Low Carbon Economy, 2011, 2, 205-209
doi:10.4236/lce.2011.24025 Published Online December 2011 (http://www.SciRP.org/journal/lce)
1
Clean Development Mechanism Cooperation
in China
Ye Qian1, Jian-Cheng Bin2
1School of Finance, Zhejiang University of Finance and Econo mics, Hangzhou, China; 2Jiangxi University of Fina nce and Economics,
Nanchang, China.
Received September 4th, 2011; revised October 6th, 2011; accepted October 15th, 2011.
ABSTRACT
The Clean Development Mechanism (CDM) is an arrangement under the Kyoto Protocol allowing developed countries
with a greenhouse gas reduction commitment to invest in projects that reduce emissions in developing countries as an
alternative to more expensive emission reductions in their own countries. In terms of the CDM areas, there are huge
potential co mmercial opportunities between China and the United Kingdom since China signed the Kyoto Protocol.
Keywords: CDM, Climate Change, The CDM International Coopera tion, The Kyoto Protocol
1. Introduction to the CDM in China
Climate change is a great environmental issue of com-
mon concern to the international community today [1].
Rising global temperatures will bring changes in weather
patterns, rising sea levels and increased frequency and
intensity of extreme weather events [2]. The effects will
be felt both in China and in the UK. Climate change is an
issue involving both environment and development, but
it is ultimately an issue of d evelopment [3].
As noted by the United Nations Framework Conven-
tion on Climate Change (UNFCCC), the largest share of
historical and current global emissions of greenhouse
gases has originated from developed countries, while per
capita emissions in developing countries are still rela-
tively low and the share of global emissions originating
from developing countries will grow to meet their social
and development needs [4]. The UNFCCC stipulates
clearly that the Parties to the Conven tion shall pro tect the
climate system for the benefit of present and future
generations of humankind, on the basis of equity and in
accordance with their common but differentiated respon-
sibilities and respectiv e capabilities, and accordingly, the
developed country Parties shall take the lead in com-
bating climate change and the adverse effects thereof. It
further provides that all Parties shall formulate, imple-
ment, publish and regularly update national programs to
address climate change.
The CDM is one flexible mechanism established under
the Kyoto Protocol. It allows developed countries to invest
in green house gas emission reduction projects in deve-
loping countries and to claim the resulting Certified Emi-
ssion Reductions (CERs) to assist them in compliance
with their binding green house gas emission reduction
commitments under the Protocol.
At the same time, CDM project activities contribute to
sustainable development in the host developing countries.
The CDM is conceived as a project-based win-win me-
chanism that can provide increased flexibility to deve-
loped countries, which can reduce their overall cost of
compliance with Kyoto commitments, while providing
the CDM project hosting partners with additional funds
and advanced technology.
As a developing country of responsibility, China att-
aches great importance to the issue of climate change.
The National Coordination Committee on Climate Chan-
ge was established, and a series of policies and measures
to address climate change has been taken in the overall
context of national sustainable development strategy,
making positive contributions to the mitigation of and
adaptation to climate change. As it is mandated under the
UNFCCC, the Government of China formulates first
global warming policy initiative, China’s National Cli-
mate Change Programme (CNCCP) in June 2007. The
Programme encourages and promotes the cooperation of
CDM projects and other kinds of international coo-
peration, strive to build a resource conservative and en-

Clean Development Mechanism Cooperation in China
206
vironmentally friendly society, enhance national capa-
city to mitigate and adapt to climate change, and make
further contribution to the protection of the global cli-
mate system.
China takes active part in international and domestic
activities regarding global climate change. China signed
the UNCCC in 1992, climate policies have been high on
the agenda of government decision makers and explicit
climate mitigation or adaptation policies are in place [5].
China’s pursuit of sustainable development has in many
respects been consistent with climate protection. Further-
more, China ratified the Kyoto Protocol in August 2002,
making the country eligible for CDM participation in
competition with other developing countries. In October
2004, Measures for Operation and Management of Clean
Development Mechanism Projects in China was taken
effect. This provides official greenhouse gas emission
inventory data, which are important for assessing priority
areas for CDM projects.
2. CDM Potential in China
Exploring the CDM poses a significant challenge to
British enterprises for strategically assessing the oppor-
tunities of the emerging carbon offset market. A model
system’s results from the World Bank provide the policy
implications for CDM potential in Ch ina, and the impact
of CDM on China’s economy. It would be helpful for
enterprises to formulate appropriate CDM strategy in
China.
One of the general requirements for CDM project ap-
proval under the current Chinese arrangements is that the
CDM project activity should promote the transfer of
environmentally friendly technology. In addition, energy
efficiency improvements and new and renewable energy
are listed as priority areas for CDM cooperation. In gene-
ral, the central government’s main goals are technology
progress and broader contributions to sustainable deve-
lopment, rather than merely attracting additional foreign
investment.
Along with China’s rapid economic development and
the acceleration of industrialization and urbanization, the
demand for energy keeps increasing, and the construction
of a stable, economical, clean and safe energy supply
system faces the following challenges.
At present, China is prominent resources restraint and
low energy efficiency. China’s relative dearth of high-
quality energy resources hinders its supp ly capability; its
imbalanced distribution makes it difficult to secure a
continued and steady supply; and the extensive pattern of
economic growth, irrational energy structure, unsatis-
factory energy technology and relatively poor mana-
gement have resulted in higher energy consumption per-
unit GDP and for the major energy-consuming products
than the average level of major energy-consuming coun-
tries, thus further intensifying the energy supply-demand
contradiction. Consequ ently, an increase solely in supply
is hard to meet the rising demand for energy.
Secondly, China is increasing environmental pressure
caused by the consumption of energy, mostly coal. Coal is
the main energy consumed in China, and the energy stru-
cture with coal playing the main role will remain unchanged
for a long time to come. The relatively backward methods
of coal production and consumption have intensified the
pressure on environmental protection. Coal consumption
has been the main cause of smoke pollution in China, as
well as the main source of green-house gas. As the num-
ber of motor vehicles climbs, the air pollution in some
cities is becoming a mixture of coal smoke and exhaust
gas. If this situation continues, the ecological environ-
ment will face even greater pressure.
Finally but not all, China is inco mplete market system
and emergency response capability yet to be enhanced.
China’s energy market system is yet to be completed, as
the energy pricing mechanism fails to fully reflect the
scarcity of resources, its supply and demand, and the envi-
ronmental cost. Order in energy exploration and develop-
ment must be further standardized, and the energy super-
visory system improved. Coal production safety is far from
satisfactory, the structure of power grids is not rational, the
oil reserves are not sufficient, and an effective emergency
pre-warning system is yet to be improved and conso lidat ed
to deal with energy supply breakdowns and other major
unexpected e me r gencies.
Based on above reasons, the greenhouse gas emissions
from China’s energy sector were projected to increase,
with coal contributing a significant share to the increa-
sing demand from the power and industry sectors. China’s
energy-related CDM market poten tial is huge. China captu-
res nearly 50 percent of the total market CDM demand [4].
Following Figure 1 highlights that China’s share in the
Figure 1. Shares of global CDM projects

Clean Development Mechanism Cooperation in China 207
global CDM projects is 16.65 percent. Supplying this
amount of CERs would require a significant number of
newly built larger power projects registered as CDM
projects, as well as several renewable power projects put
into operation. It is important t o note that besi des reductions
in CO2 from electricity generation, CDM potentials from
other energy end-use and from abatement of other gases
and other source and sink categories must also be taken
into account in estimating China’s total CDM potential
and its impact on market dynamics.
Through so-called project-based transactions, investors
receive CERs when they fund projects that reduce green-
house gases relative to baseline emissions levels. Foreign
investors usually fund new proj ects, although in principle
they can also receive CERs when investing in existing
ones.
The present CDM market in China is buyer dominated.
The preference of investors for “high quality” and “low
risk” projects is likely to shape the market for carbon
offsets. In reality, there will be no one uniform carbon
price for different transferable emission units. But the
CERs price could be higher, considering the prevailing
certainties about the ratification of the Kyoto Protocol
after Bali Road Map in December 2007.
3. Benefits from CDM in China
Beside the obvious goals of CDM project activities-the
reduction of green house gas emissions and mitigatio n of
climate change-there are other significant benefits for
China. These include:
1) Transfer of state-of-the-art technology to China that
will stimulate scientific and technological progress. China
needs larger-scale technology import and re-innovation
and by 2010, China’s hi-tech import and export is expec-
ted to reach 800 billion US dollars. At present, China-
UK technology trade is less than ideally matched with
our respective economic strengths, and we’re ready to cr-
eate conditions to let more Chinese people recognise the
UK’s technological competency.
2) Additional revenues coming from CERs that will
improve the financial performance of a project. In No-
vember 2007 China launched a state-owned CDM fund
to finance the country’s efforts to address climate change.
The China CDM Fund, managed by the Ministry of Fin-
ance, generated money from the current CDM projects,
which help China improve energy efficiency and protect
the environment by using clean energy for power gen-
eration, and raise money from various sources.
3) Help to start up new, domestic industry sectors.
China encourages foreign investment in the production
and supply of electric power and gas, as well as in the
construction and operation of thermal power plants with
a single-generator capacity, power stations burning clean
coal, power stations featuring heat and power cogenera-
tion, hydropower stations mainly for electricity produ-
ction, nuclear power stations in which the Chinese side
holds the dominant share, as well as power stations with
renewable energy or new energy resources. It encourages
foreign investors to invest in technology and equipment
production for thermal, hydro and nuclear power stations
with a considerably large generating capacity as well as
for thermal power desulphurisation. It also encourages
them to invest in the construction and operation of coal
pipeline transportation facilities.
4) Diversification of electricity generation sources. On
the basis of taking into overall consideration such factors
as resources, technology, environmental protection and
the market, the Chinese government will develop clean
coal-fired electric power by setting up large coal-fired
power bases and encouraging the building of power pla-
nts at pitheads, with emphasis on large, highly efficient,
environment-friendly power generating sets. It will ac-
tively develop cog eneratio n of heat and power, and speed
up elimination of small and backward thermal power
units. On the conditio n that the ecological en vironment is
protected and problems affecting local people are prop-
erly settled, energetic efforts will be made to develop
hydropower. It will actively popularise tech nologies util-
izing wind, biomass and solar energy for power genera-
tion, and build several million-kw wind power bases to
achieve industrialization by means of scale power gen-
eration. It will also actively develop nuclear power, and
appropriat el y de vel o p na t u ral ga s p ower generation .
5) Support and help to accelerate the development of
renewable energies. The exploration and utilization of re-
newable energy resources plays a significant role in in-
creasing energy supply, improving the energy mix and
helping environmental protection, and is also a strategic
choice of China to solve the contradiction between ener-
gy supply and demand and achieve sustainable deve-
lopment. China has promulgated the Renewable Energy
Law and priority policies for renewable energy electricity,
entailing priority to be connected to grids, acquisition in
full and preferential price, and public sharing of costs. It
has earmarked special funds for renewable energy deve-
lopment to support resource survey, R & D of relevant
technologies, building of pilot and demonstration pro-
jects. It has released the Medium- and Long-term Pro-
gram for Renewable Energy Development, putting for-
ward the goal of increasing renewable energy consump-
tion to 10 percent of the total energy consumption by
2010 and 15 percent by 2020. China will further the com-
prehensive and cascade development of areas with hy-
dropower resources, speed up the construction of large
hydropower stations, develop medium and small-sized
hydropower stations based on local conditions, and con-

Clean Development Mechanism Cooperation in China
208
struct pumped-storage power stations under appropriate
circumstances. It will spread the latest technologies for
the utilization of solar energy, methane and other renew-
able energy sources. It will actively implement policies
supporting renewable energy development, foster a re-
newable energy market.
The benefits derived from CDM support all major obj-
ectives of China’s energy policy within the 11th Five-
Year Plan (2006-2010). that is, by 2010 the energy sup-
ply will basically meet the demands of national economic
and social development; and obvious progress will have
been made in energy conservation; energy efficiency will
have been noticeably enhanced and the energy structure
optimised; technolog ical progress, economic ben efits and
market competitiveness will hav e been greatly increased;
and energy-related macro-control, market regulation, legis-
lation and emergency pre-warning system and mecha-
nism compatible with the socialist market economy will
all have been improved. The result will be that the coor-
dinated development will have been achieved between
energy production, the economy, the society and the en-
vironment.
4. CDM Collaboration between China and
the UK
China-UK relationship has developed smoothly and their
economic and trade cooperation has achieved fruitful
results under the active promotion of leaders of both
countries since the establishment of their diplomatic rela-
tions.
The mutual investment between the two countries has
enjoyed steady development. The accumulative UK in-
vestment in China has amounted to nearly 15 billion dol-
lars and the UK remains China’s largest investment
country in EU, while the number of the Chinese enter-
prises investing and opening businesses in the UK has
been increasing with each passing yea.
China is now devo ted to building an en erg y saving and
environmentally friendly society, promoting industrial
structure upgrading through innovations, transferring
economic development to achieve sustainable develop-
ment. All these efforts have offered an enormous oppor-
tunity for China and the UK to further develop mutually
beneficial cooperation at a higher level and in a wider
range.
Taking opportunities offered by the CDM, the Chinese
government has established a National Examination and
Approval Council for Clean Development Mechanism,
which consists of relevant departments. Up to October
2007, 20 projects under the CDM have been formally
approved, and there are 6 projects from British enter-
prises cooperation.
In September 2006, when Chinese Premier Wen Jia
bao visited the UK, the two countries signed a Memo-
randum of Understanding (MoU) on establishing a
China-UK climate change working group between the
NDRC of China and the DEFRA of the UK. Within the
MoU, there are broad subject areas for cooperation, that
is, 1) Broader science work, in particular to review and
develop on-going climate science collaboration between
the Participants; 2) Energy efficiency; 3) Energy tech-
nologies; 4) Approaches to adaptation; 5) The use of the
flexible mechanisms, in particular the CDM; 6) Capacity
building activities [6].
In January 2008, British Prime Minister Gordon Bro-
wn paid a visit to Beijing. During his visit, a joint dec-
laration on climate change was signed, which estab-
lishes a unique bilateral Partnership to collaborate on
the development and deployment of clean energy tech-
nologies.
Under this Partnership, the UK will provide at least
GBP 50 million to China from British Environmental
Transformation Fund to support investment in ar eas such
as energy efficiency, renewable, clean coal and carbon
capture and storage [7]. Secondly, bring together gov-
ernment in a series of exchanges over the coming two
years officials and experts from both sides to explore
opportunities for clean energy investment in China and
the UK-including training, research collaboration and
investment partnerships in the fields of technology and
engineering, business, finance and academic research;
Third, extend cooperation on the EU-China Near Zero
Emissions Coal Programme, launched in Beijing in No-
vember 2007 with up to GBP 3.5 million of UK funding.
This will deliver, by 2020, a commercial scale coal-fired
power station in China with carbon capture and storage.
And finally, collaborate on extend ing the CDM, to allow
developed country carbon credits to be invested in en-
ergy efficiency and clean energy programmes.
5. Concluding Remarks
In conclusion, China implemented its first CDM project
to reduce emissions under the Kyoto Protocol on 27 June
2005, marking a new phase in international efforts to tackle
climate change. Since then, China became the world’s lead-
ing supplier of CERs, as investors sp eculating on the future
value of carbon emissions credits sought to take advantage
of its low marginal costs of carbon abatement. In the long
run, China stresses energy conservation and energy effi-
ciency improvement in international cooperation. En-
ergy-conservation cooperation will cover various aspects
of energy consumption in industry production, transpor-
tation and buildings. China holds a positive attitude to-
ward the CDM international cooperation, within the
framework of addressing climate change.

Clean Development Mechanism Cooperation in China
209
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