Sept. 28 – In an attempt to boost Clean Development Mechanism (CDM) projects and to ensure the healthy development of the CDM market in China, the National Development and Reform Commission (NDRC) and other departments on August 3, 2011 jointly issued the revised “Administrative Measures for the Operation of Clean Development Mechanism Projects (‘the Measures’)” in accordance with the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol.
The UNFCCC is an international treaty that sets an overall framework for intergovernmental efforts to tackle the challenge posed by climate change. It is joined by most countries in the world, including China. The convention entered into force in 1994. Later, the Kyoto Protocol entered into force in 2005 as an addition to the UNFCCC. The Kyoto Protocol is an international and legally binding agreement to reduce greenhouse gas emissions worldwide. China signed the Kyoto Protocol in 1998 and ratified it in 2002.
The CDM, defined in Article 12 of the Kyoto Protocol, is an innovative credit scheme mechanism for cooperation in climate protection between industrialized and developing countries by reducing greenhouse gas emissions. It allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol to implement an emission-reduction project in developing countries. Such projects can earn sellable certified emission reduction credits, each equivalent to one ton of carbon dioxide, which can be counted towards meeting Kyoto targets. A CDM project activity might involve, for example, a rural electrification project using solar panels, or the installation of more energy-efficient boilers.
The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction or limitation targets.
China’s new Measures state that CDM projects should advance the transfer of environmentally friendly technologies and focus on key industries such as saving energy and increasing efficiency, development and utilization of new and renewable energy, and methane recycling.
The central government has set up the Project Approval Council for reviewing and approving CDM projects. The Ministry of Science and Technology and the NDRC are the leaders of the Project Approval Council and the Ministry of Foreign Affairs is the deputy leader. The Ministry of Finance, the Ministry of Environmental Protection, the Ministry of Agriculture, and the China Meteorological Administration are appointed as members.
All profits arising from the transfer of greenhouse gas emission reductions under CDM projects belong to the state and the project implementing entity, the Measures said. The profit sharing proportions are as follows:
Owing to its rapid development, China has become one of the world’s leading economies as well as one of the top emitters of greenhouse gases. As a result, China’s CDM market has grown rapidly since the government launched its first CDM projects in 2005. The number of approved projects reached a peak in 2007 and then experienced a slowdown due to the Global Financial Crisis and uncertainties with the Kyoto Protocol and the development of CDM projects.
China Investment Consulting Corp said in its “Investment and Forecast Report on the China Clean Development Mechanism Industry (2011-2015)” that CDM projects are win-win for China in that they provide both improvements to the environment and great opportunities for sustainable development.
Statistics show that by December 2009, China had approved more than 2,300 CDM projects, 730 of which were registered. The projects reduce an average of 200 million tons of carbon dioxide emissions per year. It’s anticipated that by 2012 the total emission reduction will amount to 20 million tons. China is consuming more and more energy, while its efficiency remains at 10 percent below the international average. Thus there is great potential for greenhouse gas emission reductions.
Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. The firm assists foreign enterprises take advantage of special incentives in the country. For advice, please email firstname.lastname@example.org, visit www.dezshira.com, or download the firm’s brochure here.
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