A big killer to break down trade barriers to carbon tariffs

On April 25, 2023, the Council of the European Union voted to approve the Carbon Border Adjustment Mechanism (CBAM). This marks the completion of the EU CBAM through all legislative procedures, the scope of CBAM covers steel, iron, cement, aluminum, fertilizer, electricity, hydrogen and other commodities, as well as indirect emissions under specific conditions, October 1, 2023 CBAM began trial operation, will be officially implemented in 2026. Recently, the CBAM began its first report, and although only a small number of European companies submitted reports that meet the EU's CBAM initial reporting requirements, the CBAM is irreversible.

In response to the CBAM report submitted in the first phase, the European Commission updated the "CBAM FAQ" document, which mentions that "CBAM mainly applies to basic materials and basic material products, but also applies to some finished products/downstream products, such as fasteners".

Other developed countries and regions with carbon tariffs or implicit carbon tariff barriers include: the EU Battery and Waste Battery Act, the European Environmental Label, the UK Carbon Border Adjustment Mechanism, the US Clean Air Act, the Inflation Reduction Act 2022, the US Clean Energy Act, the Build Back Better Act, the Infrastructure Investment and Jobs Act, and the Hydrogen Energy Plan, and the French Energy Regulatory Commission (CRE) Tender Code for the Construction and Operation of Solar Power Facilities (AO PPE2). PV Sol), Japan Ecolabel, Basic Policy for Achieving Green Transition, Canadian Environmental Options, etc. According to expert estimates, at least more than 2 trillion yuan of Chinese exports will directly face the challenge of carbon tariff barriers or hidden carbon costs in the future.

In the face of the challenge of carbon tariff barriers, the mainland government is actively consulting and negotiating with relevant parties on the one hand, and on the other hand, it is seizing the time to do its own thing.

On April 2, 2024, the National Center for Climate Strategy organized a kick-off meeting of the Technical Working Group on the National Greenhouse Gas Emission Factor Library in Beijing. In the future, we will have an authoritative and globally recognized library of greenhouse gas emission factors.

On April 12, 2024, the Ministry of Ecology and Environment (MEE) and the National Bureau of Statistics (NBS) issued an announcement on the CO2 emission factors for electricity in 2021. In order to implement the relevant requirements of the Implementation Plan for Accelerating the Establishment of a Unified and Standardized Carbon Emission Statistical Accounting System, the Ministry of Ecology and Environment and the National Bureau of Statistics organized the calculation of the national, regional and provincial average carbon dioxide emission factors for electricity in 2021, the national average carbon dioxide emission factors for electricity (excluding non-fossil energy electricity traded in the market), and the national carbon dioxide emission factors for fossil energy electricity, which are used as a reference when calculating carbon dioxide emissions from electricity consumption. Among them, the national average carbon dioxide emission factor of electricity (excluding non-fossil energy electricity traded in the market) is 0.5942 tCO2/MW∙h, compared with the national grid average emission factor of 0.5703 tCO2 in the Notice on Doing a Good Job in the Management of Greenhouse Gas Emission Reporting of Enterprises in the Power Generation Industry from 2023 to 2025. MW∙h, the mainland's official grid emission factors have begun to solve the problem of double calculation of environmental attributes of green power, and it is believed that in the future, regional or provincial grid emission factors will also publish data on the elimination of non-fossil energy electricity traded in the market. The provincial average carbon dioxide emission factor for electricity publishes the average carbon dioxide emission factor of all provincial units of electricity in the country except Hong Kong, Macao and Taiwan, and the research of the Academy of Environmental Planning of the Ministry of Ecology and Environment shows that "the smaller the scope of the power grid, the closer the grid emission factor is to the actual indirect emissions per unit of electricity consumption; "Timely updating and releasing of regional power grid carbon emission factors will also help to interconnect and recognize foreign standards. Moreover, the carbon emission factor of the regional grid is easier to calculate and more accurate. In 2021, the average carbon dioxide emission factor of provincial power was 0.1235tCO2/MW∙h in Yunnan and 0.1255tCO2/MW∙h in Sichuan, far lower than the national average. Calculating carbon emissions according to the emission factors of regional power grids will break the phenomenon of eating a big pot of rice in the average carbon emission factor of the power grid, and can vigorously promote the development of clean energy in the mainland, so that the backward will catch up with the advanced, and the advanced will be more advanced.

6.3.2.2 of the recently released Guidelines for Accounting and Reporting of Greenhouse Gas Emissions for Enterprises in the Aluminum Smelting Industry (Draft for Comments) clarifies that "the consumption of non-fossil energy electricity purchased and used through market-based transactions refers to the amount of electricity purchased in the form of transactions and actually executed and settled, and the market-based transaction contracts signed by both power generation and electricity consumption shall be provided..." The stock of conventional hydropower and nuclear power does not need to provide green electricity certificate trading certificates. "There are bilateral contracts to support, and the actual implementation and settlement, to ensure the uniqueness, traceability and traceability of the green attributes contained in green electricity; the recognition of the stock of conventional hydropower and nuclear power as green power, is with the world, but also greatly expand the scope of green power, the mainland manufacturing energy structure, including electric furnace steelmaking, electrolytic aluminum and other most of the electricity as the main energy, which will become a big killer to break the carbon tariff trade barriers.

At present, mainland export enterprises are mainly concentrated in East China, In 2023, the amount of clean energy traded in the inter-provincial market of the State Grid alone will reach 570.6 billion kilowatt-hours, and the amount of hydropower delivered by Sichuan alone will reach 165.547 billion kilowatt-hours, if one-third of the clean energy trading electricity in the regional inter-provincial market of the State Grid is used for the electricity of foreign trade enterprises and their upstream and downstream industrial chains within the scope of carbon tariffs, it can meet the green power needs of most enterprises, and the green value of domestic green electricity will be paid according to the average daily closing price of the national carbon market in March this year of 82.82 yuanHalf of the / ton, the EU carbon price is calculated at the price of 66.79 euros/ton at the end of 23, and the electricity emission factor is 0.5942 tCO2/MW∙h, which can save 53.6 billion yuan in carbon tariffs every year.

In order to break the barriers to carbon tariff trade, what we need to do is only: (1) Regardless of priority delivery level, all power generation enterprises are allowed to enter the power market, including Xiangjiaba, Xiluodu and other state-owned enterprises, so that power enterprises such as Sichuan where the power plant is located and Shanghai and Zhejiang and other power enterprises where the inter-provincial special line is located can use market-oriented, bilateral contract as a guarantee and traceable green electricity. (2) The state and power grid enterprises should encourage and support the power generation and consumption enterprises of the two places of the inter-provincial special line, and try to sign more bilateral green power agreements to reduce the green cost of power enterprises and maximize the national interests; (3) Compared with intra-provincial power trading, inter-provincial green power trading has its own unique complexity and technical difficulty, and the small and medium-sized power generation enterprises in the sending province and the power users in the receiving province need the power sales company to provide power purchase and sales services, which can be seen from the annual trading results in Sichuan Province; The electricity was 152.702 billion kWh, and the average transaction price was 0.24045 yuan/kWh. Wholesale users: 60 power users participated in the annual transaction, with a transaction volume of 4.995 billion kWh, of which 3.521 billion kWh was hydropower (wind power and photovoltaic), and the average transaction price was 0.25605 yuan/kWh. ”

Due to the long-term unremitting efforts of power people, the mainland has built the world's strongest and safest power grid, but it still cannot meet the requirements of buying enough green electricity anywhere, so we can buy green certificates to replace green electricity, and the mainland government also encourages the use of green certificates to offset the insufficient part of renewable energy consumption, or to offset the goal of reducing energy consumption. The situation in Europe and the United States is similar to that of the mainland, but the mainland has not yet formed an institutionalized and normalized compulsory market for green certificates. The mandatory market for green power in the United States is based on a quota system, which requires power suppliers to supply a certain percentage of green electricity within a specified period of time, or purchase renewable energy certificates from other renewable energy generation companies to meet the requirements of the quota standard, and those responsible for failing to meet the contract on time will be punished accordingly. Countries such as Norway and Sweden in the European Union have established mandatory markets for green certificates with quota obligations. China, like most countries in Europe and the United States, encourages companies and individuals to voluntarily purchase green certificates to support the goal of carbon neutrality.

We are a big exporter of manufacturing, carbon tariffs have caused us trouble, facing the same troubles as India, Vietnam and other emerging manufacturing countries; we have the world's most clean electricity, but also the world's lowest-cost, fastest-growing wind and solar new energy, as long as it is rationally used under a strong national system, our disadvantages can become advantages, strengthen and consolidate our status as a manufacturing power, for the benefit of all people.

Source: Polaris Power Network Author: Huang Tongxun (Sichuan Chuanneng Intelligent Network Industrial Co., Ltd.)