By Li Zuojun & Yu Min

Research Report Vol.21 No.1, 2019

Originating in the United Nations Framework Convention on Climate Change, the word “carbon sink” refers to the process, activity or mechanism CO2 from the atmosphere and includes different types, such as forest, grassland, wetland and ocean. In market for carbon sequestration, the ability of absorbing CO2 by ecological systems like forest, grassland and wetland is regarded as a kind of goods, which is traded in a certain system to offset the buyer’s greenhouse gas emissions. Market for carbon sequestration is a direct way of turning lush mountains and lucid waters into valuable assets, and perfecting this trading system is vital to the reform of the system for developing an ecological civilization. In the new situation, it is urgent to perfect relevant systems of market for carbon sequestration, including property right, accounting, trading and regulation, so as to align it with carbon emissions trading and blaze out a way to realize the value of ecological products.

I. It’s Urgent to expand Market for Carbon Sequestration in China

1. Increasing importance of market for carbon sequestration. Market for carbon sequestration is the direct way of turning lush mountains and lucid waters into valuable assets. The 3rd plenary session of the 18th CPC Central Committee proposed to “implement the trading system for carbon emission permit”, and made it clear that marketization was an important direction of building the ecological development system. The Integrated Reform Plan for Promoting Ecological Progress vowed to “establish an effective mechanism to increase forest, grassland, wetland and ocean carbon sinks”, and made carbon sink increase an important approach of ecological development and coping with climate change. The Opinions of the General Office of the State Council on Improving the Collective Forest Rights System suggested “including carbon sink in the carbon market” and marked market for carbon sequestration as an important content of the market system. The Opinions of the General Office of the State Council on Improving the Ecological Protection & Compensation Mechanism proposed to “perfect the price forming mechanism of ecological products, so that protectors can make profits from trading those products”, and defined the trading mechanism as an effective way of turning lush mountains and lucid waters into valuable assets.

Market for carbon sequestration is an important part of rural revitalization and poverty alleviation through ecological progress. Areas with abundant carbon sink resources are usually rural areas and ecologically beautiful yet poor regions, and market for carbon sequestration is of great significance for promoting their development. The Opinions of the CPC Central Committee and the State Council on Implementing the Rural Revitalization Strategy pledged to “establish the market-based compensation system for the purchase of ecological products and forest carbon sink”, and took market for carbon sequestration as an important means to rural revitalization. Guiding Opinions of the CPC Central Committee and the State Council on the Three-Year Campaign for Winning the Tough Battle against Poverty reads: “We will encourage key emission sources in the carbon emission right market to buy forest carbon sink from poor regions”, and makes market for carbon sequestration an important part of winning the tough battle against poverty.

2. Increasing necessity of market for carbon sequestration. Market for carbon sequestration is an entry point to coordinate economic development with eco-environmental protection. The Chinese economy is in a period of throes to replace old driving forces with new ones, the environmental carrying capacity has reached or approached the upper limit, and ecological development is at a critical moment of moving forward under multiple pressure. How to shorten the “period of throes” and deal with the eco-environmental pressure from atmosphere and water is a pressing issue that has to be solved to achieve high-quality economic development. Expanding market for carbon sequestration can help foster a new market to buy valuable time for economic transition, help attract new capital to support eco-environmental protection, help compensate the people for their economic losses resulting from “less production and more greening”, and create a governance system of public engagement. Therefore, it is necessary to expand market for carbon sequestration and search for an effective path of coordinated development between economy and environment.

Market for carbon sequestration is a powerful bolster for meeting our international commitment to emission reduction and enlarging our say in global climate governance. In 2017, China had the highest total carbon emissions of 9.2 billion tons in the world. As there is less room for industrial emission reduction, tapping the carbon sink potential of ecosystems like forest, grassland and wetland becomes increasingly important. The forest, grassland and wetland systems in China have the carbon reserve of about 8 billion, 4.5 billion and 5 billion tons respectively, far more than carbon emissions. Research shows that China’s afforestation activities have increased about 3.5 billion ton carbon sink accumulatively, reclamation of deteriorated grassland can increase about 5 billion ton carbon sink potential and reclamation of deteriorated wetland about 10 billion tons[]. Carbon sink is the most economical and realistic way to cope with climate change as the cost of meeting our carbon emission commitment through carbon sink is less than 1/5 of the cost of technical approach. Buying carbon sink can effectively mitigate the emission reduction pressure on SME’s development. Therefore, it is necessary to expand market for carbon sequestration and fully release China’s carbon sink potential, so as to reduce net carbon emissions in an efficient way and blaze out a new path of tackling climate change.

3. A new opportunity for expanding market for carbon sequestration. Market for carbon sequestration becomes more important in the global carbon market. In the early stage, the EU and other international carbon markets didn’t accept carbon sink programs due to the difficulty in carbon sink certification, their huge impact on supply-demand relation in the carbon market, and lack of program sustainability. But in recent years, the global carbon market has matured and the growing carbon constraints have resulted in larger carbon sink demand[], so countries like New Zealand, Australia and Japan have gradually lifted the ban on carbon sink programs in their carbon markets. For instance, Australia cancelled the 5% cap on carbon offset in 2014 and allowed the unlimited use of carbon credit units obtained from agricultural carbon reduction actions to offset extra carbon emission. New Zealand allowed the use of two tons of non-forestry carbon sink to offset one ton carbon emission in 2016. Besides, carbon sink programs are taking a larger proportion in global voluntary carbon market year by year and reached 22% in 2018, and 12 climate financing funds allocated 70% of their financing to carbon sink programs. It’s clear that expanding carbon sink market adapts to the new trend that global carbon market is opening its arms to market for carbon sequestration.

New technologies like the Internet of Things (IoT) make market for carbon sequestration more operable. China has rapidly improved its ability of applying remote sensing technology in recent years, IoT technologies like radio frequency identification (RFID) develop fast, and big data processing technologies like neural network are improved continuously. These high and new technologies contribute to real-time, reliable monitoring of forest, grassland and other ecosystems, solve the difficulties in the accounting and regulation of carbon sink programs, and raise the efficiency and quality of program accounting and assessment.

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