China Announces Carbon Emission Trading Scheme

• China will officially allow carbon emissions trading in the country from February 1, 2021
• It will begin from the power sector under the trial launch, and expanded to other industries as the program moves forward
• Provincial administrative units will be allowed ensuring free allocation of the quotes, but the Environment Ministry is open to introducing paid allocation

With effect from February 1, 2021 China will officially allow carbon emissions trading on a trial basis. The Chinese Ministry of Ecology and Environment on January 5, 2021 approved Administrative Measures for the Administration of Carbon Emissions Trading (Trial). The scheme, as the ministry states, factors in all relevant factors to formulate a total carbon emission quota determination and allocation plan.

The power generation industry is the pilot sector for this scheme. It will gradually be expanded to cover more industries, according to the ministry.

The move comes soon after the country pledged to go carbon neutral before 2060 with an aim to achieve green recovery in a post COVID-19 era (see China Declares Carbon Neutrality Goal By 2060).

A report by AFP explains that this basically is aimed to encourage bigger polluters in China to buy 'the right to pollute' from those who have a lower carbon footprint with a view to lowering overall emissions by making it expensive to buy such rights.

The measures announced are meant to be used by administrative units across all its provinces to fix acceptable annual carbon emissions quotas to polluting units within their administrative regions. Though it is mainly free allocation, the ministry clarified that 'paid allocation can be introduced in a timely manner according to relevant national requirements'.

First things first. Only those GHG emitting units that emit at least 26,000 tons of CO2 annually will be allowed to trade carbon emissions. If their annual GHG emissions have not reached 26,000 tons for 2 consecutive years the provincial level ecological and environmental authority will have the authority to remove such companies from the list of key emitting units.

The National Carbon Emissions Rights Registration Agency will record the holding, modification, payment and cancellation of carbon emissions allowances and also provide settlement services. Its decision will be final to judge the ownership of carbon emission allowances.

The National Carbon Emissions Rights Trading Agency will be responsible for organizing and carrying out centralized and unified trading of national carbon emissions rights. Both these agencies will report to the Federal Ministry of Ecology and Environment which in turn is responsible for formulating national carbon emission rights trading and related activities, strengthening the supervision of the scheme, GHG emissions reporting and verification among other tasks.

Details of the measures can be accessed on the ministry's website in Chinese language.

According to China Daily, the ministry had issued an action plan on the 2019-2020 allocation of carbon emission allowance allocation on December 30, 2020 considering the power generation industry as the pilot industry to launch this scheme. Coal-fired plants are key entities being targeted to control carbon emissions to begin with.

Previously, the European Union (EU) set up the 'world's first' international emissions trading system in 2005 under which it limits emissions from more than 11,000 power stations, industrial plants and airlines among heavy energy-using installations. It works on a cap and trade principle, setting caps on total amount of GHG emissions allowed for installations covered by the system which will reduce over time. Within this cap, companies are allowed to receive or buy emission allowances to be traded. After a reform of the system, prices have reached levels that have stared to cause the intended results – driving out coal and other heavy emitters out of the system. On Jan. 4, the price to emit a ton of CO2 under the EU ETS system reached a record price level of over 34 Euros.

In December 2020, Chinese President Xi Jinping commited to achieving over 1,200 GW installed solar and wind power capacity for China by 2030 (see China Aims For Over 1,200 GW Wind & Solar Power By 2030).