013 and/or in technical project delayswith this novel technology.

CLIMATE INVESTMENT

As discussed in Section 3.3, a major strategy ofthe Chinese government’s engagement in CDMhas been to promote the development of CDMprojects in the less economically developed areasof the country. Average investment by differenttype, CERs and region has been reviewed for thefirst 202 projects registered before April 2008.Investment distribution for the total 751 regis-tered projects has been estimated based on thisinformation. The distribution of CDM invest-ment (as taken from the project PDDs) is shownin Table 4.5 and Figure 4.5. Figure 4.5 showsthat the eastern regions aggregate is 28 percentof the total investment, whereas the centralregions aggregate is 32 percent and the western

region is 40 percent. This distribution isslightly different from the regional distributionof registered CDM projects as outlined inChapter 3.

The estimated CDM investment byprovince, compared with the per capita GDP byprovince, is shown in Figure 4.6. The resultshows no statistically significant correlation.Total investments in the less developed centraland western parts of China are about US$ 10.4billion, about 69 percent of total investments.Currently, the distribution among regions doesnot provide clear evidence for a significantCDM contribution toward poverty alleviation.

In summary, the priority areas of new andrenewable sources, methane recovery, and energy-savings and energy-efficiency improvements cover80 percent of the total investment (Figure 4.7).Non-priority areas account for 20 percent.5

Furthermore, with implementation of its CDMprogram, less developed areas of China will gainaround US$ 1.5 billion on CER revenues. Finally,up to US$ 2 billion of CDM revenues will betransferred to the CDM Fund, which is intendedto be a progressive mechanism that will furtherbenefit both the priority areas and the westernprovinces (see Section 4.9).

CDM CAPACITY BUILDING

Since 2000, a number of capacity-building activ-ities have been implemented with support fromthe World Bank, the Asian Development Bank(ADB), the Global Environment Facility (GEF),the United Nations Foundation (UNF), andbilateral donors. The projects have been carried



4 They are Jiangsu Guodian Taizhou Ultra-Supercritical Power Project; Anhui Huadian Wuhu first phase Ultra-Supercriti-cal Power Project; Zhejiang Guodian Beilun Ultra-Supercritical Power Project; Shandong Zouxian Ultra-Supercritical Coal-fired Power Project; Shanghai Wai Gaoqiao Ultra-Supercritical Coal-fired Power Project; Zhejiang Guohua NinghaiUltra-Supercritical Power Project; Tianjin Beijiang Power Plant Project; Huanneng Yuhuan Ultra-Supercritical Coal-FiredPower Project; Guangdong Pinghai first phase Ultra-Supercritical Power Project; Henan Yuzhou second phase Ultra-Super-critical Power Project; Datang Xinyang Huayu second phase Ultra-Supercritical Power Project; and Anhui WannengTongling Ultra-Supercritical Power Project.5 Note: Without the two large-scale HFC-23 decomposition projects of the World Bank, the share of nonpriority area invest-ment would only account for 16.3 percent of the total investment.

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Source: PDDs of registered projects, URC2008a.Note: The World Bank committed US$ 930 million in two HFC-23 projects in Jiangsu Province, and as a result the allo-cation of the total invested money might be distorted. Without these two projects, the share of the Eastern Regionis 27 percent of the total.

Central RegionEastern RegionWestern Region31%

32%

37%

F I G U R E 4 . 5 Regional Distributions of Green Investment

Sources: 2009 GDP per capita data by province (National Bureau of Statistics); CDM investment by province (infor-mation in PDDs from UNFCCC CDM website).

2

1.8

1.6

1.4

1.2

1

0.8

0.6

0.4

0.2

0100000

CD

M in

vest

men

t (bi

l. U

S$)

20000 30000 40000

GDP (RMB per capita)

50000 60000

y = –3E – 06x + 0.5785R2 = 0.01179

70000 80000

F I G U R E 4 . 6 Low Correlation of CDM Investment and Per Capita Income of the RecipientProvince

out to strengthen the country’s capabilities inmethodological research, economic assessment,institutional arrangement, project developmentand operation. (See Annex 4 for an overview ofpast and current major programs). These efforts

have built expertise in CDM project manage-ment and policy making, and the research insti-tutes involved have enhanced their capacities forresearch and development of CDM activitiesthrough these programs.

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Fully Utilizing the PromotionFunction of the Government

Government sectors have sufficient resourcesfor capacity building and public awarenessbuilding. The central government promotesclimate change awareness among all govern-ment officials and decision makers in enter-prises and institutions, with the aim of buildingstrong awareness of global climate change. Forexample, NDRC and MOST have signedMemorandums of Understanding (MOUs) onCDM cooperation with the governments ofFrance, Denmark, Austria, Canada, and Aus-tralia, and have implemented successful pro-jects. About 27 local CDM centers have beenestablished with central government supportand they also have successfully developedCDM projects. In the next phase, local govern-ments should have sufficient capacity to be ableto substantively promote public awareness ofand disseminate information on climate changeand CDM.

Publications and Training on ClimateChange and CDM

The government’s focus has been to use bothmass media—books, newspapers, periodicals,audio, and video—and thematic training work-shops on climate change science and CDM, toreach relevant stakeholders. Dissemination effortshave also included expanding the functionality ofthe government’s climate change and CDM Websites so that they become effective platforms forinformation dissemination and communication.Currently, the government has organized morethan 50 official CDM training workshopsthroughout China, and has issued 6 official infor-mation books or manuals on CDM. The officialCDM Web site (http://cdm.ccchina.gov.cn) ismaintained and improved by information andcommunication specialists, who play a critical rolein this important effort.

Encouraging Public Participation

Several efforts are or have been under way toengage more people and institutions in CDMand climate change efforts. These include:

• Incentive mechanisms to encourage publicand enterprise participation.

• The CDM web site for all interested parties,including buyers, sellers, consultant compa-nies, and the general public.

• An open database on CDM projects to provideinquiries and information retrieval services forusers. In 2006, the Asian Carbon Expo washeld in Beijing, attracting thousands of partic-ipants from a variety of disciplines.

Reinforcing InternationalCooperation and Communication

The government of China supports increasinginternational cooperation in promoting publicawareness of climate change issues and CDM.Through bilateral and multilateral cooperation,



Source: PDDs of registered projects, UNFCCC CDM website.

New & renewable sourcesMethane recovery & utilizationEnergy saving & efficiency improvementHFC-23 decompositionFuel switch

17%0%

N2O decomposition

3%

11%

1%68%

F I G U R E 4 . 7 Distribution of Number of CDM Projectswith Green Investment

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much needed examples of international goodpractice can be gathered and cited to improvedomestic practices. This work will be expandedin the years to come.

Meanwhile, the government is payingincreased attention to south-south cooperationon CDM. Seminars for Asian and African offi-cials on CDM capacity building were held inNovember 2007, April 2008 and May 2009,covering many issues that CDM project devel-opers should be aware of during project devel-opment, and sharing China’s experience withCDM project development and management.These capacity-building activities can effectivelyincrease CDM implementation capacity in otherdeveloping countries.

The south-south exchange held in May 2009took place in Hubei Province and was jointly orga-nized by the World Bank and the Hubei ProvinceCDM Center. 24 representatives from 16 coun-tries in Sub-Saharan Africa, East and Central Asia,Middle East and North Africa attended the pro-gram. The main lessons learned were:

• Governmental support and institutionalframework at different levels in China: Themost important lesson learned is that govern-mental support in China is delivered in a morecoordinated and effective way than in manyother countries, including financial support,legal and institutional guidelines and capacitybuilding. The process-oriented structure ofCDM development in China generated signifi-cant interest with entities such as the CDM Cen-ters, a National CDM Board and a NationalCDM Fund, all playing complementary roles inadvancing the CDM market. The establishmentof such solid regulatory frameworks, relatedinstitutions and structures were perceived asbeing a significant step toward scaling up devel-opment of a high quality CDM portfolio.

• Capacity building: Participants were impressedwith the capacity China has built at all levels.They acknowledged that successful capacitybuilding (also within DNAs) is one of the main

preconditions for successful CDM projectdevelopment in host countries.

• Financial support: Participants acknowledgedthat financial support for CDM project devel-opment and access to underlying project financeare crucial to accelerate CDM development.

• Commitments and partnerships: The strongcommitment from companies and local gov-ernments (for example to implement similarprojects on household levels) can acceleratethe build-up of a CDM market.

Future south-south cooperation will focus onexpanding developing countries’ involvement inCDM activities; promoting cooperative exchangeof scientific and technological know-how indevelopment and management; and encouragingthe international community to support efforts bydeveloping countries to address the challenges ofCDM, such as lack of technology transfer. Inaddition to government-level cooperation, theexchange of CDM expertise and experienceamong research institutions and universities indeveloping countries is encouraged.

General and Common Content

CDM capacity-building aids usually include ageneral introduction to climate change issues, theUNFCCC and Kyoto Protocol, basic informa-tion regarding CDM modalities and rules, andactivities in the country to date. Several capacity-building entities have also developed a printedCDM manual. The problem with such materialis that it becomes obsolete quickly—even if usersare not aware. A web-based manual would be farpreferable: it could be constantly updated andcould be shared by different capacity-buildinginitiatives. While a web-based manual may costmore than a one-off printed guide, the benefitswould be significantly higher. The current website, http://cdm.ccchina.gov.cn, would be a goodplatform to use in gathering and distributingthe web-based manuals produced by differentactivities.



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Donor Collaboration

Many donors have supported CDM capacity-building activities in China. To avoid seeing thesame project objectives and output supported bydifferent donors, and to allocate resources moreefficiently, the DNA or the Office of NLGCCcould nationally coordinate overall capacity-building activities to allow donors to pool theirresources and clearly separate tasks.

CHINA CLEAN DEVELOPMENTMECHANISM FUND

China’s CDM Measures, issued in 2005 (see sec-tion 2.3), stipulate that “According to the perti-nent articles of Measures for Operation andManagement of Clean Development MechanismProjects, the Government of China will levy a cer-tain proportion of the certified emission reductions(CERs) transfer benefits from CDM projects, andthe revenue collected upon CERs transfer benefitsfrom CDM projects will be used to establish theClean Development Mechanism Fund to supportthe country’s activities on climate change such asclimate change related science and technologyresearch, and raising national adaptation and mit-igation capacity. The establishment of the CleanDevelopment Mechanism Fund will also play anactive role in relieving the pressure of demand forfund in response to climate change, and guarantee-ing the effective implementation of this nationalprogram.”

In August 2006, the State Council approvedthe establishment of the Clean DevelopmentMechanism Fund (CDMF) and its ManagementCenter, which are now operational. As approvedby the State Council, the CDMF is a policy- anddevelopment-oriented, nonprofit, long-term,open-ended, state-owned fund. Its mandate is tosupport and promote domestic activities thataddress climate change, under the guidance ofnational sustainable development strategies. TheWorld Bank and the Asian Development Bankprovided active technical and capacity-building

support to the CDMF to commence its initialoperations.

The CDMF is independently operated, and isfinanced from levies on China’s CDM revenues.Decree 37 introduced tiered levies on the CERrevenues generated by various CDM projects,with higher levies on CDM projects with higherCER value but lower development impact:

• 65 percent from HFC/PFC projects• 30 percent from nitrous oxide projects• 2 percent from all other projects (EE, RE,

CMM/CBM, small scale reforestation)

The current CDMF balance is approximatelyUS$ 750 million, and is projected to increase toUS$ 2 billion by the end of 2012.

The Board of the CDMF and the CDMFManagement Center are at the core of the orga-nization’s structure. The Board is an intergov-ernmental coordinating institution for CDMFaffairs, composed of the National Developmentand Reform Commission, Ministry of Finance,Ministry of Foreign Affairs, Ministry of Scienceand Technology, Ministry of Agriculture, Min-istry of Environmental Protection, and ChinaMeteorological Administration. The CDMFManagement Center is the legal managemententity of the CDMF for implementation of busi-ness operations, and is responsible for raisingand collecting funds for and managing and useof those funds. The CDMF Management Cen-ter runs the business of the CDMF under theguidance of the Board.

Financial Resources and Use of theChina CDM Fund

The main financial resource of the CDMF isChina’s share of the proceeds from interna-tional cooperation on CDM projects, in accor-dance with the CDM Measures (see above).The three other sources of revenue of theCDMF are: (i) donations from domestic andforeign institutions, organizations, and indi-



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viduals; (ii) CDMF investment earnings frominterest of bank deposits and national debts;and (iii) other financial resources approved bythe State Council of China.

To facilitate implementation of NCCP, theCDMF will offer a combination of grants, con-cession loans, and other financial tools throughvarious instruments, including project-basedcooperation. Through these, it will supportcapacity building, public awareness, and con-crete activities on mitigation and adaptation. Forexample, the CDMF Management Center pro-vided technical assistance for preparation of thefirst national adaptation action project, “Main-streaming Adaptation to Climate Change intoWater Resources Management and Rural Devel-opment,” on which the Chinese government,the World Bank, and the Global EnvironmentFacility have been working closely since May2008. The CDMF will also support the creationof innovative new resources and mechanisms toaddress climate change. Though there are highexpectations for the CDMF, it must be realizedthat the CDMF is only a small part of China’sclimate change financing needs. Rather, theCDMF is simply a new partner joining otherinternational and domestic sources of financingand sponsorship.

To date, the CDMF has not started to makeinvestments with its accumulated capital. Inpreparation for doing so, it has established coop-erative relationships with domestic, bilateral,and multilateral institutions, including theWorld Bank Group (IBRD, IFC), ADB, andinternational and domestic private sector insti-tutions. The CDMF will consider project co-financing with the World Bank and others, andinitial efforts are under preparation.

CDM Fund Support to China’s CDMActivities

One of the CDMF’s business priorities is to sup-port the development and implementation ofCDM projects, through three approaches:

• The CDMF will, as a bridge and platform, facil-itate and organize cooperation between buyersand sellers of CDM CERs. The involvement of the CDMF is designed to lower the risk oftransactions and to promote better regulatedCDM project transactions.

• The CDMF will enhance the role of CDMprojects as useful instruments providing eco-nomic incentives for mitigation. The CDMFwill, through concessional loans and otherfinancial tools such as accessing non-grantsthrough the commercial banking system, sup-port a wide range of development and imple-mentation of CDM and mitigation projects.Facilities that address market risks faced bysome CER suppliers may be considered. Thesecould complement instruments strengtheningparticipation of Chinese enterprises in CDMimplementation. Moreover, investment instru-ments targeted at selected key areas of CDMand mitigation are established and functionalunder the CDMF. With these instruments andfacilities, the CDMF can work with partners toprovide financing and co-financing for variousapproaches to the development and implemen-tation of CDM projects.

• Through grants and technical assistance, theCDMF will support capacity-building andpublic awareness activities required for CDMprogress in China.

Support may include:

• Enhancing CDM management capability inrelated national agencies

• Improving the capacity of domestic technicaland consulting institutions, business and finan-cial sectors, in participating in CDM projects

• Developing methodologies for CDM projects• Helping domestic enterprises better understand

and use CDM international regulations • Encouraging domestic institutions to apply

for DOEs • Identifying and recommending potential

CDM projects in China



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• Providing necessary policy and technical guid-ance for domestic enterprises to develop coop-eration with international buyers

• Facilitating the efforts of domestic enterprisesto improve their capabilities relevant to devel-oping and implementing CDM projects andto CER transactions

• Tracking and analyzing the development ofthe international carbon market

• Providing necessary and timely internationalpolicy guidance to domestic enterprises to helpthem capture future opportunities.

Moreover, the CDMF may organize and facili-tate consulting services for developing andimplementing CDM projects, for instance withrespect to project identification, PDD develop-ment, the design of construction projects thatform the basis of CDM projects, and CER mon-itoring during CDM project implementation.



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As a developing country party to the Kyoto Pro-tocol, China attaches great importance to itsobligations under the Kyoto Protocol and hasbeen promoting the development of the CDMthrough the establishment of related institu-tions, promulgation of a regulatory framework,targeted scientific research, and overall capacitybuilding at both central and local levels. Since2005, China has increasingly used the CDMmechanism in a win-win fashion to help it meetits fundamental development goals, such asenergy efficiency, and to accomplish more thansimple emissions reduction.

Despite these important achievements, chal-lenges also remain that, if addressed, would bet-ter enable the CDM to continue to contribute toChina’s development. Opportunities to expandthe CDM beyond its current level are alsoexpanding: new technologies like carbon captureand storage, new programmatic approaches suchas the Program of Activities (PoA) approach, andnew sectors being brought into the CDM mar-ket such as buildings and transportation, couldplay a major role in the development of theCDM market, particularly after 2012. Thischapter presents a list of brief suggestions toovercome these challenges and catch new oppor-tunities that the market is creating.

ACHIEVEMENTS

CDM Regulatory and Administrative Framework

Since it embarked on CDM development, Chinahas promulgated a number of regulations inorder to define the legal basis for its CDM oper-ations. The institutions assigned to administerthe development and operation of CDM arelocated in critical central government depart-ments, including the National Development andReform Commission (NDRC), the Ministry ofFinance (MoF) and the Ministry of Science andTechnology (MoST).1 This centrality has con-tributed substantively to China’s extensive CDMportfolio development over the last 5 years.

The DNA (Designated National Authority)plays an important role in regulating the ChineseCDM market by guiding CDM project develop-ment. After promulgation of the Measures, theDNA published regulations regarding the docu-ments required for CDM project application andtheir formats, and designed a detailed review pro-cedure. The DNA also identified priority areasfor CDM project development, and differenti-ated CDM income sharing on CERs accordingto each project’s contribution to sustainabledevelopment. While some rules of the Interim

Challenges and Opportunities5

�

1 As described in Section 2.3, the Interim Measures for Operation and Management of Clean Development Mechanism Projectsin China (the “Measures” ) specified that the NDRC, an inter-ministerial body above the ministry level, would be the admin-istrative body for CDM project activities.

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Measures of July 2004 were not fully clear toCDM stakeholders, the final version of the Mea-sures published in 2005 contained many clarifi-cations that contributed to the drastic expansionof the Chinese CDM market in action.

These regulations provide a solid basis for theimplementation of CDM projects in Chinainstitutionally and systematically. Nevertheless,international CDM project developers havenoted that some rules, such as requiring major-ity Chinese ownership and the capping of con-sultancy fees, do not exist in other CDM hostcountries and thus may hinder some projectdevelopment in China. The setting of a “floorprice,” below which no Chinese CDM projectdeveloper can sell CERs, has also generated livelydiscussion, especially as the floor price is not offi-cially published, but communicated informally.Nevertheless, the Chinese regulatory regimehelps ensure that a sufficiently high share ofCDM benefits accrue to Chinese project partic-ipants. One may also argue that these rules arefully transparent.

Growing Awareness of ClimateChange and CDM Opportunities

The Chinese government sees an important rolefor awareness-raising in promoting CDM proj-ect development. Government departments arecapable of mobilizing advanced resources such assenior experts to conduct capacity building andraise public awareness. They have effectivelyenhanced public awareness of climate change,and CDM in particular, through mass media,publication of books and manuals, and articles innewspapers and magazines. It has also organizedthematic training seminars and workshops onCDM subjects by targeting different audiencesand by establishing an official China CDM web-site (http://cdm.ccchina.gov.cn), which providesinformation in both Chinese and English and isregularly updated by an assigned professionalteam. It serves as a communication platform forall interested parties, including buyers, sellers,

consultant companies, and the general public. A database on CDM projects has been estab-lished by the CDM Project Management Centerto provide inquiries and information retrieval ser-vices for users.

Development of Chinese and Other Developing Country Capacity

The significant expansion of China’s CDMproject portfolio over the past few years has beenaccelerated by the awareness-raising strategiesoutlined above, deepened by comprehensiveCDM capacity building activities. Many donorsfrom developed countries, such as the WorldBank, Asian Development Bank, Global Envi-ronment Facility, United Nations DevelopmentProgramme, and bilateral partners, acted as project partners. The main activities includedtechnical assistance on CDM methodology, eco-nomic assessment of CDM, institutionalarrangements for CDM management, andCDM project development and operation. Forexample, the publication of baseline emissionfactors for China’s regional electric power gridsby NDRC helped reduce the costs and effortsrequired of CDM project owners, project devel-opment agencies, and DOEs when drafting,reviewing, and validating PDDs. Overall, thesecapacity building activities have improved thegovernment’s CDM project administrationcapabilities and those of project proponents aswell.

Beijing-based institutions, such as theNational CDM Project Management Institute,Tsinghua University and the Chinese Academyof Social Sciences have played an active role indeveloping a centralized CDM project informa-tion system, implementing capacity-buildingactivities, providing management and technicalconsultation, and undertaking CDM-relatedpolicy research. Moreover, both central govern-ment and provincial government institutionssupported the setup of provincial CDM centers,which were crucial in providing support for

C H A L L E N G E S A N D O P P O R T U N I T I E S


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project development in form of capacity build-ing workshops and direct development of CDMdocumentation. Today, there are well function-ing CDM centers in most Chinese provinces.Local governments have also helped raise publicawareness of the need to combat climate changeand the role of CDM projects. Finally, the pri-vate sector itself rapidly understood the poten-tial benefits of CDM projects and successfullybuilt its own critical level of capacity.

The parties to the Kyoto Protocol have rec-ognized that there are barriers to the equitableregional distribution of CDM project activities,so China helps promote CDM developmentthrough south-south cooperation. CDM studytours have been organized by the Chinese Min-istry of Commerce (MoC) and NDRC, also incooperation with donors. Officials working onCDM from African, Asian and other developingcountries have visited sites and partners inChina. These training and dissemination effortswill be increasingly relevant, as it is likely thatpost-2012, the CDM will focus more on thepoorest developing countries.

Steps to Ensure SustainableDevelopment Benefits

From the outset of CDM development inChina, the government has emphasized the needto bring the mechanism to the economically lessdeveloped parts of the country. This target hasgenerally been achieved, and with it positive jobcreation not only in the stronger economicregions along the east coast, but also in the lesseconomically developed parts in the central andwestern part of the country.

At the end of April 2004, there were only twoDNA-approved CDM projects in China; at thebeginning of March 2010, there were 2,413.The five provinces with the greatest number ofprojects are all in the west or central part of thecountry, and are below average in terms of percapita income.

Increasing Investment in NationalCDM Priority Sectors

The CDM project portfolio has graduallychanged from non-CO2 sectors such as indus-trial gases, to the prioritized sectors of energyefficiency, renewable energy and methane recov-ery and utilization. As outlined in Table 4.2CERs issued by projects from national prioritysectors are responsible for 15 percent of totalCERs issued as of March 1, 2010. In terms ofestimated cumulative CERs by end-2012 (forcurrently registered projects), hydropower proj-ects will be the second largest category, follow-ing HFC-23. Nevertheless, priority areas areaffected by a number of barriers delaying timelyissuance of CERs (see next section).

Active Role in International CDMActivities

China plays an active role internationally: it is amember of the United Nation’s CDM EB, anduntil recently provided experts to its CDMMethodology Panel. With the rapid increase ofCDM projects, China has increased pressure onthe DOEs due to slow CDM validation. Thishas led to the establishment of Chinese DOEs:China Environmental United CertificationCenter Co., Ltd, (CEC) and China Quality Cer-tification Center (CQC) were accredited inMarch 2009. CEC and CQC are currently vali-dating 21 and 18 projects, respectively, althoughnone have yet been registered. The ChineseDOEs still have a low market share and have notbeen able to alleviate the shortage in DOE services.

CHALLENGES AND OPPORTUNITIES

While China has made great progress in CDMproject development, it still confronts many chal-lenges. Among them are: (i) increasing the num-ber of sectors active in the CDM market,



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especially in the priority areas; (ii) ensuring effec-tive project selection and preparation, timely andsuccessful project validation and registration, andhigh issuance performance; (iii) strengthening theCDM’s role in technology transfer (TT) andpoverty alleviation; (iv) continuing to buildhuman and institutional capacity; and (v) man-aging uncertainty. These five themes areaddressed below.

Actively Promoting the Developmentof CDM in Priority Sectors

In the area of energy-efficiency CDM projects,project development is lagging behind expec-tations. Table 5.1 shows available methodolo-gies and the number of projects incorporatingthem. The Japanese government has supportedthe development of approved energy-efficiencymethodologies for green-field coal-fired powerplants and industrial boilers, and the WorldBank has supported approved methodologiesfor efficient air conditioners and efficientlighting. Approved energy-efficiency method-ologies are also available for waste pressure andheat recovery and utilization in the steel andcement industries and industrial cogeneration,as well as in improvement of steam systems.Nevertheless, the development of energy-effi-ciency projects has progressed relatively slowly,and the development and monitoring of newmethodologies have proven to be compara-tively costly. Furthermore, energy efficiencyprojects face a high risk of rejection due to dif-ficulties in showing additionality. The Pro-gram of Activities (PoA) approach has notachieved a breakthrough yet, which may fur-ther hamper the development of the energyefficiency projects. The Chinese governmentcan play an active role in continuing to pro-mote energy efficiency projects in all of theabove areas.

Validation and Registration, andHigh CER Issuance Performance

Due to the strictness of international CDMregulations, it is important that the initialselection of CDM projects be done carefully.Projects with characteristics that are unlikelyto be approved should not be developed, asthey waste time and resources of project developers, DOEs, and the DNA. Given thatproject rejection rates have increased both in general and for projects from China, awareness-raising about the CDM clearanceprocess is important. For example, to effec-tively develop PDDs, project developersshould make sure that they are supported byqualified consultants, as many in the pastneeded to change inexperienced consultants atthe PDD stage, leading to substantial delaysand extra costs. Also, industrial energy effi-ciency and large hydropower projects withgenerally attractive investment parametersshould go through a careful review prior toapplication for CDM registration to ensurecompliance to the additionality criteria.

Both the validation process by DOEs and theregistration process with the EB have beenslower than was predicted at the beginning ofthe CDM (Table 5.2). In 2008, when the num-ber of CDM projects drastically increased, proj-ects had to wait several months just for avalidation contract due to a limited number ofeligible DOEs and the limited number of DOEstaff with sufficient Chinese language skills andtechnical knowledge. The length of the com-bined validation and registration process (whichalso includes the process of submission of publiccomments) discouraged projects developersfrom developing CDM projects. Subsequentdelays reduced the volume of CERs many proj-ects could generate by the end of 2012. Fortu-nately, as the inflow rate of projects needingvalidation started to decrease in mid-2008



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TABLE 5.1 Application of Approved Energy Demand Methodologies

Number ofMethodology Methodology Number of Projects RegisteredAvailable Since Reference # Title in Validation Projects

December 6, 2004 AM0017 Steam-system efficiency improvements by replacing steam traps and returning condensate 0 0

December 6, 2004 AM0018 Steam optimization systems 4 9February 25, 2005 AM0020 Baseline methodology for water-pumping

efficiency improvements 0 0February 16, 2007 AM0046 Distribution of efficient light bulbs

to households0 0November 30, 2007 AM0060 Power saving through replacement by

energy-efficient chillers 0 0May 16, 2008 AM0068 Methodology for improved energy

efficiency by modifying ferroalloy production facility 0 0

September 26, 2008 AM0070 Manufacturing of energy efficient domestic refrigerators 0 0

September 26, 2008 AM0071 Manufacturing and servicing of domesticrefrigeration appliances using a low GWP refrigerant 0 0

July 17, 2009 AMS III.AE Energy efficiency and renewable energy measures in new residential buildings 0 0

November 1, 2002 AMS II.C. Demand-side energy-efficiency activities for specific technologies 6 7

November 1, 2002 AMS II.E. Energy-efficiency and fuel-switching measures for buildings 12 5

October 22, 2004 AMS II.F. Energy-efficiency and fuel-switching measures for agricultural facilities and activities 0 0

February 1, 2008 AMS II.G. Energy-efficiency measures in thermalapplications of nonrenewable biomass 2 1

May 16, 2008 AMS-II.I Efficient utilization of waste energy in industrial facilities 0 0

August 2, 2008 AMS II.J. Demand-side activities for efficient lighting technologies 17 0

June 22, 2007 ACM0012 GHG emission reductions from waste energy recovery projects 211 13

Source: UNEP (2010) as of May 1, 2010.

(URC 2008c, URC 2010a), and the number ofaccredited Chinese validators also increased.Hence, this particular bottleneck was relaxed by2009.

In early 2010, the average time required fromthe DOE request for registration to registration

by the CDM EB is 170 days. This is longer thanthe average time of 146 days required in early2009. Reasons for this increase include:

• Submission of projects with doubtful addi-tionality characteristics, particularly regarding



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waste heat recovery in heavy industry andhydropower. This has led to more carefulreview and related delays.

• Not all Chinese PDD consultancies reachinternational standards, and some project documents reflect excessive cut-and-pastepractices which may lead to inconsistenciesand erroneous data.

• There are inconsistencies in data between feasibility studies and PDDs.

• Some project submissions only responded partially to previous comments or rejectionsmade by DOE.

While there are no simple solutions to streamlin-ing the existing CDM institutional and method-ological structures, the EB has embarked onreforming its procedures. First, DOEs are beingmonitored more intensely to ensure acceptableservice standards. This monitoring of servicestandards has been implemented, but hasresulted in the temporary suspension of theaccreditation of some DOEs, which in turn leadto an aggravation of the DOE bottleneck inChina in late 2008. Second, the DOE accredita-tion process was streamlined by the EB in itsMarch 2009 meeting, which has since lead to adoubling of DOE accreditations. In the longterm, however, this will lead to more highly qual-ified DOE staff and a faster turnaround time.

Third, a reform of review procedures by the EBis currently underway, which could substantiallyreduce the EB’s workload. Direct communica-tion between project developers and the EB isenvisaged and already applied in the methodol-ogy submission procedure. Fourth, the EB is alsoreviewing why some approved methodologies areseldom applied, and has reformed the procedurefor approving new methodologies. Moreover, aprioritization of methodology development hasbeen initiated, which will lead to top-downdevelopment of crucial methodologies andimprovement of currently under-utilized ones.CDM reform was further supported by a deci-sion of COP 15 in December 2009.

A major challenge over the remaining partof the first commitment period of the CDM(i.e., through 2012), is how to ensure that thelarge amount of CERs included in the CDMportfolio in China get issued. By early March2010, only about 19% of the total 962 millionCERs in China’s CDM portfolio had actuallybeen issued, meaning that a total amount ofabout 776 million CERs or about 81% of thetotal estimated CER volume remains to beissued. The issuance rate in China’s prioritizedsectors is particularly low, with hardly anyCER issuances occurring yet in biogas (includ-ing methane), biomass, landfill gas, and solarenergy sectors. Issuance of CERs in the hydroand wind energy sectors has slowly begun to



TABLE 5.2 CDM Project Registration Process

Milestone Time Required Data Source

Contracting DOE for validation of Anecdotal information from Chinese CDM project activity > 60 days DOEs/project developers,

recently decreasingValidation to request for > 18 months for approx. 40% China National CDM Centerregistration by DOE of projectsDuration from request for Average of 751 registeredregistration to registration projects from China by Executive Board 170 days (URC 2010a)Registration to issuance 415 days URC 2010a

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take off. Speeding up the CER issuance rate inorder to bring capital into these projects iscritical.

Strengthening CDM’s Role inTechnology Transfer and PovertyAlleviation

Innovations in technology promote sustainabledevelopment, and effective use of technology isat the core of addressing climate change. Tech-nology Transfer (TT) is an important goal of the UNFCCC. The international community—especially developing countries—had high expectations that the CDM would help promote environment-friendly TT. Theseexpectations were linked to the concept of addi-tionality, i.e., that CDM projects are not just“business-as-usual” activities. A project using anadvanced technology may be more likely to beconsidered additional than a project using astandard technology.

Although China has promoted TT withinits CDM policy—for example, through its stip-ulation in Article 10 of the Measures (“CDM project activities should promote the transfer of environmentally sound technology toChina”)—analysis of China’s CDM portfolioshows that few projects lead to TT. It is not aprerequisite for CDM projects, but China’sview is that TT is insufficiently promoted inthe CDM, and this fact limits its potential forpromoting sustainable development in devel-oping countries. However, this report showsthat TT is not an end in itself—and that sus-tainable development benefits can accrue toprojects that do not involve transfers ofadvanced technology, but rather accrue bene-fits through increased dissemination of exist-ing, perhaps domestically manufactured,technologies (see Section 4.5). The next sectionsuggests that some fine tuning of CDM projectownership requirements may contribute posi-tively to development of certain sectors andfurther boost technology transfer.

Building Human and InstitutionalCapacity

Over the past five years, CDM-related capacitybuilding has reached a growing professionalcommunity in China’s private and public sectors. With regard to specific aspects, such as promoting TT and enhancing sustainable development benefits, increased capacity-build-ing efforts are still needed. Continuously im-proving the capacity of national and provincialinstitutions—and their ability to cope with newmarket mechanisms—is a necessary conditionfor adapting to the still undefined post-2012CDM.

Managing Uncertainty aboutInternational CDM Rules and Market

At the international level, changes in CDM rulesand in the interpretation of key principles maygenerate considerable uncertainty. For example,the interpretation of additionality has beentightened considerably over time, and moreguidance for the use of the additionality tool hasbeen provided. This has reduced uncertainty inthe interpreting of key aspects of the CDM, andhas therefore helped clarify which projects areeligible and thereby reduced submissions of notsatisfactory projects. Nevertheless revisions ofbaseline methodologies can lead to workloadpeaks, as project developers and validators wantto submit their PDDs for registration before themethodology version they have been usingexpires. For example, a peak of several hundredregistration requests occurred in early August2008 due to this reason.

Looking forward, China faces uncertaintyaround the EB’s consideration of an “enhanced”barrier test on some types of “financially prof-itable” projects, such as wind farm and industrialwaste heat and gas recovery projects. The 15thand 16th meetings of the EB rejected registra-tion requests for sixteen wind farm CDM pro-jects using the argument that China had reduced



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feed-in tariffs for wind farms intentionally inorder to encourage developers of wind projectsto apply for CDM. China made a strong objec-tion on COP 15 making reference to the “ChinaWind Farm and Tariff Pricing Research” study,conducted by the China-Denmark WindEnergy Development Program and the ChineseRenewable Energy Industries Association(CREIA), to justify the indicators used for defin-ing feed-in tariffs of wind farms. Up until now,however, only 2 of the 16 rejected projects havebeen registered. In order to improve CDM func-tioning, especially in a critical renewable energysector as wind farms, it is important that a com-mon understanding about this situation bereached between the various parties.

The reform of CDM after 2012 is a topic ofthe Ad Hoc Working Group (AWG) on furtherCommitments for Annex I Parties under theKyoto Protocol. The Parties commonly agreethat emissions trading and project-based mech-anisms under the Protocol should continue to beavailable to Annex I Parties as a means to meettheir emission reduction targets, and could beappropriately improved to promote the environ-mental integrity of the Protocol and the contri-bution of its mechanisms to sustainabledevelopment. However, CDM market playersare waiting for “how and when” a new interna-tional regulatory framework will emerge. Untilthen, market players seem to be hesitant todevelop new CDM projects for the period post-2012.

CONCLUSIONS

This report has shown that China has come todominate global CER supply, and has been successful in leveraging carbon finance to imple-ment its sustainable development priorities. Yetinvestments in several hundred CDM projects

currently under implementation represent a lim-ited contribution to the larger task of stabilizingChina’s greenhouse gas emissions. In all CDMpriority areas targeted by the 11th Five-YearPlan period (2006–10)—which exclude indus-trial gas projects—registered CDM projects hadgenerated only 8.9 million CERs as of end 2008,i.e. halfway through the Five-Year Plan period.This total had increased to around 35 millionCERs by March 2010, but this is still much lessthan 1 percent of China’s annual CO2 emis-sions. This contribution could improve signifi-cantly if projects requesting registration wouldgenerate carbon offsets either at the CER levelsestimated in the PDDs or at levels consistentwith specific project-type performance factors(URC 2010a).

In the area of energy efficiency, for example,the government set a goal to reduce energyintensity per unit of GDP by 20 percentbetween 2006 and 2010, and began implement-ing 10 key energy-saving programs. These pro-grams are expected to result in 550 million tonsof CO2 reductions during the 11th Five-YearPlan period. CDM’s only significant contribu-tion to these efforts to date has been in wasteheat and gas recovery and utilization.2 Thirtyregistered projects in these areas have generatedonly 12 million CERs by May 2010.3 Further-more, CDM activities have scarcely impactedthe main areas of concern—coal-fired powergeneration, energy-intensive industries (otherthan steel and cement production), buildings,and transportation.

Can the CDM deliver more? On the assump-tion that the global CDM market will continueto operate in a manner that builds directly on thevaluable experience gained under the Kyoto Protocol, this report concludes that China coulddo more to expand the scope and depth of itsparticipation in CDM markets. To use CDM



2 There is some overlap between the technologies mentioned in this category (particularly in the area of cogeneration) andthe energy conservation category (where all CERs are derived from the use of waste heat or gas for self-generation).3 No CERs have been issued for other supply-side technologies mentioned in the NCCP, such as small-scale distributed nat-ural gas, advanced power transmission/transformation/distribution technologies, or 600 MW or larger supercritical and ultra-supercritical combined-cycle thermal power plants.

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more effectively in addressing China’s sustain-able development priorities, as well as in achiev-ing increased emissions reduction, gaps such as clean coal generation, end-use efficiency, andafforestation/reforestation need to be addressed.In addition, related issues such as market effi-ciency, delays, and capacities need to beaddressed.

Here are several strategies that build on thesuccess of CDM in China to date and may helpto enhance the value-added of CDM in the nearterm:

• Encourage technology transfer via CDM. Thismight be fostered by close involvement withthe Ministry of Commerce and its InvestmentPromotion Agency activities, which aim topromote advanced clean technology invest-ment in China. Technology benchmarkscould be set as requirements—for example, ifa certain technology is widely available inChina, then only projects using moreadvanced technologies would qualify underCDM. This should not be a universal require-ment, but should meet current market needs(see next bullet). Other options to promoteadvanced TT might include dropping themajority Chinese ownership requirement forhosting CDM projects; reducing or eliminat-ing import duties on climate-friendly tech-nologies; and including additional reportingon TT indicators in the CDM application andapproval process, including indicators for softskills that create an enabling environment forTT, such as training in technologies applica-tions. Also, improved protection of intellec-tual property rights would give greater securityto technology providers.

• Encourage wider dissemination of climate-friendly Chinese technologies domestically.China already manufactures a range of cleanand efficient products and technologies, yetthe top technologies are not always offered onthe large domestic market. Examples includehigh-efficiency industrial electric motors and



high-efficiency home appliances. Benchmark-ing systems to identify the top products andsuitable CDM business models (for example,manufacturer “pay-as-you-save” purchasingschemes) and methodologies could be devel-oped to promote domestic dissemination ofsuch technologies. Now that the basic conceptof technology benchmarking has beenaccepted by the CDM Executive Board, thisstrategy could result in huge emission reduc-tions, while strengthening domestic con-sumption and supporting economic growth.

• Expand the horizon of Chinese enterprises to takeadvantage of additional CDM opportunities. Todate, Chinese enterprises have acted as domes-tic CDM project hosts, but opportunities forthem to tap into the carbon market in the con-text of their export or foreign direct invest-ment (FDI) activities have largely beenoverlooked. Given China’s important role ininternational trade and growing role in FDI, aprogram to encourage Chinese enterprises toleverage CDM funding to reduce the carbonfootprint of their foreign investment projectsin other developing countries (such as in theoil and gas industry) could reap large bene-fits—as could a program to offset any addi-tional costs of Chinese-manufacturedclimate-friendly technologies sold to othernon-Annex I countries. Appropriate businessmodels and related support mechanisms andincentives could be developed, perhaps withassistance from the Chinese CDM Fund.

• Promote CDM development in important sec-tors, such as buildings, transportation, and end-use energy efficiency, as well as in China’s leastdeveloped regions. This could be done in vari-ous ways, such as creating incentives for thosesectors comparatively less advanced withregard to CDM projects, providing govern-ment support for methodology developmentin priority sectors, and providing training inspecific methodologies in priority sectors (par-ticularly to project developers and localauthorities in the least developed Provinces).

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• Consider developing strategic plans to leverageCDM resources to co-finance priority govern-ment policies, programs, and projects that alsomitigate climate change. There are many waysto approach this. One way would be for theChinese approval process for major infrastruc-ture projects to include an evaluation ofwhether such projects could be modified tobetter mitigate GHG emissions and qualifyunder the CDM. Another way would be toenable Provincial Energy Conservation Cen-ters to serve as managing entities for a widerange of end-use efficiency activities. A thirdopportunity would be to design a CDM pro-gram under the Top 1000 Enterprise Programto reward enterprises that exceed some bench-mark energy-saving level.

• Continue capacity-building activities. Effectiveproject preparation requires capacity of allinvolved parties. Specific capacity-buildingneeds include: • Training of CDM consultants and project

developers to improve understanding ofinternational CDM rules to prevent reviewsand rejections of projects, to maximize thesustainable development benefits of CDMprojects, and to integrate local stakeholdersin project development.

• Strengthening the domestic capacity toimprove CDM methodologies and submitrequests for revisions to the UNFCCC,including the establishment of an expertknowledge base.

• Training auditors in eligible domestic orga-nizations to become DOEs to relieve theshortage of validation personnel.

• Strengthening capacity to analyze andunderstand developments in the interna-tional carbon market, including such topics

as accessing voluntary markets, linkingregional markets, and understanding differ-ent emission reduction standards.

• Encouraging new models to scale up CDM development, such as programmatic CDM(PCDM). CDM investments in several hun-dred projects currently under implementationrepresent an important but limited contribu-tion to the larger task of stabilizing China’sgreenhouse gas emissions. Innovative conceptsrelating to CDM could enhance these oppor-tunities. There are several PoAs under prepa-ration in China, but they face challenges at theLoA and coordinating agency set-up stages,and DOEs may perceive higher risks for ERsdelivery.

• Introducing market mechanisms to accelerateemission reduction related activities. The three newly established environment/energyexchange centers in Beijing, Tianjin andShanghai are good pilots for bringing innova-tions for emission reduction standards,domestic trading, and linkages with interna-tional trades.

In the post-2012 period, China will face acomplex policy-making landscape, shaped byinternational pressure to slow, stabilize, andeventually reduce its GHG emissions, and bydomestic challenges to provide access to safe,reliable, and environment-friendly energy ser-vices while continuing economic developmentand poverty reduction. As China transitions to a lower carbon economy, the CDM’s role in this transition remains to be mapped out. The CDM—or a future version of carbon markets—should play an important role, one inwhich China can maintain a leadership role.



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World Bank 2009: State and trends of the Carbon Market2009, Washington, DC. World Bank.

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World Bank. 2007. Cost of Pollution in China, EconomicEstimates of Physical Damages (Conference Version).Washington, DC: World Bank.

World Bank 2006a: State and trends of the Carbon Market2006, Washington, DC. World Bank.

World Bank. 2004. Clean Development Mechanism inChina; Taking a Proactive and Sustainable Approach.Washington, DC: World Bank.

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Worrell, Ernst, Price, Lynn, Neelis, Maarten, Galitsky,Christina, and Zhou Nan. 2007: World Best PracticeEnergy Intensity Values for Selected Industrial Sectors.LBNL-62806 Rev. 1. Berkeley: Lawrence BerkeleyNational Laboratory, June 2007.

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R E F E R E N C E S


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Some provinces in China display a well estab-lished institutional capacity as well as effectiveCDM project development skills. This chapterpresents some interesting case studies on Yun-nan, Inner Mongolia, Shanxi, and HubeiProvinces. Each province is described below ingeneral terms, before presenting the status ofCDM implementation. Achievements in termsof environmental, social and economic benefitsand comparative advantages created by CDM,and the main barriers to CDM development ineach province, are also given.

This annex also describes in some detail threeWorld Bank CDM projects implemented inthese provinces: the Whitewaters Hydro projectin Yunnan Province, and the GuangrunHydropower project, and Eco-Farming biogasproject in Hubei Province:

• In Yunnan Province the World Bank devel-oped the Whitewaters Hydropower project,which was registered in 2007 and producesaround 275,000 tons CO2 average annualERs. This is a good example of using carbonrevenue to strengthen capability of projectfinancing through commercial channels.

• In Hubei Province, the Guangrun Hydro-power Project (GHP) is one of the fivehydropower projects under the scope ofWorld Bank-financed program for HubeiHydropower Development in Poor Areas. It is

located in Jianshi County, Hubei Province.Emission reductions from the project are pur-chased by the World Bank CommunityDevelopment Carbon Fund (CDCF), and thefund lays out specific project selection criteriaon poverty alleviation. Based on site investiga-tions and public consultations, a CommunityBenefit Development Plan (CBDP) waslaunched to focus on enhancing infrastructureand social service facilities in nine poor villagesaffected by the project construction. TheCDCF provides advance payments from theCDM revenue and additional grant fundingto support the implementation of CBDP. Thelocal government is also contributing to devel-oping and financing of the project.

• Also in Hubei Province, the Eco-FarmingProject includes 8 counties within the EnshiPrefecture, with a total of 33,000 householdsin 625 villages and 81 townships. It is referredto as the “one biogas digester with three supple-mentary renovations” project, since it includesbiogas digesters replacing deep pits, toiletimprovements, pig pens and kitchen renova-tions. The emission reductions come from tworesources: (i) recovery and utilization of biogasafter manure digestion to replace householduse of fossil fuels (primarily, coal), and (ii) byavoiding CH4 emission from the slurry thatwould otherwise have been stored in a deep pit.

Case Studies—Selected Provincesand Specific World Bank Projects

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C A S E S T U D I E S — S E L E C T E D P R O V I N C E S A N D S P E C I F I C W O R L D B A N K P R O J E C T S


Yunnan Province

BackgroundYunnan, with its plentiful hydraulic resources, ample rainfall and numerousrivers and lakes, has a water resource per capita of about 10,000 m3, or fourtimes the average level of the whole country. The exploitable waterpowercapacity is 97.95 million kW, accounting for one-quarter of the country’s.Yunnan is among the less developed provinces in terms of GDP per capita and is in the early stagesof industrialization. (In 2008, Yunnan’s GDP per capita was ranked No.30 out of 31 provinces). Thegovernment’s 11th Five-Year Plan in Yunnan aims to build a province with a strong “green” econ-omy. Based on natural resources, the Yunnan government has developed an energy developmentstrategy that emphasizes hydropower, biomass energy, solar, and other clean energy sourceswithin the framework of environmental protection. Since 2008 Yunnan has had a CDM center.

Status of Yunnan’s CDM implementationYunnan’s portfolio is dominated by hydropower projects, in both number of projects and esti-mated annual CERs. The province contributes more than 20 percent of all annually expected CERsfrom Chinese hydropower projects. Yunnan has the largest number of DNA-approved CDM pro-jects in China (280, representing 11.6 percent of the total), yet it contributes 6.7 percent to China’stotal expected annual CERs. As of March 1, 2010, 94 projects, which are expected to deliver 9.34million CERs annually, had been registered by the CDM Executive Board. However, currently onlyhydropower projects are issuing CERs, accounting for 0.5 percent of China’s issued CERs to date.This shows that the issuance success of these hydropower projects is low.

Number of Percentage of Registered Annual CERs Percentage of Project Type Projects National Total (ktCO2e) National Total

Hydro 89 24.0% 8,749 22.2%N20 3 11.5% 381 1.8%Methane 2 3.3% 206 1.1%Total 94 12.5% 9,336 4.6%

Achievements • Successfully using comparative advantages

via the natural resource water. • Developing renewable energy projects

which belong to the CDM priority areas.

Barriers• The insufficient water resources because of

weather condition. The limitation on elec-tricity feed-in due to decrease of demand.And the unstable operation performanceduring testing period.

• Methane projects are not sufficiently devel-oped and lack issuance.

Options • The proven coal reserves coal in Yunnan is more than 15 billion tons. Further enhancement of

developing methane projects in order to address environmental benefits is envisaged. • To be consistent with its provincial development strategy and to enhance social and environ-

mental development, Yunnan could expand CDM activities in the field of household biogas andwaste heat recovery.

Registered Projects in Yunnan

(continued)

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DNA Approved Projects in Yunnan

Percentage of Percentage of Project National Estimated Annual CERs National

Project Type No. Total (%) (ktCO2e/y) Total (%)

N2O 3 10.7% 786 4.9%Wind 4 0.9% 354 0.6%Methane Recovery

and Utilization 4 2.1% 399 0.8%EE 12 2.7% 857 1.2%Hydro 257 23.3% 27,187 21.7%Total 280 11.6% 29,582 6.7%

World Bank Project Example in Yunnan ProvinceThe Yunnan Whitewaters Hydro Project

Project InformationThe Yunnan Whitewaters Hydro Project includes hydropower stations located at the WhitewatersRiver in Yanjin county which is located in a mountainous area and is listed as a national-level leastdeveloped county. Yunnan Zhongda Yanjin Power Generation Corporation Ltd., the project devel-oper, sought US$ 44 million of debt finance, accounting for 60 percent of total investment cost.The project was registered in April 2, 2007 with average annual ERs of 274,560 tons of CO2. Thefirst ER issuance is about 60,773 tons of CO2 covering period from Jan 22, 2008 to Jan 25, 2009.

Achievements Currently, IFC and other financial institutions are satisfied with the Debt Service Credit Ratio(DSCR) as a result of the inclusion of carbon revenue and have agreed to provide debt financing tothe commercially operating power plant, a sector considered to involve a higher degree of risk ininternational project finance. This project is an example of how carbon finance can play an impor-tant role in enabling an international financial institution to provide assistance to an otherwiserelatively risky sector.

BarriersOne of the project’s greatest barriers is its inability to raise debt financing from lenders because ofthe risk related to cash flow. Lenders are more concerned about the risk of default than the proj-ect’s long-term profitability, therefore the contribution from CDM helps improve the project’scash flow and its debt service coverage ratio (DSCR) and strengthens the lenders’ confidence withregard to a financially risky project.

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BackgroundInner Mongolia Autonomous Region is located in the north of China. TheYellow River crosses the Eerduosi llano area, which is rich in the renewalresources of wind, solar, and water. Stockbreeding is well developed, andbiomass and renewable energy resources have major potential.

According to the 11th Five-Year Plan for Inner Mongolia, development efforts will focus onrenewable energy, natural gas, coal, and electric power with wind, solar, and biomass resourcesreceiving priority. As this province still faces challenges in development and innovation processes,activities involving energy conservation and emission reduction have been, until recently, quitelow. Mongolia has an active CDM center.

Status of Inner Mongolia’s CDM implementationAs of March 1, 2010, a total of 174 CDM projects had been approved in Inner Mongolia. The domi-nant project type is wind power, with the 148 projects approved contributing over two-thirds ofthe province’s total estimated annual CERs and nearly 40 percent of all CERs from wind power forthe entire country. There are only four biomass energy projects with DNA approval in Inner Mon-golia, and no solar projects.

Four large energy efficiency projects contribute significantly (13.5 percent) to the national totalexpected annual CERs. About 30 percent of the DNA-approved projects have been registered bythe CDM EB. 48 wind power projects, four industrial waste heat and gas projects, two N2O decom-position projects, as well as a major fossil fuel switch project and a project to produce cement fromcalcium carbide are anticipated to yield annual CERs of about 10,227 ktCO2e. However, in terms ofissued CERs as of March 1, 2010, Inner Mongolia has only contributed around 1.6 percent to thetotal issued CERs in China.

Achievements • The province is successfully using its comparative advantage of wind power and is scaling-up the

implementation of methodologies in which it has recently gained experience.• Inner Mongolia demonstrates that CDM can play an active role in promoting wind power

generation.• The government is encouraging further development of the wind sector.• Social and economic developments additional to emissions reduction, such as meeting the local

power demand for household, improving living standards of local people and slightly increasingjob opportunities.

Barriers• Despite the development of renewable energies referred to in the province’s 11th Five-Year

Plan, an incomplete industry structure hinders progress at present.• Technological innovation has improved significantly, but it still lags behind other parts of the

country.• Risks relating to registration and verification also suppress the market attractiveness of biomass

and solar projects.

Options • To be consistent with the 11th Five-Year Plan, biogas energy and solar projects could be further

developed and addressed. • Inner Mongolia is poised to continue developing wind projects and make full use of biomass,

solar, hydro, and natural gas resources. To address climate change and achieve sustainabledevelopment, funding support is needed, along with technology transfer and capacity building.



Inner Mongolia

(continued)

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Wind 48 29.1% 7,020 36.0%EE Own

Generation 4 5.5% 2,210 13.5%N2O 2 7.7% 368 1.8%Fossil Fuel

Switch 1 5.3% 594 2.9%Cement

Production from Calcium Carbide 1 20.0% 35 2.9%

Total 56 7.5% 10,227 5.0%



Fossil Fuel Switch 1 2.4% 594 2.0%Hydro 2 0.2% 361 0.3%Methane Recovery 4 2.1% 273 0.5%Biomass Energy 4 3.9% 920 4.8%Energy Efficiency 11 2.4% 3,326 4.6%Wind 148 32.8% 22,396,722 38.7%N2O 2 7.1% 807 5.0%Produce Cement

from Calcium Carbide 2 9.5% 747 21.0%

Total 174 7.2% 29,424 6.6%

Registered Projects in Inner Mongolia as of March 1, 2010

DNA Approved Projects as of March 1, 2010

Shanxi

BackgroundShanxi Province is located in northwest China and is very rich in mineralresources, particularly coal. An area of 62,000 km2 contains 260 billion tonsof coal, about one-third of the coal storage in China. Annual coal produc-tion is about 300 million tons in Shanxi. Coal bed methane, which is found inseveral large coalfields, constitutes about one-third of the country’s entire supply.

The Shanxi government published the 10th Five-Year Plan of Environment Protection in ShanxiProvince which targeted an increase in investment in environmental protection, strengthening thenational policy of environmental protection. However, some barriers still exist. In the “2005 Reportof Sustainable Development Strategy in China,” Shanxi was ranked 25th on the ComprehensiveSustainable Development Power lists. Capacity for sustainable development still requires substan-tial improvement. (continued)

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Status of Shanxi’s CDM implementationAs of March 1, 2010, a total of 91 CDM projects had been approved in Shanxi, with estimatedannual CERs of 32.9 million tons. Two-thirds of these CERs are anticipated to be generated from33 methane recovery and utilization projects. Shanxi is a leader in methane recovery—one ofChina’s CDM priorities. Shanxi’s industrial energy efficiency and N2O projects also contribute sig-nificantly to national CERs for the respective project types. Other projects involve fossil fuel switch-ing, renewable energy supply, and cement production from calcium carbide. Only 25 projects havebeen registered by the CDM EB. Nonetheless, Shanxi’s nine registered coal bed methane projectsare projected to contribute more than 50 percent of the annual CERs from all registered CBM pro-jects. CDM in Shanxi consists primarily of methane recovery and utilization projects. Approved pro-jects of this type in Shanxi amount to about 43.7 percent of the national total. In the registeredproject list, coal bed methane projects in Shanxi constitute nearly half of these types of projects inChina. However, in terms of issued CERs only methane recovery projects are issuing a fair amountof CERs by March 1, 2010. The total amount of issued CERs in Shanxi amount to 1.4 percent to thenational total issued CERs.

Achievements • The province is successfully using its comparative advantage in methane recovery. • The province achieved a good diversified CDM portfolio.

Barriers• Of the 9 registered CBM projects, only 4 have issued CERs to date. The main barriers are (a) com-

plexity of monitoring especially for CBM CDM project and (b) difficulty in fulfilling CDM require-ment (additionality).

New options and recommendations• In addition to exploiting mineral resources, Shanxi should also address options to further

expand renewable energies and other clean technology. • CDM is an effective market mechanism for GHG emission reduction, offering a good opportu-

nity for Shanxi to promote resource saving and pro-environment society.

Registered Projects as of March 1, 2010


Wind 3 1.8% 241 1.2%Coalbed

Methane 12 19.7% 8,761 47.2%EE Own

Generation 6 8.2% 152 0.9%N2O 3 11.5% 1,685 8.0%Cement


Total 25 3.3% 11,109 5.4%

(continued)

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N2O 3 10.7% 3,796 23.7%Wind 5 1.1% 445 0.8%Methane

Recovery and Utilization 33 17.5% 22,606 43.7%

EE 33 7.3% 4,599 6.4%Fossil Fuel

Switch 6 14.3% 680 2.3%Biomass

Energy 3 2.9% 370 1.9%Hydro 7 0.6% 163 0.1%Cement


Total 91 3.8% 32,891 7.4%

DNA Approved Projects as of March 1, 2010

Hubei Province

BackgroundHubei Province, located in central China, consists of an area of185,900 km2, accounting for 1.9 percent of the total area of China. In2006, the population of Hubei was 60.5 million. Its climate is charac-terized by hot summers and cold winters. It is rich in hydropowerresources, but has a relative lack of fossil fuels. 30 percent of theprovince is forested—above the national average.

According to the Hubei Provincial Climate Change Programme(draft), total GHG emissions in 2005 were 266 million tCO2e, of which 212 million tCO2e were fromfossil energy combustion, accounting for 85 percent of the total emissions in the province. In 2005,the major GHG emissions from industry production process resulted from production of cement,with total CO2 emission of 17.3 million tons, accounting for 6.7 percent of the total. Total GHGemissions from Hubei’s agriculture industry of in 2005 were 37.51 million tCO2e, of which about7.4 million tons of methane came from rice fields and livestock and their wastes and 6.2 milliontons of N2O from agricultural soil and livestock manure. The carbon sink of Hubei in 2005 was esti-mated to be 1.1 Mt CO2.

Status of Hubei’s CDM implementation81 projects have recently been approved by the government, ranking Hubei Province 10th in thecountry in CDM projects, with total annual CERs of about 9 million tCO2, or 2 percent of the coun-try’s total. Of 81 projects, 41 are hydropower projects contributing annual CERs about 3.3 milliontCO2 and 26 are EE projects with annual CERs of about 4 million tCO2e. Others include wind power,fossil fuel switch, biomass, and methane recovery and utilization. As of March 1 2010, there are 27 projects from Hubei Province registered in the EB, including 20 hydropower projects, 1 windproject, 4 WHR projects, 1 fossil fuel switch project and 1 biogas project. Total annual registeredCERs is 2.5 million tCO2e.

(continued)

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Hubei Province is rich in solar energy, with annual sunshine hours ranging from 1,150 to 2,245hours, which equals 2.6�10 tce per year, and has recently commenced development and utiliza-tion of wind energy and solar energy. By 2010, the total potential installed capacity of windenergy may exceed 0.1 GW, and there could be wide utilization of solar energy. The potentialinstalled capacity of straw-driven generation may reach 0.1 GW, while waste incineration powergeneration may exceed 50 MW by 2010. It is advisable for Hubei Province to accelerate develop-ment of landfill gas capture, livestock waste gas recovery projects, and construction of biogasdigesters in rural areas. It is projected that by the end of 2010, total renewable energy will accountfor 5 percent of total energy consumption in Hubei Province.

Achievements • Additional local environmental benefits: the first four projects alone will generate 2,695,000

MWh in net electricity supply annually, reducing demand for electricity from the Central ChinaPower Grid (mainly supplied by coal-fired power plants). This will avoid the combustion of 5.26million tons of standard coal, resulting in emission reductions of 2.6 million tons of greenhousegases, 0.3 million tons of particulates, 59,000 tons of sulfur dioxide (SO2) and 53,000 tons ofnitrous oxide (NOX) annually. These reductions will have local air quality benefits.

• The establishment of these projects helps to meet local power demand for industrial and house-hold use, and improve living standards of local people. The projects also increase local jobopportunities (Dongliuxi Erji creating 38 permanent jobs during the operation period, andGuangrun hydro creating another 60 permanent jobs).

• Successfully creating an institutional framework for implementing CDM projects (local CDM Center)• Successful efforts in capacity building (south-south exchange)

Barriers• The main barriers are (a) complexity in fulfilling CDM additionality requirements and (b) finan-

cial constraints. • Barriers to carbon sink efforts include complicated methodology, narrow application of the

methodology, and difficulties in verification and certification.

Options Implementation of “energy conservation projects for 100 key enterprises” in Hubei will boost

those energy-intensive industries to save energy on a large scale. The potential annual rate ofenergy conservation in key industries such as the production of synthesized ammonia, causticsoda, cement, aluminum smelting, phosphorous chemicals, and petrochemicals may exceed fourpercent. Promotion of CDM projects will foster implementation of such energy conservationprojects by providing related financial and technical support. To maximize the developmentpotential, the province will make full use of the approved methodology for improving energyefficiency to promote technology improvement and the use of alternative material in scaledenergy-intensive enterprises to reduce GHG emissions and realize energy conservation. Incement production, Hubei will not only focus on alternative raw material with low-carbon,alternative fuel such as less-carbon fuels and waste incineration, but also on cogeneration,recovery, and utilization of heat in the production process.

• Hubei Province also adhered to the requirements of the “Energy Efficiency Standards for Resi-dential Buildings in Areas with Hot Summer and Cold Winter” and is promoting consistent reno-vations. Even if challenging, this type of activity could bring new projects to the building sector.

• Hubei Province would benefit from vigorous development of its public transportation sector toimprove transportation energy efficiency. Areas where improvements could be realized includereducing the number of vehicles on the road; promoting the use of clean fuels; implementingfuel economy standards and promoting gasoline conservation technology; and early retirementof energy- and emission-intensive older vehicles.

• Hubei plans to raise the capacity of carbon sink from 1.09 million tCO2e in 2005 to 1.11 milliontCO2e in 2010, with the total forest coverage rate of Hubei expected to increase to 41 percent.

Hubei Province—Continued

(continued)

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Percentage of Project National Total in Estimated Annual CERs Percentage of

Project Type No. This Project Type (ktCO2e/y) National Total

Wind Power 2 0.4% 88 0.2%Methane Recovery

& Utilization 5 2.6% 333 0.6%Energy Efficiency 26 5.8% 4,015 5.6%Fossil Fuel Switch 2 4.8% 461 1.6%Biomass 5 4.8% 664 3.4%Hydropower 41 3.7% 3,341 2.7%Total 81 3.4% 8,902 2.0%

• The Hubei Provincial Climate Change Programme (draft) encourages construction of householdbiogas, medium-scale, and large-scale biogas projects. In addition, landfill gas recovery, livestockwaste methane recovery, and industrial wastewater methane recovery should provide opportu-nities for CDM projects in Hubei Province.

Percentage of Project Type Project National Total Registered Annual CERs Percentage of

No. in Pipeline (ktCO2e) National Total

Hydropower 20 5.4% 1,799 4.6%Wind 1 0.6% 32 0.2%Methane

Recovery & Utilization (Household Biogas) 1 1.6% 58 0.3%

Energy Efficiency 4 5.5% 385 2.4%

Fossil Fuel Switch 1 5.3% 210 1.0%

Total 27 3.6% 2,484 1.2%

World Bank Project Example in Yunnan ProvinceThe Guangrun Hydropower Project

Status: registered 27 April 07Issuance: pending Credit Start: 01 July 08Location: Jianshi County, Enshi Tujia and MiaoMinority Autonomous PrefectureCapacity: 28 MWAnnual generation: 89.28 GWhMethodology: ACM 2Parties Involved: P.R. China (host)

and VROM (NL)Project Participants: Guangrun Hydropower

Development Company Ltd. and IBRD as trustee of Community Development Carbon Fund

Focal Point: IBRDProject Developer: Guangrun Hydropower

Development Company Ltd.Validator: DNVCredit Buyer: Netherlands (IBRD)PDD Consultant: Tsinghua UniversityFinancing: Community Development Carbon

Fund (CDCF) entrusted at the WB Host LoA: 07 Nov 06tCO2e/yr: 75’832Total est. reductions tCO2e: 530,826 (7 years)2012 tCO2: 341’244

(continued)

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The new dam project is located in the southwest corner of Hubei Province, Jianshi county. TheGuangrun Hydropower Project (GHP) consists of two new small reservoirs and three small-sizedhydropower plants with average power density of 32.3 W/m2. The proposed installed capacity is28 MW (Hongwawu I 8 MW, Hongwawu II 10 MW and Zhamushui station 10 MW). The annualgeneration from the GHP is expected to be 89.28 GWh resulting in 3,188 full load hours. TheHongwawu hydropower plant (including a dam of 41.5m and a reservoir of 4.98 mn m3) is locatedon the Hongwawu River, a tributary of the Zamushui River in Jianshi county, about 30 km fromthe Jianshi county seat. The Zhamushui hydropower plant (including a dam of 77.5 m and a reser-voir of 20.01 mn m3) is located on the Zhamushui River in Jianshi county, about 3.5 km from Jian-shi county seat. The water head is formed by taking advantage of the natural height drop, whichthen enters into the pressure adjustment well. The hydraulic pressure of the water is built upthrough a high pressure penstock – through which the water flows into the power house where itdrives the turbine/generator sets to produce electricity.

The purpose of the project is to connect the GHP to the Jianshi electricity network, which ispart of the Hubei Provincial Power Grid (HPPG) and Central China Power Grid (CCPG). Currently,the Jianshi network is importing peak power from and selling seasonal surplus power to the HPPG,then CCPG. The GHP will reduce import and increase export of electricity to HPPG and CCPG, andsubsequently displace power generation by coal-fired thermal power plants in the dry season.

As CCPG is dominated by thermal power plants, the project is mitigating GHG emissions fromfossil fuel combustion by replacing electricity generated by fossil fuel-fired plants with electricitygenerated by renewable energy resources. In 2004, the total amount of power generation withinCCPG was 401,510 GWh, of which 270,846 GWh came from thermal power plants accounting forabout 70% of the total. This situation is unlikely to change in near future. The annual emissionreduction from GHP is estimated to be around 76 ktCO2e during the first crediting period resultingin CO2 emission reductions of around 530 ktCO2e (7 crediting years). In the absence of the project,the same energy load would have been taken-up by newly built coal-fired power plants and exist-ing plants. The project was registered as CDM project in April 2007 and started operations in July2008 (Hongwawu Stations).

Unique Characteristics

Community Benefits Development Plan (CBDP)The implementation of a Community Benefit Devel-opment Plan (CBDP) has been prepared to use theCommunity Development Carbon Fund (CDCF)effectively. The CDCF aims to combine communitydevelopment attributes with emission reductions tocreate “development plus carbon” credits. Six typesof projects will be funded within the framework ofCBDP including transportation infrastructure, drink-ing water and irrigation facilities, education andpublic health systems, technical training programs,industry development and local culture exploration.

Environmental benefits• Zero-emitting renewable energy to the HPPG and

CCPG, thus decreased environmental pollution caused by fossil-fuel fired plants. • Improved flood control standard and water supply quality of more than 70,000 people in Jianshi

country. The project reservoir will improve local irrigation system and agriculture infrastructure.

Socio-economic benefits• Increased income of local government and residents, thus alleviation of poverty in Enshi Tujia

and Miao Minority Autonomous Prefecture. • Job generation (more than 1,500 jobs during the construction period and 60 permanent staff

position during operation).(continued)

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• Improved local transport routes.• Implementation of Community Benefit Development Plan (CBDP)

AdditionalityFor additionality testing a benchmark analysis was used to identify whether the Internal ReturnRate in this project was better than the relevant benchmark. The sectoral benchmark IRR on totalinvestment for power projects is 8%. Based on the key data of the project (e.g. 28 MW capacity,89.28 GWh/y, etc.) the IRR of the project without CER revenues would be 6.98%. Therefore, theproject was assessed as additional. Including CER revenues (assumed market price US$ 11/tCO2) theproject achieves an IRR of 9.13%. If the annual average output was increased by 8.9%, the IRRwould exceed the investment benchmark. However, if the investment decreased by 9.2%, the IRRwould exceed the investment benchmark. The impact of the annual operation and maintenancecosts are assessed to be marginal.

AchievementsThe GHP will reduce import of electricity from other Provinces and increase export of electricity toHubei Provincial Power Grid and Central China Power Grid, and subsequently displace power gen-eration by coal-fired thermal power plants in the dry season.

Barriers• The sufficiency of water resource will affect the project performance• Technical training are required for proper operation and maintenance

Second World Bank Project Example in Hubei ProvinceThe Eco-Farming Biogas Project

Status: registered 19 Feb 09Issuance: pendingCredit Start: 19 Feb 09Location: 625 villages in 81 townships in

8 counties of Enshi, Lichuan, Jianshi, Badong, Xuan’en Xianfeng, Laifeng andHefeng counties

Capacity: 42.2 MWth (bundled)Methodology: AMS-I.C.+AMS-III.R.Parties Involved: P.R. China (host)

and VROM (NL)Project Participants: Hubei Qinggjiang

Zhongye Company Ltd and IBRD as trustee of Community Development Carbon Fund

Focal Point: IBRD

Project Developer: Hubei Qinggjiang Zhongye Company Ltd.

Validator: TÜV-SÜDCredit Buyer: Netherlands (IBRD)PDD Consultant: Chinese Academy of

Agricultural Sciences Financing: WB; 25.55% loan, Government;

14.28%, 60.17% upfront investment by farmers

Host LoA: 01 Jun 08tCO2e/yr: 58’444.04Total est. reductions tCO2e: 584,440.4

(10 years)2012 tCO2: 225’769

(continued)

Project DescriptionThe project activities are being conducted in eight counties including Enshi, Lichuan, Jianshi, Badong,Xuan’en, Xianfeng, Laifeng and Hefeng. These counties are located in poor mountainous areas ofsouthwest Hubei Province. The project area covers 33,000 households in 625 villages in 81 townships.The project aims to demonstrate innovative technical approaches and a credible carbon tradeprocess for a household-based CDM biogas digester program to treat the manure produced by155,684 pigs. It is anticipated that the total biogas production will be about 12.17 million m3 peryear. The thermal energy production capacity for the bundled project would be about 42.4 MWth.

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Manure would be fermented in the biogas digester installed by the project instead of beingstored in a deep pit where the manure would be in anaerobic condition. In each household, theproject will also support improvements of the toilets, pig pen and renovation of the kitchen, andinstallation of a gas burner. The biogas will be used as thermal energy to replace the fossil fuel(coal) currently used to meet the households’ daily energy needs. In addition, the recovery and uti-lization of biogas from digested slurry in a biogas digester will reduce CH4 emission from the slurrythat would otherwise have been stored in a deep pit.

Unique Characteristics

Project Structure—Household Level:According to the CDM project management regulation issued by NDRC of China, only one singlelegal entity can apply for a CDM project. Hubei Qingjiang Zhongye Company Ltd. has applied to par-ticipate in the project and has subsequently been assessed and selected as the Project Entity. Thehouseholds authorize Hubei Qinggjiang Zhongye Company Ltd. to complete the application, regis-tration and CER verification of the proposed project activities on their behalf. The Project Entity willchannel the large portion of the carbon credit sales revenues to the individual farmer householdsfor the purpose of repayment, biogas digester maintenance, and livelihood needs. The Project Entitywill also use the carbon trade revenues to cover the project operation cost and technical servicebeing provided to farmers by Hubei Qingjiang Zhongye Company Ltd.

InvestmentDespite the local government grant, the farmers need to mobilize more than 60% of their own fund-ing to be able to complete the biogas digester construction and related investment, and cover thebiogas digester maintenance. The biogas project does not create any financial income, in contrastto many other CDM projects. The economic benefit of the biogas digester is reflected as savings infuel expenditures (reduction of cash outflow) instead of income generation (cash inflow).The proj-ect entity channels a large portion of the carbon credit revenues to the individual farmer householdsfor the purpose of loan repayment, biogas digester maintenance, and livelihood needs. The projectentity also uses revenues to cover the project operation costs and technical services being providedto farmers.

Environmental benefitsThe project will adopt improved management methods to change the traditional practice of manuretreatment to reduce CH4 emissions and replace coal with biogas reducing CO2 emissions. Theimproved manure treatment will reduce water contamination and result in odorless sludge to beused as fertilizer.

Socio-economic benefitsAs the project will reduce coal use by installing biogas burners for cooking and heating purposes,household indoor pollution will be significantly reduced. This will lead to decrease of respiratory dis-eases, eye ailments, etc. Furthermore, biogas recovery will diversify the sources of the rural energysupply reducing deforestation. The project will also reduce expenditures for household energy (coal)and increase the employment locally for skilled labor during installation, operation, and mainte-nance of biogas digesters. Furthermore, the project includes an important capacity building com-ponent for the farmers and local institutions.

AdditionalityAs the household-based biogas digester is installed for the household’s self-use with no products tobe sold in the market to generate revenues, it is considered a non-productive investment. Therefore,the Investment Analysis Approach was not suitable for demonstrating project additionality and Bar-rier Arguments have been used for the analysis.

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Achievements

Capacity Building As project villages are located in remote areas, farmers lack ready access to improved technologiesand management methods. Local communities and individual households are unlikely to obtain thecompetence and capacity to maintain and manage the biogas digester appropriately without CDMrevenues from the project.

Barriers

Investment Barrier Despite the grant from local government, the farmers need to mobilize more than 60% of own fund-ing to be able to complete the biogas digester construction and related investments. Furthermore,middle to low income households have difficulties in accessing financing from local commercialbanks, rural credit cooperatives and other financial institutions and currently the local financial sec-tor does not have loan products suitable for non-productive investments. Without revenue from thecarbon credits, it is unlikely that households would be able to invest in and maintain such biogasdigesters. However, households can use the registered project activity as a guarantee to improvetheir chances to borrow from the local financial market.

Technical BarrierWithout the CDM revenues the local communities and individual households are unlikely to obtainthe competence and capacity to maintain and manage the biogas digester appropriately and theinstitutional capacity at the village-level’s technical centers would remain sub-standard.

Barrier from Prevailing Practices For an individual farmer, the current practice of deep-pit treatment method is by far considered themost attractive option for manure treatment given that it requires very limited additional invest-ment or labor input. For cooking, the cost of the traditional cooking stove fuelled by a mix of coal,firewood and crop straw is significantly less than the installation cost of a biogas digester and thegas stove and in contrast to the biogas digester is easy to use and maintain.

Other BarriersAdditionally, households face further barriers including lack of awareness of changing the tradi-tional farming and living habit and limited information, which obstructs the households absorbingnew technologies and accept new innovation.

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I. GENERAL PROVISIONS

Article 1 These measures are formulated inaccordance with the provisions of the UnitedNations Framework Convention on ClimateChange (hereinafter referred to as “the Conven-tion”) and its Kyoto Protocol (hereinafterreferred to as “the Protocol”) ratified andapproved by China respectively, and the relevantdecisions adopted by the Conference of the Par-ties, with a view to strengthening the effectivemanagement of Clean Development Mecha-nism (hereinafter referred to as “CDM”) proj-ects by the Chinese Government, protectingChina’s rights and interests, and ensuring theproper operation of CDM project activities.

Article 2 According to the Protocol, CDMis a project-based mechanism under whichdeveloped-country Parties cooperate withdeveloping-country Parties in order to meetpart of the GHG emission reduction obligationsof the developed-country Parties. The purposeof this mechanism is to assist developing-country Parties in achieving sustainable devel-opment and in contributing to the realization ofthe ultimate objective of the Convention as wellas to assist developed-country Parties in achiev-ing compliance with their quantified GHG emis-sion limitation and reduction commitments. Thecore of the CDM is to allow developed-country

Parties, in cooperation with developing-countryParties, to acquire certified emission reductions(hereinafter referred to as “CERs”) generated bythe projects implemented in developing countries.

Article 3 CDM project to be implemented inChina shall be approved by relevant depart-ments under the State Council.

Article 4 The priority areas for CDM proj-ects in China are energy efficiency improve-ment, development and utilization of new andrenewable energy, and methane recovery andutilization.

Article 5 In accordance with the relevant decisions of the Conference of the Parties, theimplementation of CDM projects shall ensuretransparency, high efficiency, and accountability.

II. PERMISSION REQUIREMENTS

Article 6 CDM project activities shall be consis-tent with China’s laws and regulations, sustain-able development strategies and policies, and theoverall requirements for national economic andsocial development planning.

Article 7 The implementation of CDM proj-ect activities shall conform to the requirementsof the Convention, the Protocol, and relevantdecisions by the Conference of the Parties.

Article 8 The implementation of CDMproject activities shall not introduce any new

Measures for Operation and Management of CDM

Projects in China

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vice chair of the Board. Other Board members areState Environmental Protection Administration,China Meteorological Administration, Ministryof Finance, and Ministry of Agriculture. TheBoard has the following responsibilities:

1. To review CDM project activities mainlyfrom the following aspects:

i. Participation qualification;ii. Project design document;

iii. Baseline methodology and emissionreductions;

iv. Price of CERs;v. Terms relating to funding and technol-

ogy transfer;vi. Crediting period;

vii. Monitoring plan; andviii. Expected sustainable development

effectiveness.2. If no foreign buyer is determined by the time a

project is submitted for approval, and in resultthe price information requested in the aboveterm 1(iv) is not available, it must be indicatedin the project design document that the emis-sion reductions generated by the project will betransferred to China’s national account in theCDM registry and can only be transferred outwith the authorization of China’s DesignatedNational Authority for CDM.

3. To report to the Committee on the overallprogress of CDM project activities, issuesemerged, and further recommendations; and

4. To make recommendations on the amend-ments to this measures.

Article 16 NDRC is China’s DesignatedNational Authority for CDM, with the follow-ing responsibilities:

1. To accept CDM project application;2. To approve CDM project activities jointly

with MOST and MFA, on the basis of theconclusion made by the Board;

3. To issue written approval letters on behalf ofthe Government of China;

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obligation for China other than those under theConvention and the Protocol.

Article 9 Funding for CDM projects fromthe developed-country Parties shall be addi-tional to their current official developmentassistance and their financial obligations underthe Convention.

Article 10 CDM project activities shouldpromote the transfer of environmentally soundtechnology to China.

Article 11 Chinese funded or Chinese-holding enterprises within the territory of Chinaare eligible to conduct CDM projects with for-eign partners.

Article 12 CDM project owner shall submitto the Designated National CDM Authority thefollowing documents: CDM project design doc-ument, certificate of enterprise status, generalinformation of the project, and a description ofthe project financing.

III. INSTITUTIONAL ARRANGEMENTFOR PROJECT MANAGEMENT ANDIMPLEMENTATION

Article 13 National CDM Board (hereinafterreferred to as “the Board”) is hereby establishedunder the National Climate Change Coordina-tion Committee (hereinafter referred to as “theCommittee”), and a CDM project managementinstitute will be established under the Board.

Article 14 The Committee is responsible forthe review and coordination of important CDMpolicies. More specifically, it has the followingresponsibilities:

1. To review national CDM policies, rules, andstandards;

2. To approve members of the Board; and3. To review other issues deemed necessary.

Article 15 National Development and ReformCommission (NDRC) and Ministry of Scienceand Technology (MOST) serve as co-chairs, andMinistry of Foreign Affairs (MFA) serves as the


4. To supervise the implementation of CDMproject activities;

5. To establish the CDM project managementinstitute referred to in Article 13 above, inconsultation with other departments; and

6. To deal with other relevant issues.

Article 17 Project owner, which refers to theChinese-funded or Chinese-holding enterprises,shall:

1. Undertake CDM project negotiations withforeign partners;

2. Be responsible for construction of the projectand report periodically to NDRC on theprogress;

3. Implement the CDM project activity,develop and implement project monitoringplan to ensure that the emission reductionsare real, measurable, long-term, and addi-tional, and subject itself to the supervisionof NDRC;

4. Contract designated operational entities tovalidate the proposed project activity andto verify emission reductions of the projectactivity; provide necessary information andmonitoring record, and submit the infor-mation to NDRC for record purpose; andprotect state and business confidentialinformation in accordance with relevantlaws and regulations;

5. Report to NDRC on CERs issued;6. Assist NDRC and the Board in investigating

relevant issues and respond to the inquiries;and

7. Undertake other necessary obligations.

IV. PROJECT PROCEDURES

Article 18 Procedures for the application andapproval of CDM projects:

1. Project owner, or together with its foreign part-ner, submits to NDRC project application,and documents as required by Article 12

above. Relevant departments and local govern-ments may facilitate such project application;

2. NDRC entrusts relevant organizations forexpert review of the applied project, whichshall be concluded within 30 days;

3. NDRC submits those project applicationsreviewed by the experts to the Board;

4. NDRC approves, jointly with MOST andMFA, projects based on the conclusion madeby the Board, and issues approval letteraccordingly;

5. NDRC will make a decision on project appli-cation within 20 days (excluding the expertreview time) as of the date of accepting theapplication. The time limit for decision mak-ing may be extended to 30 days, with theapproval of the Chair or the Vice Chair ofNDRC, if a decision could not be madewithin 20 days. The project applicant shouldbe informed of such a decision and its reasons.

6. Project owner invites designated operationalentity to validate the project for registration;and

7. Project owner shall report to NDRC on theapproval decision by the CDM ExecutiveBoard within 10 days as of the date of receiv-ing the notice from the Executive Board.

Article 19 Existing other relevant rules andprocedures for the approval of construction proj-ects shall apply to CDM projects.

Article 20 Procedures for the project imple-mentation, monitoring, and verification:

1. Project owner is responsible for presentingNDRC and designated operational entityproject-implementation and monitoringreports;

2. NDRC is authorized to supervise the imple-mentation of the project to ensure the qual-ity of the activity;

3. Contracted designated operational entityverifies the emission reductions of the projectactivity and submits certification report tothe CDM Executive Board, which will then

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issue CERs for the projects and inform proj-ect participants of its decision; and

4. NDRC or other organizations entrusted byNDRC will put the CERs issued by theCDM Executive Board in file and record.

V. OTHER PROVISIONS

Article 21 Developed-country Parties men-tioned above refer to Parties included in Annex Iof the Convention.

Article 22 CDM Executive Board men-tioned above refers to the board as defined inArticle 12 of the Protocol for the purpose ofsupervising CDM.

Article 23 Operational entity mentionedabove refers to the entity as defined in Article 12of the Protocol for the purpose of validation aswell as verification and certification of CDMproject activities.

Article 24 Whereas emission reductionresource is owned by the Government of Chinaand the emission reductions generated by spe-cific CDM project belong to the project owner,revenue from the transfer of CERs shall beowned jointly by the Government of China andthe project owner, with the allocation ratiodefined as:

• the Government of China takes 65% CERtransfer benefit from HFC and PFC projects;

• the Government of China takes 30% CERtransfer benefit from N2O projects;

• the Government of China takes 2% CERtransfer benefit from CDM projects in prior-ity areas defined in Article 4 and forestationprojects.

The revenue collected from CER transfer ben-efits of CDM projects will be used in supportingactivities on climate change. The detailed regula-tions on collecting and using of the revenue willbe formulated by Ministry of Finance jointlywith NDRC and other relevant departments.

The Article does not apply to the projectsalready approved by the Government of Chinabefore 12 October 2005.

Article 25 NDRC, in consultation withMOST and MFA, is responsible for the inter-pretation of this Measures.

Article 26 These Measures took effect as of12 October 2005. The Interim Measures forOperation and Management of Clean Develop-ment Mechanism Projects In China taking effecton 30 June 2004 will be abolished thereafter.

Source: NCCCC.

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In recent years, the Chinese central governmenthas instituted a series of policies that prescribe thestrategic objectives of economic development,population, resources, and environment, andpromote the process of sustainable development.

Decision to StrengthenEnvironmental Protection by Applying the Scientific Approachof Development

In December 2005, the central government ofChina approved the Decision to Strengthen Envi-ronmental Protection by Applying the ScientificApproach of Development, which emphasizedestablishing a comprehensive, harmonious, andsustainable system for promoting socioeconomicand human development. The Decision includedsix parts, urging an understanding of the relation-ships among environmental protection, economicdevelopment, and social improvement; fostering asense of combining both protection and develop-ment; and insisting on developing a method ofconservation, safety, and cleanliness to achieve sus-tainable development. It suggested that a circulareconomy, environmental industries, and technol-ogy advancement should be encouraged in thefuture. By 2010, the environmental qualities inkey areas and cities will be improved, and thetrends of ecological environment deterioration

and pollutant emission increase will be controlled.By 2020 environmental quality and ecological cir-cumstances will be significantly improved.

11th Five-Year Plan for NationalSocioeconomic Development of China

In March 2006, the Chinese central govern-ment unveiled the 11th Five-Year Plan forNational Socioeconomic Development of China.This plan demonstrated that China shouldmake resource conservation a basic national pol-icy, develop a circular economy, and protectecological environment to establish a resource-saving and environmentally friendly society tocoordinate economy development, population,resources, and the environment. China shouldtake a new industrialization approach and insiston developing a method of conservation, safety,and cleanliness to achieve sustainable develop-ment. This plan indicated that China shouldpromote development by resource conservationand environmental protection and fundamen-tally change the economic growth pattern, rely-ing on resource efficiency improvement.

In this plan, the main goals of China’ssocioeconomic development in the five-yearperiod were clearly shown as follows: improveenergy efficiency and reduce energy consump-tion per unit of GDP by 20 percent, decrease the

CDM-Related Policy Framework in China

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National Coordination Committee on ClimateChange, including 18 ministries: NDRC, MFA,MOST, Ministry of Finance (MOF), Ministryof Land and Resources, Ministry of Construc-tion, Ministry of Communications, Ministry ofWater Resources, Ministry of Agriculture, Min-istry of Commerce, Ministry of Health (MOH),SEPA, Civil Aviation Administration, NationalBureau of Statistics, State Forestry Administra-tion, Chinese Academy of Sciences, CMA, andState Oceanic Administration. This group isheaded by Premier Wen Jiabao, and Vice Pre-mier Zeng Peiyan and State Councilor TangJiaxuan are the deputy chairmen. The NDRCdirector Ma Kai was appointed as the director ofthe office of this Group. The Office of NationalLeading Group on Climate Change was estab-lished in NDRC based on the Office of NationalCoordination Committee on Climate Change.

The National Leading Group on ClimateChange includes five main parts: ClimateChange and Corresponding Efforts in China;Impacts and Challenges of Climate Change onChina; Guidelines, Principles, and Objectivesof China to Address Climate Change; China’sPolicies and Measures to Address ClimateChange; and China’s Position on Key ClimateChange Issues and Needs for InternationalCooperation. This group is presently the highest-level institution on climate change inChina. With respect to division of labor amongmembers, NDRC is responsible for coordinat-ing climate change policies and actions adoptedby various departments; MFA leads participa-tion in international climate change negotia-tion; and SMA takes the lead in participating inthe work of Intergovernmental Panel on Cli-mate Change. The Chinese organizational andinstitutional system on addressing climatechange has been established.

Guided by the Scientific Approach of Devel-opment, China will diligently carry out all thetasks in this program, strive to build a resource-conserving and environmentally friendly soci-ety, enhance national capacity to mitigate and

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water consumption per unit of industrial addedvalue by 30 percent, and increase the compre-hensive utilization rate of industrial solid wastesto 60 percent. The national total population willbe controlled to less than 1.36 billion; croplandarea will be not less than 0.12 billion hectares;and the trend of ecological environment deteri-oration will be controlled. China also clearlyinstituted quantitative environmental goals,such as decreasing the main pollutant emissionsby 10 percent, increasing the forest coverage rateto 20 percent, and achieving the GHG emis-sions control effects by 2010. It is the first timethat the targets on GHG emissions control andclimate change were clearly described.

Climate Change and CDM-RelatedPolicies

China has long attached great importance to cli-mate change. As early as 1990, a CoordinationCommittee was established under the Environ-mental Protection Committee of the State Coun-cil. In 1998, central government organizationswere streamlined, and a National CoordinationCommittee on Climate Change was established,including ministries such as NDRC, Ministry ofForeign Affairs (MFA), Ministry of Science andTechnology (MOST), China MetrologicalAdministration (CMA), and State EnvironmentProtection Agency (SEPA). Mr. Zeng Peiyan, theformer Chairman of State Development andPlanning Committee, was appointed chairmanof this committee. The Office of the NationalCoordination Committee on Climate Change issituated within NDRC and responsible for rou-tine work of the committee. In the past few years,the National Coordination Committee on Cli-mate Change has made efforts on researching,instituting, and coordinating relevant climatechange policies, and provided guidance to centralgovernment departments and local governmentson addressing climate change issues.

In June 2007, the National Leading Groupon Climate Change was established based on the


adapt to climate change, and make further con-tributions to the protection of the global cli-mate system.

China’s Scientific and TechnologicalActions on Climate Change

In June 2007, MOST and 13 other ministriespublished China’s Scientific & TechnologicalActions on Climate Change, which was also animportant policy for China to reduce GHGemissions and address global climate change.

According to this plan, China will actively userelevant technologies and take measures toaddress climate change effectively. This plandeveloped important strategies and policies,including addressing climate change and energysafety, trends in energy development and GHGemissions, and carbon capture and storage.Through implementation of this plan by 2020,China’s capacity for addressing climate changewill be significantly improved through develop-ment and application of key technologies.

China’s Provincial Climate ChangeProgram

Based on the compilation of National ClimateChange Program, the State Council of Chinarequired each province or municipality to insti-tute a provincial climate change program.NDRC has completed draft programs in fourpilot provinces (Hubei, Jilin, Shaanxi, and Yun-nan). Moreover, according to the state council

requirement, NDRC will organize to compileprovincial climate change programs in allprovinces in China.

Measures for Operation andManagement of CDM Projects in China

As summarized in Section 2.3, the Interim Mea-sures for the Management of CDM Project Activitiesprescribed the CDM objective and managementorganization in China and demonstrated theCDM project implementation procedure. TheMeasures for Operation and Management of CleanDevelopment Mechanism Projects in China cameinto effect on October 12, 2005.

Other CDM-Related Policies

In addition to all of the above CDM-related pol-icy measures, China also instituted sectoral poli-cies focusing on energy, metallurgy, chemicalindustry, and construction, such as the SpecialPlan for Mid- and Long-Term Energy Conserva-tion, 11th Five-Year Plan for Energy Development,Suggestion on Accelerating Small-Scale Coal-firedPower Unit Shutdown, and Development Policyfor Iron and Steel Industry, Civil ArchitectureEnergy Saving Management Provisions. Thesepolicies developed concrete goals and relevantmeasures and played important roles in energy-efficiency improvement, structure optimization,and GHG emission reduction to promote sus-tainable development for each sector.

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The CDM Project Cycle

The UNFCCC presents the CDM activity project cycle through five main steps: Design, Validation/registration, Monitoring, Verification/certification, and Issuance (www.unfccc.org). Thisannex gives details on each of these five steps, andthe graph on the next page illustrates the overallCDM project development process.

• Project Preparation: The planning of aCDM project initiates with i) the selection ofthe project area, ii) a previous feasibilityanalysis as well as iii) the negotiation with thehost-country and international partners todefine participation and responsibilities. Gen-erally, a detailed survey is conducted in thefuture project area to collect important infor-mation for the project and address importantissues, such as additionality, meetings withstakeholders should be held at this stage to gettheir opinions and suggestions about theproject. The World Bank in particular,requests the Project sponsors/proponents to

prepare potential projects for consideration inthe form of a Project Idea Note (PIN). Thisis a short form (about 6 pages) that providesthe basic information about the project. Afinancial analysis model is requested from theproject sponsor1.

• Project Activity Design: The Project designdocument (CDM-PDD) and the Guidelinesfor completing CDM-PDD including a glos-sary of terms (Approval, authorization, projectparticipants etc.) have been developed by theExecutive Board. Project participants shall sub-mit information on their proposed CDM proj-ect activity using the Project design document(CDM-PDD) that can be downloaded fromthe UNFCCC website. This PDD is a project-specific document required under the CDMwhich will enable the Operational Entity (OE)to determine whether the project: (i) has beenapproved by the parties involved in a project,(ii) would result in reductions of greenhouse gasemissions that are additional, (iii) has an appro-priate Baseline and Monitoring Plan2.

The CDM Project Cycle and Approval Procedure

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1 At the World Bank, CFU (Carbon Finance Business Unit) experts will investigate further and evaluate particular aspects ofthe project in discussions with the project proponent and prepare a CFD with the risk assessment. The CFD is an interme-diate document that provides enough information on the project to allow the Fund Management Committee (FMC) (andthe Participants Committee (PC) if required) to review and clear the project and its further development. The CFD notesareas that need further study after clearance. Moreover, all projects must comply with World Bank Group Operational Poli-cies and Procedures, including those on environmental assessment. An Integrated Safeguard Policies review and Environ-mental Assessment (EA) is performed as a standard part of the appraisal of World Bank Group projects. 2 For World Bank projects, the PDD is prepared by the CFU and project sponsor.


• Use of an Approved Methodology (whenexisting): the approved methodology is amethodology previously approved by theExecutive Board and made publicly availablealong with any relevant guidance. In case ofapproved methodologies the designated oper-ational entities may proceed with the valida-tion of the CDM project activity and submitproject design document (CDM-PDD) forregistration.

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• Proposal of a New Baseline and/or Monitor-ing Methodology (if a proper methodology isnot available): the new baseline methodologyshall be submitted by the designated operationalentity to the Executive Board for review, priorto a validation and submission for registration ofthis project activity, with the draft project designdocument (CDM-PDD), including a descrip-tion of the project and identification of the proj-ect participants.

Host Country ApprovalLetter of Approval

ValidationValidation Report

PDD

Registration

MonitoringMonitoring Report

VerificationVerification Report

Certification andIssuance of Credits

CER

Commercialization

Project DesignProject Concept Note

MethodologyStakeholder Consultation

Project Design Document (PDD)

Project Developer

Auditor 1Designated Operational

Entity (DOE)

CDM Executive Board

CDM Executive Board

Project Developer

Auditor 2Designated Operational

Entity (DOE)

Project Developer

Credit Buyer

Steps andDocumentation

ResponsibleParty Involved

Pro

ject

Impl

emen

tatio

n an

d O

pera

tion

Pro

ject

Des

ign

Source: www.caaltd.org, 2010

Steps to Completing a CDM Carbon Finance Project


• Letter of Approval (host-country): Everyproject requires the approval of the host-country. The government of the countrywhere the project takes place (host-country)declares concordance with the project throughan official Letter of Approval.

• Global Stakeholder Consultation: ThePDD and all documents related to the projectare uploaded to the UNFCCC website andstay 30 days open for comments. Everyonearound the world can ask questions, give one’sopinion, criticize or post a comment—free ofcharge. Comments will then be analyzed bythe UNFCCC.

• Validation of the CDM project activity:Validation is the process of independent eval-uation of a project activity by a designatedoperational entity against the requirements ofthe CDM, and on the basis of the projectdesign document3. Following Validation, theproject entity’s country authority writesanother Letter of Approval.

• Registration of the CDM project activity:Registration is the formal acceptance by theExecutive Board of a validated project as aCDM project activity. The Designated Opera-tional Entity (DOE) contracted to undertakevalidation submits the validation report and val-idation opinion to the Executive Board, alongwith a request for registration, together with thePDD, Baseline Study, Monitoring Plan, stake-holder consultation documentation and LoA,plus any other appropriate supporting docu-mentation. Registration is the prerequisite forthe verification, certification and issuance ofCERs related to that project activity4.

• Monitoring: Monitoring refers to the collec-tion and archiving of all relevant data neces-

sary for determining the baseline (how muchGHG emissions would occur on a normal sce-nario without the existence of a CDM project)as well as for determining how much energyand therefore emission reductions will besaved due to the project during its life time,which is ten years. Moreover, it verifies the useof the lamps within the boundary of a CDMproject activity.

• Negotiation of Emission Reduction Pur-chase Agreement (ERPA): After negotiationbetween project sponsors and buyers (at theWorld Bank generally the CFU team arrangesa Pre-Negotiations Workshop and/or inten-sive Consultations on the project, to ensurefairness in the process of negotiating and con-cluding), an Emission Reduction PurchaseAgreement (ERPA) is prepared. The ERPAsare the carbon off-take contracts that underliethe sale and purchase of CERs from CDMprojects5.

• Certification/Verification of the CDM proj-ect activity: Verification is the periodic inde-pendent review and ex post determination bythe designated operational entity of the moni-tored reductions in anthropogenic emissions bysources of greenhouse gases that have occurredas a result of a registered CDM project activityduring the verification period. Certification isthe written assurance by the designated opera-tional entity that, during a specified timeperiod, a project activity achieved the reduc-tions in anthropogenic emissions by sources ofgreenhouse gases as verified.

• Issuance of CERs and commercialization:The certified CO2 reductions are convertedinto Certified Emission Reduction Certifi-cates and can be sold and bought.

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3 There are 26 companies listed (as of May 1, 2010). For full list of DOEs visit: http://cdm.unfccc.int/DOE/list/index.html4 A CDM project pays the EB a registry fee upon application. The registration fee is a prepayment of the management fee forthe CERs in the first year, which is calculated according to the average annual emission reduction during the crediting period.It is charged as US$ 0.1 per CER per year for the first 15,000 CERs for each project, and US$ 0.2 per CER per year for the lat-ter CERs. The upper limit of the registration fee is US$ 350,000. Projects with less than 15,000 tons of CERs do not pay themanagement fee. Any part of the fee paid over US$ 30,000 should be returned to projects that are not successfully registered.5 The CFU legal team at the World Bank prepares a ‘term sheet’ and/or a draft ERPA for further discussion the project spon-sor. During the negotiations, the final terms of the ERPA are agreed between the CFU and the project sponsor.




Major CDM Capacity-BuildingProjects

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Agency/Project Name Country Partners Duration Project Objectives Activities

1 China CleanDevelopmentMechanism(CDM) Study

GTZ, WorldBank, and theSwitzerland

MOST is the Chineseagency; the Global Cli-mate Change Institute atTsinghua University (TU)is the overall contractor.The following institutionsare involved: the Instituteof Nuclear Energy Technology; TU; Depart-ment of Thermal Engi-neering of TU; theAgro-Meteorology Institute of the ChineseAcademy of AgriculturalSciences; the Admini-strative Center for China’s Agenda 21;the Institute of Environ-mental Economics at Renmin University; theEnergy Environment andEconomy Research Insti-tute, TU; the Departmentof Basic Industries, SDPC;Power & EconomicResearch Center of theState Power Corporation;Energy Research Insti-tute; etc. Foreign expertshave been coordinatedby World Bank and GTZ.

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November2001–July2004

The project willexamine the follow-ing: 1) CDM method-ological issues in theChinese context; 2) CDM applicabilitywithin the powerand renewableenergy sectors; 3) China’s overall CERpotential and China’soverall economicbenefits in the CDMregime.

The activities arestructured within thefollowing three tasks:1) CDM methodologystudy in the Chinesecontext; 2) CDM proj-ect case studieswithin two main sec-tors (electric powerand renewableenergy); 3) economicanalysis of CERpotentials for China.

(continued)


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Italy Italian Ministry for theEnvironment and Territory; MOST; andTsinghua University.Italian experts to be coordinated by Sino-Italian Cooperation Program for Environmen-tal Protection, ProgramManagement Office.

November2002–December2004

This component isdevoted to task 4 ofthe project “FromCases to Methodol-ogy” with the fourfollowing expectedresults: 1) CDM project case studyreports; 2) CDM project design documents; 3) CDMmethodological studyin selected techno-logical areas; 4) capacity buildingin dealing with CDMdevelopment andimplementation inthe selected techno-logical areas.

1) Energy and CO2

emission-reductionpotentials assessment;2) development andrecommendation of asuitable project forCDM study develop-ment in the selectedtechnological area; 3) methodologystudy; 4) CDM projectcase study guidelineas teaching material;5) study tours andcrosscutting work-shops; 6) case study;7) progress reports onthe case studies; 8) development ofCDM project designdocuments; 9) sub-mission of final casestudy reports andproject design documents.

2 Opportuni-ties for theClean Devel-opmentMechanismin the EnergySector of P.R.China

Asian DevelopmentBank

Executing agency: MOST; the steering committee:senior-level representa-tives from MOF, NDRC,and MFA. MOST willguide the overall policyand general directions ofthe technical assistance(TA). The Global ClimateChange Institute ofTsinghua University is thetechnical support unit.

March2002–December2003

The goal of the TA isto improve theglobal environmentthrough reduction ofGHGs. Outputs of theTA: 1) Guidelines forsmall-scale CDMactivities and anaction plan detailingstrategies to promotethem; 2) four GHG-reduction projectdesigns that could beeligible for CDMfinancing; 3) an insti-tutional assessmentreport; 4) dissemina-tion materials for TAfindings.

1) Review the CDMprocess and its poten-tial as a source offinance; 2) develop aset of guidelines toelaborate simplifiedsmall-scale CDMmethodologies,modalities, rules, andprocedures as specifiedat the Seventh Confer-ence of Parties (COP 7)to ensure environmen-tal integrity and lowertransaction cost; 3) Pro-pose a strategy to pro-mote such small-scaleCDM opportunities; 4) Develop a set ofalternative CDMdesigns as good prac-tice examples, includ-ing project design,evaluation, financing,and impact assess-ment; 5) projectworkshops.


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3 Canada-China Cooperationon ClimateChange (C5)Project

Canada Chinese executingagency: NDRC; coordina-tion and supervision ofthe project: Ministry ofForeign Trade and Eco-nomic Cooperation;implementing partner:the Global ClimateChange Institute ofTsinghua University.

June 2002–July 2004

The C5 Project hasfour components:CDM, national com-munications, aware-ness and outreach,and impacts andadaptation. Expectedresults of the CDMcomponent: 1) Canada/China CDM AdvisoryGroup; 2) China-Canada CDM Enter-prises Network; 3) CDM operationalmodel; 4) CDM casestudy on urban trans-port; 5) CDM casestudy on renewableenergy; 6) CDMresearch study onsinks; 7) methodol-ogy protocol docu-ments for developingCDM projects in thetwo study sectors.

1) Outreach and net-working: An advisorygroup establishedand a CDM EnterpriseNetwork (CEN) with abilingual Web site asits platform devel-oped; 2) DevelopCDM operationaldocuments devel-oped; 3) CDM casestudies in both urbantransportation andrenewable energysectors developed; 4) project symposiumheld.

4 BuildingCapacity forthe CleanDevelopmentMechanismin China

United NationsDevelopmentProgramme(UNDP) projectfunded by UNFoundationand Norway

Implementing agency:NDRC; executing agen-cies: China InternationalCenter for Economic &Technical Exchanges(CICETE); Energy ResearchInstitute; DNV.

February2003– February2006

1) Strengthen gov-ernment institutions’ability to implementprocedures that willenable Chineseindustry to gainsmooth approval forsuitable CDM pro-jects; 2) providestakeholders with theskills and knowledgeneeded to enableCDM projects to bedeveloped in China;3) provide “learning-by-doing” opportuni-ties throughon-the-ground pilotactivities; 4) dissemi-nate information onthe CDM to industryand other interestedparties, ensuring thatcapacity-buildingactivities in China arecomplementary.

1) Provide recommen-dations to govern-ment on improvingthe framework andprocedures for theCDM; 2) developtraining package forkey CDM stakehold-ers and conduct aseries of trainings; 3) provide pilot pro-jects; 4) coordinateprojects and dissemi-nate information.

(continued)


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5 China-Canada CDMCapacityBuilding Programme

DFAIT/Canada MOST; Department of S&T; NingxiaAutonomous Region.

2 April2004–31 March2005

(1) Develop 3 ProjectDesign Documents(PDD and) 6 ProjectIdea Notes (PINs) forCDM projects; (2) develop 12 poten-tial CDM projects list.

(1) Establishingprovincial CDM Tech-nical Service Unit; (2) implementingCDM training activi-ties; (3) identifyingand developing CDMprojects.

6 China-Japan Hebeilocal CDMCapacityBuilding Programme

(1) Japan NEDOJapan METI(2) Japan NEDO(3) JapanMIZHO

(1) MOST; Department ofS&T, Hebei province(2) HEBCDM.

(1)April2005–July2005(2)October2005–March2006

(1) Develop 1 PDDand 5 PINs, 12 poten-tial CDM projects list;(2) Develop 1 PDDand 5 PINs.

(1) Establishingprovincial CDM Tech-nical Service Unit andexperts teams; (2) implementingCDM training activi-ties; (3) identifyingand developing CDMprojects.

7 CO2 man-agers for theindustry inthe People’sRepublic ofChina (PRC)

EU Leading applicant : Cen-tric Austria InternationalPartners : Cork EnergyResearch Society (CERS),China.

2 April2005–2 April2007

The project aims atpreparing theground for the multi-plication of the CO2

managementapproach in China ona large scale.

The core activitiesconsist of four blocksof training and semi-nars introducing theseveral features ofCO2 management. Inaddition, trainingmaterials, includingtools to calculate and monitor CO2

emissions, will beprovided.

8 China-Canada CDMCapacityBuilding Programme

Minister ofForeignAffairs/Canada

MOST; five local depart-ments of S&T: Hebei,Shanxi, Hunan, Zhejiang,Gansu.

October2005–March2006

Develop 10 PDDs; 25 PINs.

(1) Establishing fiveprovincial CDM Tech-nical Service Units; (2) implementingCDM training activi-ties; (3) identifyingand developing CDMprojects.

9 Capacitybuilding onbusinessopportunitiesfor CDM pro-jects in China

EU Leading applicant: CIRPS-University of Rome,La Sapienza, ItalyPartners: IST, Portugal;GEI, PRC; HELIO Interna-tional, France.

1 March2006–1 Novem-ber 2007

The aim of this proj-ect is to build thelocal capacity in CDMactivities develop-ment, to improve thefacilitation means forlocal stockholders,and to promote pri-vate sector invest-ments and privatedevelopers’ involve-ment in CDM projectactivities.

The project consor-tium will build thelocal capacity in CDMproject’s develop-ment through theproduction of train-ing materials, deliv-ery of trainingprograms, creation ofa CDM database ofPINs and promotionevents (workshopand roundtables).


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10 China-Japan Shan-dong CDMCapacityBuilding Programme

(1) JapanNEDO(2) Japan MHIR

ACCA21; departments ofS&T; Shandong province.

(1) March2006–July2006(2) Decem-ber 2006–March2007

Develop 2 PDDs; 2 PINs.

The program selectedShandong provinceto set up CDM centerand experts team.Until now ShandongCDM center hasdeveloped three PDDdocuments and fivePINs, and one of theirCDM projects hasbeen submitted toChinese DNA forapproval. Meanwhile,this project has alsobeen validated byDOE.

11 China-France CDMCapacityBuildingCooperationProgramme

AgenceFrançaise deDéveloppe-ment/GEF

MOST/NDRC4 Local Departments ofS&T.

February2007– February2009

Finish 1 PDD perpilot, approved byChinese DNA; 6 PINsper pilot; 50potential-CDM proj-ect list per pilot.

(1) Establishing fourprovincial CDM cen-ter and expertsteams, including Yunnan, Guangxi,Guizhou, and Sichuanprovinces; (2) finishinglocal investigation; (3) implementingcapacity trainingworkshops; develop-ing CDM projects.

12 CDMCooperationProgrammein China—UNDP “MillenniumDevelopmentGoals(MDGs)”

UNDP MOST; CICETE; 12 LocalDepartments of S&T(including Jilin, Liaonig,inner Mongolia, Qinghai,Shanxi, Henan, Shaanxi,Anhui, Jiangsu, Xinjiang,Hubei).

February2007–December2008

Develop 20 PDDs; 100PINs.

(1) Establishing 12 provincial CDMcenters and expertteams; (2) finishinglocal CDM potentialinvestigation report;(3) implementinglocal capacity trainingworkshops; develop-ing CDM projects.

(continued)


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13 Sino-Danish CooperationProject on CDM CapacityBuilding

CDM CapacityBuilding forBiomass Projects

Danish: Executing agency: NDRC; financial management:CICETE; implementingpartner: Energy ResearchInstitute.

January2007–August2008

1) Development ofthe capacity of keyChinese projectdevelopers active inthe field of biomassto identify, develop,and manage CDMbiomass projects;2) development ofthe Chinese capacityat the central level toadapt CDM baselineand monitoringmethodologies forbiomass projects toChina’s actual situa-tion and implementthem; 3) develop-ment of capacity inselected provincesamong officials andsemi-officials focusedon the identificationand development ofbiomass CDM pro-jects in China.

This project consistsof two components:Component one—Capacity building atthe central level inBeijing, focusing onpublic and semipublicentities (biomassdevelopers and Chi-nese consultants);survey on biomasstechnology andresources; capability-building needs assess-ment; adaptation ofCDM methodologiesto China’s circum-stances and prepara-tion for trainingmaterials. Compo-nent two—capacitybuilding at theprovincial level inthree selectedprovinces, focusingon public and semi-public officialsinvolved in method-ology training as wellas development ofPINs and PDDs.

ProgrammaticCDM inChina— Realizing thePotential forProgrammaticCDM in Chinaand its Impacts

Danish:Executing agency: NDRC;financial management:CICETE; implementingpartner: CASS.

March2007–March2008

1) Analyze the feasi-bility, potential, andconstraints of P-CDMproject in China andpossible policies andmeasures; 2) carry outin-depth analysis onthe economic, social,and environmentalimpacts of P-CDMimplementation inChina; 3) perform thecase studies, investi-gate the methodolo-gies of and constraintsto development of P-CDM project and mea-sures to promote thedevelopment; and 4) extensively dissemi-nate relevant knowl-edge and informationabout P-CDM.

1) Comprehensivelyevaluate institutionframework, policies,methodology, projectdevelopment prac-tice, and interna-tional carbon market;analyze the limita-tions of developmentof CDM project andnecessity of puttingP-CDM into practice;and analyze thepotential of P-CDM,policies, methodol-ogy, and the influ-ence on society andeconomy; 2) exten-sively investigate dif-ferent industries andregions that suit thedevelopment of P-CDM projects and


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select the target forcase studies; 3) partic-ipate in relevantinternational anddomestic meetingsand workshops, keeptrack of the latestchanges in relevant P-CDM rules andmethodologies; 4) hold small work-shops to summarizeand revise theresearch results ofthis phase.

14 EU-ChinaCDM Facilita-tion Project

EU NDRC, China; SEPA,China; Swedish Environmental ResearchInstitute—IVL; PolicyResearch Center for Envi-ronment and Economy ofSEPA; TÜV Rheinland,Germany; DEVELOPMENTSolutions, China.

June 2007–January2008

1) Strengthen thecapacity of China’sDNA, the NationalCDM Center, and Chi-nese DOEs; 2) intro-duce European andinternational stan-dards in quality man-agement of the CDMdevelopment process;3) increase awarenessof CDM opportuni-ties in China.

1) Policy and regula-tory stakeholdertraining; 2) two-yearcapacity-buildingprogram for theNational CDM Center;3) 21⁄2-year trainingprogram and capacitybuilding for aselected potentialChinese DOE; 4) CDMroad show with fourEU-China CDM Conferences in Beijing, Shanghai,Chengdu, and Shen-zhen; 5) 10 capacity-building andawareness-raisingseminars in provinces

15 China-NetherlandsCDM Capac-ity BuildingProgramme

NetherlandsING Bank

ACCA21; 5 Local Depart-ments of S&T (includingHeilongjiang,Chongqing, Jiangxi,Fujian, Guangdong).

August2007–August2009

10 PDD;50 PINs per pilot;250 potential-CDM-project list per pilot.

(1) Establishing fiveprovincial CDM cen-ters and expertsteams; (2) two PDDsper pilot, and 10 PINsper pilot approved byChinese DNA; 50potential-CDM-project list per pilot.

(continued)


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16 Accelerat-ing reduc-tions in GHGemissions(methane)from work-ing coalmines

UK To build capacity toensure the effectiveapplication of theCDM to reduce GHGsfrom China’s coalmines.

The project willestablish a CDM assis-tance center to pro-vide expert localsupport to coal minesand government, andcarry out technicalexchanges with minesto increase awarenessof key climate andCDM issues, promotebetter data manage-ment, and improvegas capture andmethane use. Theproject will produce afinal report thatincludes recommen-dations and strate-gies for improvingthe effectiveness ofCDM applications inChina, increasing gasutilization, andreducing methaneemissions from coalmines. This work issupporting the Gov-ernment of China’sefforts to improvecoal-mine safety.

17 NDRC(China)/NEDO (Japan) CDM CapacityBuilding

NEDO Japan NDRCNEDODivision of Local Plan-ning, Shaanxi Develop-ment Reform CommitteeDivision of Local Econom-ics, Shanxi DevelopmentReform CommitteeERI under NDRC.

October2007–June2008

1) Promote local pub-lic awareness of basicknowledge of CDM;2) help local enter-prises to identifypotential CDM pro-jects and improvelocal capacity of CDMdevelopment; 3) fur-ther strengthen themanagement of CDMprojects by centraland local govern-ments; 4) develop1–2 PDD.

1) Capacity-buildingworkshops in Shaanxiand Shanxi; 2) collec-tion and selection ofpotential CDM proj-ect in two provinces.


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18 Seminaron CleanDevelopmentMechanism(CDM) forOfficials fromAfricanCountries

Ministry ofCommerce ofChina

Implementing Institute:CICETEParticipants: CDM ProjectCenter of ShandongProvince; relevantdepartments of 17African countries

November2007

Capacity-buildingworkshops; site visitto ShandongProvince.

(1) Share China’sexperience related toCDM in policy mak-ing, institution orga-nizing, projectplanning, carbontrade, and environ-ment protection; (2) discuss interna-tional rules andrecent progress.

19 Seminaron CleanDevelopmentMechanism(CDM) forOfficials from AsianCountries

Ministry ofCommerce ofChina

Implementing Institute:CICETEParticipants: CDM ProjectCenter of ShandongProvince; relevantdepartments of Asiancountries.

April 2008 Capacity-buildingworkshops;site visit to JiangsuProvince.

(1) Share China’sexperience related toCDM in policy mak-ing, institution orga-nizing, projectplanning, carbontrade, and environ-ment protection; (2) discuss interna-tional rules andrecent progress; (3) discuss the poten-tial of developmentof CDM projects inAsian countries.




These questions were used in surveys con-ducted in 2007 and 2010, and summarized inSection 3.5:

What are the key attractions of the ChineseCDM market?

Have you encountered any difficulties doingCDM business in China?

How would you rate the Chinese DNA approvalprocess relative to that in other countries inwhich you do CDM business?

If you could change one thing about ChineseCDM procedures, what would that be?

What is the primary role of your company in theChina CDM market?

Does your company have an office located inChina? Is this office staffed by Chinese nation-als, international experts, or both? What func-tions do the Chinese staff perform?

What is your basic approach to project identifi-cation in China?

How do you rate the CDM awareness and imple-mentation capacity of China CDM projectowners compared with owners in other coun-tries in which you do CDM business?

Which project types have been straightforwardto implement in China? Which have beenproblematic and why?

What do you think about the prospects of pro-grammatic CDM in China?

Does uncertainty about the post-2012 climateregime influence your CDM business strat-egy in China, and in what way?

Survey Questionnaire for CDMForeign Private Actors

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Following consultation with the government ofthe Hong Kong Special Administrative Region(HKSAR), the central government notified theUnited Nations that the Convention and theProtocol were extended to the HKSAR effectiveMay 2003. Under the Convention and the Pro-tocol, HKSAR is required to work jointly withthe mainland to fulfill the obligations of partiesnot included in Annex I to the Convention(non-Annex I parties). In accordance with theprinciples of “One Country, Two Systems” andthe relevant provisions of the Basic Law, theimplementation arrangements for CDM proj-ects in HKSAR (hereinafter referred to as theHK Implementation Arrangements) are set outbelow. They have been drawn up with referenceto the CDM Measures following consultationbetween NDRC and the Environmental Protec-tion Department of the HKSAR Government(HKEPD). The HK Implementation Arrange-ments took effect as of June 6, 2008.

The HK Implementation Arrangements stip-ulate the implementation institutes’ eligibility inHong Kong; the application files required toapply for CDM projects in Hong Kong; theimplementation rules for unilateral projects; andthe revenue for CDM projects in Hong Kong.The HK Implementation Arrangements specifythe following:

• NDRC is the central government’s DNA forCDM project activities; HKEPD is the liaisonagency for CDM projects relating to HKSAR.

• Companies that are incorporated or estab-lished according to the Companies Ordinanceor other relevant HKSAR legislation, and thathave obtained a valid Business RegistrationCertificate, are able to implement CDM proj-ects in HKSAR.

• Any applications, reports, and supportinginformation (including) provided by projectowners implementing CDM projects inHKSAR shall be submitted through HKEPD.The format of documents submitted shallconform to the specific requirements ofNDRC, the Chinese version of which shall bepresented in simplified characters.

• The two additional documents will be for-warded by HKEPD to NDRC within fiveworking days from receipt of full documen-tation. In the event of problems, NDRC will inform the project owner throughHKEPD.

• In accordance with the Measures, NDRC willentrust expert review of project applications torelevant organizations, and will submit appli-cations approved by the experts to theNational CDM Board (hereinafter referred toas “the Board”).

Implementation of CDM Projectsin the HKSAR

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• Representatives from HKEPD will participatein the work of the Board upon the Board’sreview of CDM projects to be implemented inHKSAR. Other procedures and approvalsrequired for the construction projects will beprocessed in accordance with the statutoryrequirements of HKSAR.

• Project owners will, in accordance with theMeasures, present project implementation andmonitoring reports to NDRC and the desig-nated operational entity via HKEPD. Toensure the quality of the CDM project activi-ties, HKEPD may monitor the implementa-tion of the CDM projects in HKSAR andpresent the findings to NDRC.

• If no foreign buyer is determined by the timea CDM project to be implemented inHKSAR is submitted for approval, and as aresult, the price information of the transfer-able CERs is not available, the project designdocument must indicate that the emissionreductions generated by the project will betransferred to China’s national account. Theproject owner may transfer these reductionsfrom the national account for use upon noti-fying the central government’s DNA forCDM via HKEPD.

• Until further notice, no charges will be leviedby the central government or the HKSARgovernment on the revenue generated fromthe transfer of the CERs of CDM projectsimplemented in HKSAR, including projectson energy efficiency improvement, develop-ment and use of new and renewable energy,and methane recovery and utilization.

APPLICATION AND APPROVALPROCEDURES FOR CDM PROJECTSIN HKSAR

The CDM implementation institutes shall becompanies that are incorporated or establishedaccording to the Companies Ordinance or otherrelevant HKSAR legislation and that haveobtained a valid Business Registration Certifi-cate in HKSAR.

The approval procedure includes many of thesame steps and processes as on the mainland, aswell as some exclusive to HKSAR. For example,applications, reports, and supporting informa-tion provided by project owners implementingHKSAR-based CDM projects must be submit-ted through HKEPD; they will be forwarded byHKEPD to NDRC within five working days ofreceipt of full documentation. In the event ofproblems, NDRC will inform the project ownerthrough HKEPD, and representatives fromHKEPD will participate in the work of theBoard upon the Board’s review of the project.

Another difference in the HKSAR process isthat, as of this writing, no charges will be leviedby the central government or the HKSAR gov-ernment on revenue from the transfer of CERsof HKSAR CDM projects, including projectson energy-efficiency improvement, develop-ment and use of new and renewable energy, andmethane recovery and utilization.

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Conference Edition

THE WORLD BANKTHE GOVERNMENT OF THE

PEOPLE’S REPUBLIC OF CHINA

CDM Project Management Center

Energy Research Institute, National Development and Reform Commission

Phone: +86-10-63908146 Fax:+86-10-63908146

Block B-1518, Jia No. 11, Muxudibeili, Xicheng Dist., Beijing 100038, China

http://cdm.ccchina.gov.cn/web/index.asp

Carbon Finance-Assist Program

Climate Change Practice - World Bank Institute

Phone: +1 202 458 8338 Fax: +1 202 676 0978

1818 H Street, N.W. Washington, DC 20433, USA

http://www.cfassist.org/

Social, Environment, Rural Development Sector Unit

Sustainable Development Department, East Asia and Pacific Region,

Phone: + 1-202-4737556 Fax: +1 202 477-2733

1818 H Street, N.W. Washington, DC20433, USA

http://www.worldbank.org/eapenvironment/

Sustainable Development Department, China & Mongolia

The World Bank Office, Beijing

Phone: +86-10-5861-7672 Fax: +86-10-5861-7800

16th Floor, China World Tower 2

No. 1 Jianguomenwai Avenue, Beijing 100004, China

http://www.worldbank.org/China/

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