China is adding record amounts of wind and solar power to its grid, but once electricity flows into the system, it’s impossible to tell where it came from. Whether it’s from a coal plant or a solar farm, every unit of electricity looks the same. This makes it difficult for businesses and consumers to prove they are using clean energy.

To solve this, China introduced Green Energy Certificates (GECs) which track and verify renewable electricity generation. Each GEC represents one megawatt-hour (MWh) of clean power. Generators can sell GECs to consumers who want to prove the electricity they have bought is renewably generated.

First trialled in 2017, GECs took off in 2024 thanks to strong policy support, improved issuance and trading rules, and a new system responsible for their issuance, registration and lifecycle management. By the end of 2024, a total of 4.955 billion GECs had been issued, more than doubling the 2.319 billion reported in September that year, according to the National Energy Administration.

A 2023 government policy document made the significance of GECs clear: “GECs are China’s only way to show electricity produced or consumed has come from a renewable source.”

But how do these certificates actually work? Who buys them, and why? And what challenges does the GEC market face?

Dialogue Earth put these questions to Zheng Ying, a special researcher at the China Carbon Neutrality Forum, where she focuses on energy and carbon policy research. Zheng Ying is a prominent voice in China’s clean energy space, who founded CEEE (Carbon Emission, Energy, and Electricity), a WeChat channel that analyses green energy development and the low-carbon transition.

Dialogue Earth: What’s the difference between trading green electricity and trading GECs?

Zheng Ying: With green electricity trading, a supplier and a consumer sign a contract for a certain amount of power over a certain period of time.

(Image courtesy of Zheng Ying)

The consumer may also want proof, in the form of GECs, that the power they have bought has been renewably generated. The power and the certificate are handed over to the consumer at the same time. There’s a bundling – the consumer signs a contract for both the electricity and the certificate.

Those deals are limited to one physical grid. Trading can only take place if the power can physically be delivered to the consumer. China has the State Grid, which covers 27 province-level divisions, the China Southern Power Grid, which covers five province-level divisions, and the (west) Inner Mongolia Power Group, which is an independent division. In reality, trades normally happen within one province, due to local interests and the costs of long-distance transmission. However, market demand for inter-provincial trading is growing. Recently, the first cross-grid green electricity trade between State Grid and China Southern Power Grid was completed, with BASF, Covestro and Tencent participating.

But certificates can also be unbundled from the actual power and traded separately. In this respect, the GEC market is like overseas approaches such as the EU’s Guarantees of Origin system. Consumers purchase a certificate for the environmental attributes of the electricity it represents – such as where and when the power was generated and that zero emissions were involved – but no actual electricity is delivered. That unbundling means GECs can be traded on all provincial and cross-provincial markets, free of the trading rules that apply to electricity markets.

How can a company buy GECs?

It’s not a complicated process but it varies a bit depending on the quantities and the method used. Currently, China has three GEC trading platforms: a national one, and regional platforms in Beijing and Guangzhou.

For small purchases, companies can simply browse the platforms online and buy GECs advertised for sale, much like online shopping. The site will show you information about the certificates, such as where the power comes from, how many GECs are available, the cost. The buyer chooses what they need.

Bigger purchases are usually negotiated directly, offline, which can lead to cheaper prices. A company contacts an electricity supplier or generator and discusses terms, and once agreement is reached, the formal deal needs to be registered on the official marketplace. Some companies opt to sign longer contracts to ensure their supply of GECs and reduce future transaction costs.

How do China’s GECs compare to the International Renewable Energy Certificate (I-REC), and why did I-REC announce in September 2024 it was pulling out of the Chinese market?

There aren’t any substantial differences between the GEC and the I-REC. Both aim to certify the attributes of renewable energy – where, when and how much was generated. But in practice there are some variations, due to market backgrounds and system design.

The I-REC is managed by a Dutch non-profit and is mainly used in countries and regions that don’t have their own certificate systems. Some developing nations without the capability to set up their own certificate use I-REC to help create a market. China’s GECs, meanwhile, are government-led, managed throughout their lifecycle by the National Energy Administration, designed to help meet energy transition and green development goals, and meet the needs of China’s market.

Worth noting is that energy attribute certificates such as these are often talked about alongside carbon trading, as if they are equivalent to China’s voluntary carbon market – known as the Certified Emission Reduction scheme – or the UN’s Clean Development Mechanism.

Or they are talked about as if they can be traded like carbon credits such as the Verified Carbon Standard.

That’s a bit inaccurate. Trading energy attribute certificates (EAC) is very different to trading carbon. EACs such as GECs are based on a national or regional electricity system or market, and so are designed differently in different locations. China, the EU, the US, Japan – all have electricity markets which work in different ways. Also, EACs are created for interconnected electricity grids and in effect can only be traded within a market with a single regulator and grid. That’s very different from carbon credits, which were created for global use.

With China’s GEC system maturing, I-REC’s withdrawal from the market was the natural choice and avoided the risk of double-counting. It won’t be possible for the same megawatt-hour of electricity to receive both a GEC and an I-REC.

What does that mean for international recognition of China’s GEC? For example, RE100, a global corporate renewable energy initiative, has said a GEC alone won’t prove a company has used green electricity. Proof there has been no double-counting will be needed. How can double-counting be avoided?

Avoiding double-counting is a key premise for designing certificate systems, particularly when thinking globally. Different countries have different understandings and approaches to environmental attributes and market rules.

“Exclusivity” is vital for an EAC system as the “cleanness” of a unit of electricity can only be represented by a single certificate. If multiple systems exist at once (such as China’s GEC and the I-REC), two certificates might be issued, leading to double-counting of the environmental benefit. To avoid that, I-REC pulled out of the Chinese market once China had its own system up and running. That benefited both parties. If I-RECs continued to be issued in China, there would be a risk of double-counting.

RE100 has its reservations about China’s GECs because it claims that a single certificate could be used to claim credit for multiple environmental attributes across different mechanisms. In particular, it is worried that a certificate could be used to represent avoided emissions on the China Certified Emission Reductions (CCER) scheme.

As I said above, EACs and carbon schemes are often confused but completely different. According to Greenhouse Gas Protocol guidance (a global standard for measuring and managing greenhouse gas emissions), EACs are used in calculating scope 2 emissions (those associated with the purchase of electricity) and represent the “zero emissions” attribute of renewable energy. When carrying out carbon accounting, companies can use EACs to prove – and only to prove – they have used carbon-free electricity and so reduced scope 2 emissions.

A solar and wind power project in east China’s Jiangsu province (Image: Imago / Xinhua / Alamy)

CCER credits, meanwhile, represent emissions avoided through replacing fossil fuel energy. The logic is that if a renewable generation project hadn’t been built, coal or gas would have been used to generate that power. As it has been built, emissions have been reduced.

So the GHG Protocol’s scope 2 guidance treats EACs and carbon offsetting as different instruments, each with its own use. They can exist alongside each other and there is no sense in which any specific environmental benefit is divided up or double-counted.

Nevertheless, we understand that the RE100’s requirements are very strict and it will not allow any potential for double-counting or splitting. The GHG Protocol also points out that in some countries, the two cannot exist at the same time. So, in their notice on linking the GEC and CCER systems, the National Energy Administration and Ministry of Ecology and Environment made clear that offshore wind power and solar thermal power must choose either the GEC or CCER scheme. Photovoltaic solar power and other wind power projects will, for now, not be newly added to the CCER system. That removes the risk of projects benefiting from both systems.

Next, businesses and the authorities need to work together to keep the international community up to date on the latest changes to China’s GEC system, raising understanding and acceptance, and persuading that community to give the mechanism fair status. For example, China’s National Energy Administration and the Danish Energy Agency recently published a report on China’s GECs and the EU’s Guarantee of Origins in the context of the EU’s carbon levy, namely the Carbon Border Adjustment Mechanism. This examined the similarities and differences of the two schemes and future developments and applications. I’m sure that will help everyone understand the design of the GEC system and so remove some misunderstandings.

How do GECs link with national subsidy policies?

One of the aims of GECs is to reduce the burden of subsidies the state pays to renewable energy generators. The state pays those to help the renewable energy sector develop, but it has become expensive. Market trading of GECs will provide those generators with extra income, reducing reliance on subsidies.

Currently, there are two varieties of GEC, for subsidised and non-subsidised electricity. The subsidised version is more expensive, to reflect the state subsidies paid. As a result, the non-subsidised GECs are more popular.

That gives the generators more flexibility and helps lay a foundation for a bigger market role in the renewable electricity sector.

How will GEC trading develop?

With renewable electricity coming to play a leading role in the energy system, the nature of power supply has changed. Globally, everyone is working towards more granularity in electricity trading, particularly in terms of hourly trading and the production and consumption of certified electricity. China’s green electricity trading has performed very well during this process. In fact, it is already entirely on a monthly basis. During a green electricity contract, GECs are transferred monthly, using the smallest of three figures – the contracted amount, the amount the generator supplied to the grid, or the amount the consumer used. In effect, this is monthly settlement of both the green electricity and the associated attributes. It is a world-leading approach.

However, GEC trading is a new mechanism and despite early expansion there is still much room for improvement.

First, better cancellation of GECs to ensure no double counting takes place. The government and the market need to improve this process and ensure certificates are cancelled promptly after use.

Second, we need clearer definitions of GECs in legislation and policy. And in particular, we need standards clarifying how businesses should use GECs in reporting and in calculation of carbon emissions. That improved legal framework is needed for further expansion of GECs. Last, as renewable energy technology improves and market needs change, adjustments to the GEC system will be necessary. For example, more widespread use of distributed generation and energy storage will require new ways of issuing and trading GECs, to suit new players on the market.