Climate Change Hong Kong Summit 2022
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Hong Kong is well placed to act as a go-between in the carbon credits market, experts believe. Photo: Shutterstock

Climate Change: Hong Kong well placed to act as go-between in carbon credits market as long as it adopts international standards, experts say

  • The city aims to focus on the downstream activity of creating derivative products such as futures and options
  • For trading to flourish, a regime with international quality assurance standards must be established, said panellists at the SCMP Climate Change Summit
Hong Kong is well placed to become a regional carbon credits trading hub matching the financing needs of greenhouse gas reduction projects in China with global investors and emitters, according to experts.
But an important prerequisite for trading to flourish is the setting up of a trading regime with international quality assurance standards, panellists at the SCMP Climate Change Summit said on Friday.

“Hong Kong has adopted international best practices in bond and stocks trading, attracting a very large and international group of investors,” said Jeff Huang, a co-founder of AEX Holdings, which facilitates forward electricity and carbon credits trading in mainland China.

“In the coming years, Hong Kong could still be the best venue for transferring international best practices to energy trading and efficient carbon pricing in China.”

The city’s role as the international finance centre of China – the largest carbon dioxide emitter, accounting for 30 per cent of the global total – has stood it in good stead, he said.


China scales back emissions target with half of new electricity use to come from renewables by 2025

China scales back emissions target with half of new electricity use to come from renewables by 2025
Last July, China launched its first national carbon credits exchange in Shanghai. It primarily trades emission quotas allocated to over 2,000 power generators nationwide under a mandatory trading scheme designed to incentivise emissions reduction by putting a price on it. Generators whose emissions exceed their quotas must buy them from peers that have cut their emissions below their allocations.

This compliance market is expected to be extended to seven other emission-intensive sectors by 2025, lifting the scheme’s coverage of the nation’s total emissions to 60 per cent from 40 per cent currently.

There is also a nascent voluntary market for the trading of credits for emission reductions achieved by projects that avoid or capture greenhouse gas emissions. The credits are bought by companies and individuals wishing to offset their carbon footprints.

Hong Kong is seeking to play an intermediary role in both markets.
It aims to focus on the downstream activity of creating derivative products – such as futures and options – and establishing a Stock Connect-type trading regime for carbon credits. Hong Kong’s Stock Connect schemes with mainland bourses allow international investors to trade mainland-listed stocks without opening accounts there.
Hong Kong Exchanges and Clearing, the bourse operator, last year acquired a 7 per cent stake in the newly created Guangzhou Futures Exchange, which will focus on climate-related futures products.

China is expected to relaunch the Certified Emission Reduction (CCER) scheme – its voluntary carbon credits plan – later this year, nearly five years after it was terminated.

For firms included in the mandatory carbon emission quotas trading scheme, CCER credits can be used to offset up to 5 per cent of their obligations to buy quotas. Projects approved to earn such credits include renewable power, waste-to-energy and forestry.

However, for international investors and companies to buy them, the credits need to meet international standards on emission accounting and audits, said Helena Fung, head of sustainable investment Asia-Pacific at stock index compiler FTSE Russell.

“CCER projects verification, carbon emissions accounting and audit are very important to give international buyers confidence,” she said.

Such quality assurance processes are needed to reduce the risks of buyers being accused of “greenwashing”, if the credits they bought are backed by projects with bogus or exaggerated carbon reduction claims.

Greenwashing refers to sustainability benefit claims that lack clear or agreed definitions on sustainable investment, or misrepresentation on overall environmental benefits.

Still, there are a variety of international carbon credit standards and unifying them is a challenging process, said Dennis Wu, vice-chairman of Hong Kong-based Allied Sustainability and Environmental Consultants Group.

UK-backed Voluntary Carbon Markets Integrity Initiative (VCMI) recently published proposed guidelines to assess companies based on the credibility of their carbon emissions claims.

The Integrity Council on Voluntary Carbon Markets (ICVCM) will launch its proposed assessment framework for “high-quality carbon credits” next month.

While VCMI focuses on standards for buying and using carbon credits, the ICVCM targets best practices for enhancing the credibility of credits generated and sold by emission reduction project developers.