SMEs encouraged to trade carbon emissions

After President Xi’s announcement of the Dual Carbon Goal at the 75th United Nations General Assembly in September 2020, China has clarified its national policy of achieving peak carbon by 2030 and carbon neutrality by 2060.

SMEs were once seen as an uncertain factor in achieving this goal, but the opening of the carbon emissions trading market is fundamentally changing this perception.

SMEs can get benefits by trading carbon emission allowances, or obtain financing support through the mortgaging of expected carbon benefits, which reduces the cost of the companies’ energy conservation and promotes further efforts to reduce carbon emissions.

A system in which SMEs and the carbon trading market promote each other is taking shape, contributing to the implementation of the dual carbon goal.

SMEs try to save energy and reduce emissions

There are three main ways for SMEs to achieve energy conservation and emissions reduction, including low-carbon technology transformation, Energy Performance Contracting (EPC) and financial leasing.

Low-carbon technology transformation refers to the optimization of all aspects of production and operation processes that consume large amounts of energy and emit a lot of carbon.

EPC and financial leasing are energy saving investment methods that allow companies to pay the full cost of energy saving projects with the energy savings they will make.

SMEs are small in scale and always have little available capital. Some of them are not advanced enough in production technology and equipment, and are often high in energy consumption and carbon emissions.

The advantages of carbon trading

After the Kyoto Protocol came into effect in February 2005, UNFCCC’s CDM projects developed rapidly in China, causing an increase in the number of employees in the carbon trading sector during the past two decades.

In July last year, the opening of the national carbon trading market made it easier for SMEs to participate in carbon trading.

There are two channels for SMEs to save energy and reduce emissions. One is to directly earn income through carbon trading, and the other is to use future carbon trading income to obtain carbon bonds and carbon pledge loans.

In 2018, the Green Finance Professional Committee of the China Society for Finance and Banking established a research group on the mortgaging and pledging of environmental rights and interests, and has begun to study how to use carbon emission allowances as collateral for financing.

Last September, the General Office of the State Council issued relevant documents, clearly requesting to speed up the improvement of the market trading system and the implementation of the use of carbon emission rights and other resources as collateral for financing, making it possible for SMEs to obtain finance through the carbon trading market.

It is suggested that more policy measures will be introduced to:

  • Improve the carbon emission accounting scheme, related systems and legal systems;
  • Simplify carbon trading market registration procedures to facilitate SME participation;
  • Reduce income tax on carbon market transactions;
  • Optimize online transaction procedures;
  • Establish a rating system to officially certify qualified carbon trading investment agencies and recommend them to SMEs.

The Ministry of Industry and Information Technology recently released a set of figures referring to the “56789” of SMEs on social media, referring to the fact that Chinese SMEs contribute more than 50 percent of tax revenues, more than 60 percent of GDP, more than 70 percent of invention patents, more than 80 percent of jobs, and more than 90 percent of new jobs every year.