Environmental Defense Fund
This is a translation of the original Chinese version that was published on July 18, 2021.
A carbon market or emissions trading systems (ETS) is one of the main types of carbon
pricing. A carbon market is designed to cap the total level of greenhouse gas emissions and
allow those industries with low emissions to sell their extra allowances to larger emitters. By
creating supply and demand for emissions allowances, a carbon market can effectively
advance market price discovery for greenhouse gas emissions. The cap helps ensure that the
required emission reductions will take place to keep the emitters (in aggregate) within their
pre-allocated emission allowances.
China's national carbon market started online trading on July 16, 2021, a significant step to
help the country peak before 2030 and achieve carbon neutrality before 2060. Carbon
emissions from more than 2,000 power companies covered in the first batch of trading are
estimated to exceed four billion tonnes per year, making the market the world's largest in
terms of the amount of greenhouse gas emissions covered.
Key Elements
Climate Goal
China aims to have CO
2
emissions peak before 2030 and achieve
carbon neutrality before 2060.
Compliance Period
2019-2020 is the first compliance period that requires all covered
entities to fulfill their compliance by the end of 2021
Covered GHGs
Carbon Dioxide (CO
2
)
Covered Industries
for data reporting
Power Generation, Petrochemical and Chemical, Building
Materials, Iron and Steels, Nonferrous Metals, Papermaking, and
Aviation
Covered Industries
for Emissions
Trading and
Compliance
Power Generation Industry
Covered Key
Emitting Entities
2,162 key emission power generation entities
Thresholds
The key emitting entities emitted 26,000 tonnes of carbon
dioxide equivalent and above in any year from 2013 to 2020
Carbon Price
(Listed
Transaction)
From July 16
th
to August 11
th
, the lowest price was $7.4 US (￥48
Chinese Yuan), and the highest price was $9.42 (￥61.07).
Allowances
Allocation
Free Allocation based on the Allowance Allocation
Implementation Plan
China National Carbon
Market
Fact Sheet
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Price Control
The price of listed transaction shall be between ± 10% of the
closing price of the previous trading day.
The price block trade shall be between ± 30% of the closing price
of the previous trading day.
Offset Mechanism
According to Measures for the Administration of National Carbon
Emissions Trading (Trial), key emitting entities may use China
Certified Emission Reductions (CCERs) to offset up to 5% of their
annual carbon emission allowances that should be surrendered.
Penalties
The national level Regulations on the Administration of Carbon
Emission Trading is still under review.
According to Measures for the Administration of National Carbon
Emissions Trading (Trial), key emitting entities make false
reports will be subject to a fine of more than ￥ 10,000 but less
than ￥ 30,000. The key emitting entities that fail to surrender
carbon emission allowances will be subject to a fine of more than
20,000 yuan but less than 30,000 yuan and will be allocated the
emission allowances for the next year that deducted the amount
equivalent to allowances not surrendered.
MRV
Key emitting entities shall prepare annual GHG emissions
reports specifying the quantity of their GHG emissions as well as
report this information to the provincial ecological and
environmental authorities for their place of business before
March 31 of the following year. Key emitting entities shall be
responsible for the authenticity, completeness and accuracy of
their GHG emission reports.
Provincial ecology and environment authorities shall organize the
verification of GHG emission reports of key emitting entities and
shall notify key emitting entities of the verification results as a
basis for their surrender of carbon emission allowances.
Provincial ecology and environment authorities may entrust
technical service agencies to provide verification services through
government procurement. Such technical service agencies shall
be responsible for the authenticity, completeness and accuracy of
submitted verification results.
Timeline
2009-2017: pilots
Acting in accordance with international requirements for green development, China passed
the Resolution on Climate Change at the 10th Meeting of the Standing Committee of the 11th
National People's Congress on August 27, 2009. The resolution proposed to adopt favourable
policies and measures to take active steps on climate change, while strengthening energy
conservation and conventional pollutants emissions reduction efforts, and striving to control
greenhouse gas (GHG) emissions. The "Decision of the State Council on Accelerating the
Cultivation and Development of Strategic Emerging Industries" issued by the State Council
on October 10, 2010 (No. 32 [2010]) explicitly proposed to "speed up the establishment and
the development of a trading system for major pollutants and carbon emissions," from which
the nation emissions trading scheme (ETS) came to fruition.
In 2011, to encourage enterprises to undertake GHG emission control targets, China started
to develop pilot carbon markets. The State Council and the National Development and
Reform Commission subsequently issued documents approving the pilot work of carbon
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emission trading in seven provinces (cities) including Beijing, Shanghai, Tianjin, Hubei,
Chongqing, Guangdong and Shenzhen, in preparation for the later "establishment of a
unified national carbon market."
The first pilot carbon market was launched in Shenzhen in 2013, and all seven pilots were
launched before the end of 2014. In addition, a voluntary regional carbon market in Fujian
went into operation in 2016. These provincial and city level carbon markets are still in
operation and provide experiential knowledge for the establishment of the national carbon
market in China. These markets will still operate once the National Market is open for
business.
In April 2016, China signed the Paris Agreement, which agreed that China would slash its
carbon dioxide emissions per unit of GDP by 60-65% in 2030 compared with 2005 levels. A
carbon market was identified as one of the key means to achieve this new NDC emission
reduction goal.
2017-2020: Building a National ETS
In 2015, the People’s Republic of China decided to build a national carbon market to limit
and reduce CO2 emissions in a cost-effective manner. In 2017, a teleconference for launched
the construction phase of the national carbon market. Originally set to start during the 13th
Five Year Plan
1
(2016-2020), the national carbon market would initially cover coal- and gas-
fired power plants.
2020-2021: Looking Forward to the Launch of a National ETS
Climate action faced significant challenges in 2020, as COVID-19 unleashed major impacts
on social and economic conditions in China. Yet, 2020 was a vital year to set targets and
priorities for the 14th Five-Year Plan (2021-25). Despite the challenges of COVID-19, China
not only honoured its climate commitments, but also announced a goal of peaking CO
2
emissions before 2030 and achieving carbon neutrality before 2060 in September. Together,
these commitments provide strong political assurances for the establishment of national
carbon market.
Since November 2020, the Ministry of Ecology and Environment (MEE) has issued five
documents: “The National Measures for the Administration of Carbon Emission Trading
(Trial),” “National Carbon Emissions Registration Transaction Settlement Management
Measures (Trial),” “2019-2020 National Carbon Emission Trading Cap Setting and
Allowance Allocation Implementation Plan (Power Generation Industry) (Draft for
Comments),” “Guidelines for Enterprise Greenhouse Gas Emission Accounting and
Reporting (Power Generation Industry) (Draft for Comment),” and “Guidelines for
Enterprise Greenhouse Gas Verification (Trial)," for public consultation. These documents
signal a sense of urgency on climate action that has not been seen since 2017.
On December 25,
2020, “The National Measures for the Administration of Carbon Emission
Trading (Trial),” was passed by the Ministry of Ecology and Environment, and this policy has
been officially enforced since February 1, 2021. On December 30, 2020, MEE also released
“2019-2020 National Carbon Emission Trading Cap Setting and Allowance Allocation
Implementation Plan (Power Generation Industry)” and “Name List of 2019-2020 Major
Emitting Entities in Power Generation Sector,” which require the listed 2,225 power
generation companies to be covered under the national carbon market, and their 2019-2020
allowance pre-allocation information to be submitted to the MEE by January 29, 2021. The
release of the above-mentioned documents marked the official launch of the first compliance
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cycle of China’s National Carbon Market, and the corresponding official documents were
promulgated one after another thereafter
1
.
Under direct leadership of the MEE, significant progress and improvements have been made
to build the carbon market’s infrastructure, develop a sector test run plan, improve the
quality of carbon emission data at covered entity levels, and upgrade the greenhouse gas
(GHG) data reporting system. On March 30, 2021, the MEE released the “Interim
Regulations on the Administration of Carbon Emission Trading (Revised Draft)” for public
consultation, which has been included in the “2021 Legislative Work Plan of the State
Council of PRC”.
China's national carbon market is the largest in the world, covering the largest scale of
greenhouse gas emissions in the world. It initially involved only a portion of the power
generation sector that covers emissions of over 4,000 MtCO
2
e/year, with an inclusion
threshold set for entities with annual emissions of 26,000 tonnes of carbon dioxide
equivalent and above from 2013-2020. The scope is expected to be gradually expanded to
cover a total of eight sectors: power generation, petrochemical and chemical, building
materials, iron and steels, nonferrous metals, papermaking, and aviation.
Currently, China uses the benchmark allocation method for its national carbon market and
limits the permitted emissions of carbon dioxide
per unit of output. The national carbon
market will allocate allowances based on a plant’s generation output and its designated
benchmark. The benchmarks are differentiated by types of fuel and generation technologies.
If an entity emits less than allocated allowances, it can sell the surplus to another entity.
Benchmark allocation will create incentives to increase the efficiency of existing coal-fired
power plants.
Impact
Carbon markets will play a crucial role in lowering the cost of reducing GHGs during this
process. Administrative means and market-based measures will be mutually supportive ways
for China to reduce climate pollution significantly in the medium to long term in order to
meet the targets of peaking GHG emissions before 2030 and carbon neutrality before 2060.
Covered Entities and Emissions
On July 16, 2021, China’s Ministry of Ecology and Environment announced that 2,162 power
generation companies, representing 4.5 billion tonnes of carbon dioxide emissions, are
covered by the national carbon market. The inclusion of captive power plants is a testament
to the fairness and comprehensiveness of the national carbon market management.
The number of covered entities has risen by about 500 since 2017, which extends the
coverage of the power generation entities. This update reflects not only the determination of
the national government to control the carbon emissions of the power sector through the
emissions trading scheme as a whole, but also demonstrates an open, fair and just attitude
towards the management of carbon trading.
Regulations and Rules of China National Carbon market
The table below indicates the critical elements of China ETS, and its corresponding policies.
These policy documents just finished a public consultation process and are expected to be
1
December 31, 2020, officially released " Measures for the Administration of National Carbon Emissions Trading (Trial)”; March 26, 2021,
officially released of " Guidelines on Enterprises Greenhouse Gas Emissions Accounting and Reporting – Power Generation Facilities
(Trial)"; May 17, 2021, officially released "Rules for the Registration and Management of Carbon Emission Rights (Trial)", "Rules for the
Management of Carbon Emission Rights Trading (Trial)" and "Rules for the Settlement and Management of Carbon Emission Rights (Trial)"
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released soon. For international carbon markets, the following critical elements are key
components to ensure the success and efficient operation of the market.
Regulation and Rules
Interim Regulations on the Administration of Carbon Emission Trading (Revised
Draft);
Measures for the Administration of National Carbon Emissions Trading (Trial)
Name List of 2019-2020 Major Emitting Entities in Power Generation Sector
“2019-2020 National Carbon Emission Trading Cap Setting and Allowance Allocation
Implementation Plan, (Power Generation Industry)”
Guidelines for Enterprise Greenhouse Gas Emission Accounting and Reporting, (Power
Generation Industry); Guidelines for Enterprise Greenhouse Gas Verification (Trial)
"Rules for the Registration and Management of Carbon Emission Rights (Trial)",
"Rules for the Management of Carbon Emission Rights Trading (Trial)" and "Rules for
the Settlement and Management of Carbon Emission Rights (Trial)"
Measures for the Administration of National Carbon Emission Trading (Trial) (Draft
for comment)
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Comparison of regulations and rules between China national carbon market and other carbon markets
China National carbon
market
EU 2005-2012
EU after 2013
California
RGGI
Legislation
Interim Regulations on the
Administration of Carbon
Emission Trading (Revised
Draft);
Measures for the
Administration of National
Carbon Emissions Trading
(Trial)
13/10/2003 - Directive
2003/87/EC of the European
Parliament and of the Council
establishing a scheme for
greenhouse gas emission
allowance trading within the
Community and amending
Council Directive 96/61/EC
13/10/2003 - Directive
2003/87/EC of the European
Parliament and of the Council
establishing a scheme for
greenhouse gas emission
allowance trading within the
Community and amending
Council Directive 96/61/EC
AB32
RGGI MOU
Covered
Entities
Name List of 2019-2020 Major
Emitting Entities in Power
Generation Sector
Decided by Each Member
State
Decided by Each Member State
CALIFORNIA CAP
ON GREENHOUSE
GAS EMISSIONS
AND
MARKET-BASED
COMPLIANCE
MECHANISMS
NA
Auction
NA
NA
COMMISSION DELEGATED
REGULATION (EU) 2019/1868
amending Regulation (EU) No
1031/2010 to align the
auctioning of allowances with
the EU ETS rules for the period
2021 to 2030 and with the
classification of allowances as
financial instruments pursuant
to Directive 2014/65/EU of the
European Parliament and of the
Council
REGIONAL
GREENHOUSE
GAS INITIATIVE
MODEL RULE
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Allowance
Allocation
“2019-2020 National Carbon
Emission Trading Cap Setting
and Allowance Allocation
Implementation Plan, (Power
Generation Industry)”
national allocation plans for
the allocation of greenhouse
gas emission allowances in
accordance with Directive
2003/87/EC
COMMISSION DELEGATED
REGULATION (EU) 2019/331
determining transitional Union-
wide rules for harmonized free
allocation of emission
allowances pursuant to Article
10a of Directive 2003/87/EC of
the European Parliament and of
the Council
NA
MRV
Guidelines for Enterprise
Greenhouse Gas Emission
Accounting and Reporting,
(Power Generation Industry);
Guidelines for Enterprise
Greenhouse Gas Verification
(Trial)
2004/156/EC: Commission
Decision of 29 January 2004
establishing guidelines for the
monitoring and reporting of
greenhouse gas emissions
pursuant to Directive
2003/87/EC of the European
Parliament and of the Council
Corrigendum to Commission
Regulation (EU) No 601/2012 of
21 June 2012 on the monitoring
and reporting of greenhouse gas
emissions pursuant to Directive
2003/87/EC of the European
Parliament and of the Council;
COMMISSION
IMPLEMENTING
REGULATION (EU) 2018/2067
on the verification of data and
on the accreditation of verifiers
pursuant to Directive
2003/87/EC of the European
Parliament and of the Council
REGIONAL
GREENHOUSE
GAS INITIATIVE
MODEL RULE
Trading and
Compliance
"Rules for the Registration and
Management of Carbon
Emission Rights (Trial)", "Rules
for the Management of Carbon
Emission Rights Trading
(Trial)" and "Rules for the
Settlement and Management of
Carbon Emission Rights
(Trial)"; Measures for the
Administration of National
Carbon Emission Trading
(Trial) (Draft for comment)
13/10/2003 - Directive
2003/87/EC of the European
Parliament and of the Council
establishing a scheme for
greenhouse gas emission
allowance trading within the
Community and amending
Council Directive 96/61/EC
13/10/2003 - Directive
2003/87/EC of the European
Parliament and of the Council
establishing a scheme for
greenhouse gas emission
allowance trading within the
Community and amending
Council Directive 96/61/EC
REGIONAL
GREENHOUSE
GAS INITIATIVE
MODEL RULE
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Environmental Defense Fund’s Work
EDF introduced the concept of using market-based mechanisms to solve environmental
problems into China in the 1990s. Cooperating with the State Environmental Protection
Administration of China, EDF launched China's first pilot project for sulphur dioxide
emissions trading.
Since 2011, EDF has assisted the competent government authorities in the design, training,
and testing of the pilot carbon markets and the national carbon market, which has provided
strong support for opening the fully operational national carbon market. For example, EDF
participated in a series of trainings organized by the Ministry of Ecology and Environment
for the allocation and management of national carbon market allowances from October to
December 2019. More than 7,000 people participated in the trainings, using CarbonSim, a
simulation trading software developed by EDF, to run through practical simulations for a
deeper understanding of the carbon market operation. EDF’s assistance enhanced the
communication, exchange and publicity of carbon market experience between Chinese and
foreign governments, and strengthened Chinese government's capacity to further improve
the carbon market design, build the industry’s capacity for participating in the carbon
market, and deepen the international community’s understanding of China’s carbon market.
EDF's rich experience on market-based mechanisms for environmental issues provided
solutions and support in the construction of China's carbon market, and helped China
achieve its ambitious climate goals of carbon peaking and carbon neutrality as early as
possible.