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 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.
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.
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.
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.