What is the state of I-REC(E) in China?

While the speakers could not clarify whether the I-REC(E)* system will continue to operate in China or when a formal decision is expected, the presentation shed some light on the regulatory process, the status of the documents in circulation, and three different scenarios.   

Scenario 1: I-TRACK Foundation exits the Chinese market 

Several notices and draft policies have been circulated recently, creating questions as to whether the Foundation will continue to operate in China. These include 1044 - August 2023, 113 - January 2024, and Draft for Public Opinion – April 2024. However, the most recent of these materials, if published as an official policy in its current form, would prohibit the coexistence of the I-REC(E) and the GEC systems in China, and potentially impact domestic carbon systems as well.  The Draft for Public Opinion, April 2024, states:  

Article 3: The Green Certificate is the only proof of the environmental attributes of renewable energy electricity in China, and is the only voucher that recognizes the production and consumption of renewable energy electricity. 

Article 11: The seller shall also undertake to apply only for China Green Certificates and not to apply repeatedly for other credentials with the same attribute in the power sector. 

Should these documents be transposed into regulation, the I-REC(E) system would exit the Chinese market. This move would reportedly be to ensure the Foundation remains in compliance with any official regulations promulgated in the country.

An exit of the I-REC system could negatively impact Chinese exports. The I-TRACK Foundation emphasises that global actors and policy instruments (such as IFRS, CBAM, and corporate reporting frameworks) are unlikely to review and adapt to the myriad of national Energy Attribute Certificate (EAC) systems and would therefore likely prefer uniform and globally recognised systems.  

“We want to facilitate the continued engagement of I-REC in China because we believe that speaking a common language in terms of EACs enables global commerce,” Roble Velasco-Rosenheim, Director of Global Partnerships and APAC, at the I-TRACK Foundation, says. “We focus entirely on facilitating trade by providing an instrument the builds bridges internationally. At the same time we must follow national government regulations.”

The I-TRACK Foundation will continue to collaborate with its local partners to prevent an exit from China. “The I-TRACK Foundation works through Local Issuers that have credibility and deep knowledge of the national ecosystem. We also talk with industry associations such as chambers of commerce, to make plain the benefits of operating the system in China,” Velasco-Rosenheim explains.

Should the I-REC(E) system leave China, the I-TRACK Foundation would work to achieve a smooth transition. “If the policy outcome is not favourable, we would try to ensure a gradual and controlled exit,” Velasco-Rosenheim says.

Scenario 2: Market alignment creates mutual recognition 

Minimal changes to the Draft for Public Opinion would allow for the co-existence of the I-REC(E) and GEC systems. “Two things should be amended,” Velasco-Rosenheim explains. “On Article 3, the word ‘only’ should change to ‘primary’. Then, Article 11 should allow for the reminting of certificates using GECs as a ‘birth certificate’ of sorts for a volume of energy”.

In this scenario, all power production would be initially tracked with a GEC. Then, since GECs do not contain all the same information as I-REC(E) they would be cancelled into a null account (without a specific end-user purpose) which would allow system operators to later create, or “remint”, an I-REC(E). 

Thus, the Chinese government would retain full control of the internal EAC market while the I-REC(E) system would use the cancellation of GECs as proof of production, thereby removing any potential issues with double issuing. The I-TRACK Foundation reiterated that the changes to the proposed legislation needed to achieve such compatibility are limited.

Scenario 3: The situation stays unresolved  

During talks with the I-TRACK Foundation after the presentation, Ecohz presented a third scenario: the situation stays unresolved for a long period of time.   

The formal process in China states that after a Draft for Public Opinion is published, there is a waiting period of six months before it can become law. Given that the Public Opinion was published in April, the final law could be finalized in October at the earliest.   

However, there is no guarantee that a final law will be published in October – or that it will be published at all. Drafts have no expiration date, meaning they can remain as such indefinitely. There is also a possibility for drafts to be transposed into law suddenly. However, it is not uncommon for drafts to never become a final law.   

In this scenario, the situation remains unresolved, but with the threat of fundamental change happening on short notice.   

How should companies react: I-REC(E) or GECs? 

In the short term, whether a company should choose I-REC(E) or CEGs depends on what they aim to achieve with their EAC procurement.   

A company with primarily global reporting objectives should consult the reporting standards they are party to. The answer will probably be I-REC(E), as international corporate standards prefer globally recognised systems over exclusively national ones. However, if their goal is to achieve national or provincial targets, companies should procure GECs, which will fall in line with local requirements. 

It should be noted that all the speakers in this session have a pro-I-REC(E) bias. Chinese officials would probably present a different story. When Ecohz talks to Chinese electricity producers that issue I-REC(E), they are more confident that the I-REC(E) system will remain in China.  

The session and the views expressed by the I-TRACK Foundation do not provide conclusions, they merely show which documents are part of the discussion and a concrete suggestion for the coexistence of the two systems. This scenario (presented as Scenario 2 above) would give the Chinese government full control of the market while eliminating the risk of non-compliance for the Chinese export sector.  

*I-REC(E) is the name the I-TRACK Foundation uses for the energy tracking system we refer to simply as I-REC elsewhere on this website. The letter E in brackets stands for electricity.