Wednesday, 2024 April 17

CATL establishes carbon asset management company: What signals does this move send?

The carbon asset management market welcomes another heavyweight player.

According to Aiqicha, Contemporary Green Energy (CGE), a wholly-owned subsidiary of Chinese battery tech giant Contemporary Amperex Technology (CATL), registered a new carbon asset management entity on February 2.

Public information shows that CGE focuses on investments, construction, and operations in new energy verticals including wind and solar, specializing in areas such as storage and trading of green power. The company also assists enterprises in decarbonization, offering consulting services and other carbon reduction-related solutions.

Given the breadth of CGE’s offerings, the establishment of a carbon asset management company is seemingly a complement and enhancement to CATL’s carbon reduction tool matrix.

The term “carbon assets” is defined by the China Securities Regulatory Commission (CSRC)’s industry standards as new assets generated by the national emissions trading scheme. Various types of carbon emission quotas issued by the government and carbon reduction projects eligible for carbon credits fall under the category of carbon assets based on this definition.

A senior industry figure told 36Kr that companies that are major carbon emitters and those involved in the development or purchase of carbon assets often deal with substantial amounts of capital. Therefore, standardizing, systematizing, and refining the management of carbon assets becomes necessary.

Taking CATL as an example, according to its environmental, social, and governance (ESG) report, its Scope 1 and Scope 2 carbon emissions reached as high as 3.24 million tons in 2022. To comply with requirements outlined by the Science Based Targets initiative (SBTi), it will need to reduce its carbon emissions by at least 90% in the future, with the remaining 10% offset through the purchase of carbon credits to achieve operational carbon neutrality. The annual amount involved in purchasing carbon credits for this purpose is likely a considerable figure, given the size of CATL.

Photo of Jiang Li, board secretary at CATL, speaking during the company’s carbon neutral strategy launch event, which was held during Auto Shanghai 2023. CATL is aiming to achieve carbon neutrality in its core operations by 2025 and across the value chain by 2035. Photo source: CATL.

36Kr notes that, with the advancement of the “dual carbon” goals and the restart of the China Certified Emission Reduction (CCER) market, which is the country’s voluntary carbon market, state-owned enterprises represented by the State Power Investment Corporation (SPIC) and Zhejiang Energy, as well as high carbon-emitting enterprises represented by Hesteel Group, have also established carbon asset management companies of their own.

Industry experts have pointed out that the trend of moving toward carbon asset management has major connotations and is beyond a matter of purely buying and selling. Rather, it involves actively reducing emissions to lower compliance costs, fully utilizing financial tools, and optimizing resource allocation based on the current status of carbon assets.

Currently, mainstream carbon asset management companies in the market are primarily third-party institutions. Organizations like the SPIC and Zhejiang Energy, which have established their own carbon asset management companies, mainly serve their own groups.

Regarding CATL, the establishment of a carbon asset management company is likely aimed at serving its own needs primarily. Although CATL does not belong to the eight major energy-consuming industries, it faces pressure to reduce emissions due to the new battery regulation ratified by the European Union.

CATL announced in April 2023 its plans to achieve carbon neutrality in its core operations by 2025 and across the value chain by 2035. This implies that it will face significant challenges in carbon reduction tasks over the next two years.

It is reported that CGE has 54 subsidiaries, many of which are involved in offshore wind power development to serve as a stable supply of green power, which is one of the important ways for CATL to reduce carbon emissions.

Limited by the current state of decarbonization technology, for the remaining carbon emissions that cannot be eliminated, CATL has to offset them by purchasing carbon credits. Establishing a dedicated carbon asset management company would not only revitalize its carbon assets but help realize the preservation and appreciation of carbon asset value.

Furthermore, several senior industry figures interviewed by 36Kr believe that the establishment of a carbon asset management company by CATL is likely an attempt at targeting the business of carbon asset management. “[The new entity] is likely going to be an independent business segment, and CATL should have no shortage of demand for carbon asset management solutions from both upstream and downstream customers,” one of the experts said.

In other words, the new entity will not only serve CATL itself but is also likely to serve third-party clients.

This year, China’s carbon market has been experiencing an acceleration in its expansion and upgrade. With the official restart of CCER in January after nearly seven years, the overall scale of the carbon market is expanding, and activity within the carbon trading market continues to increase. This has provided fertile ground for development opportunities to surface under the carbon asset management track.

Accordingly, more players are entering the space. Data from Aiqicha indicates that there are more than 4,800 existing carbon asset management-related companies in China. Over 1,100 of them were newly established in 2023.

Some players have already struck gold by delving into the carbon asset management business. One example is a carbon asset management company that was established by the State Grid Corporation of China (SGCC) in 2013. Based on its recent financial report, in 2022, it achieved RMB 48.4 million (USD 6.8 million) in operating income, equivalent to an 87.78% year-on-year increase. Its net profit for the same period was RMB 8.3434 million (USD 1.17 million), 283.29% higher than the previous year.

The experts quoted above have also stated that carbon asset management companies are effectively data-driven, with financial and internet technology companies holding an advantage by transferring their expertise in data technology.

As for CATL, while it does not belong to the eight major energy-consuming industries, it is one of the earliest to engage in carbon trading while possessing certain pre-existing advantages. Coupled with its possession of significant resources, it is a force not to be reckoned with in the carbon asset management market.

This article was written by Wang Fangyu in chinese was originally published by 36Kr.

KrASIA Connection
KrASIA Connection
KrASIA Connection features translated and adapted high-quality insights published on 36Kr.com, the largest and most influential technology portal in Chinese language with over 150 million readers across the globe.
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