Why China’s ‘green certificate’ trading scheme will keep coal-fired power plant bosses on their toes

Beijing’s plan to launch the long-awaited “green certificate” trading scheme is part of an effort to ease the snowballing deficit of the state-run renewable energy subsidy fund, and shift part of the financial burden for reducing pollution from consumers to coal-fired power producers.

But scant details on how the scheme would operate means the impact on the worst polluters in electricity generation is still up in the air, although the launch timetable’s announcement comes as the coal-fired industry’s profitability has been squeezed by higher coal costs and frozen benchmark power prices.

The scheme, which will require polluters failing to meet certain yet to be announced clean-energy development thresholds to buy “certificates” from owners of renewable energy plants qualified by the authorities, will be put on trial on July 1 this year on a “voluntary” basis, regulator National Development and Reform Commission said in a circular published last Friday.

Qualified renewable projects will be granted certificates for the amount of clean energy they produce, which can be “sold” to polluters that need to offset their clean energy output shortfall.

Coal-fired power accounted for 64 per cent of the nation’s energy consumption capacity last year, which is required by the central government to fall to 58 per cent by 2020, while that of cleaner-burning natural gas and non-fossil fuels must increase to 25 per cent from 18 per cent.

Based on market conditions, the scheme will go live and become mandatory at a “suitable time” in 2018, the NDRC said, when renewable energy output quotas will be slapped on power generators.

Those failing to meet the quotas must buy green certificates to make up the shortfall.