Carbon Pricing

National Emissions Trading System

The “Notice on Carrying out the Pilot Carbon Emission Trading” issued in 2011 marked the beginning of China’s carbon emissions trading. Since then, Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong, Shenzhen and Fujian were selected to launch a pilot carbon emission trading market.

On 5 Jan 2021, “Measures for the Administration of Carbon Emissions Trading (for Trial)” was published which indicates China is speeding up the construction of a national emissions trading system. China continues toward the implementation of its national ETS. Meanwhile, the Chinese ETS pilots should gradually be incorporated into the national ETS in the future.

Currently, the eight pilot carbon emissions trading markets mainly covers energy-intensive industries such as power generation, building materials, and steel, and the industries covered by each pilot market are different. Wind power, solar photovoltaics, forestry carbon sinks and other projects that are not included in the carbon emissions trading market can participate in the voluntary emission reduction mechanism, obtain a Chinese Certified Emission Reduction (CCER) issued by the National Development and Reform Commission of the People’s Republic of China, and then participate in carbon trading indirectly through the sale of CCERs.

On 16 July, 2021, the National ETS formally started to trade, with an opening price of 48 yuan ($7.4) per tonne of CO2, and 4.1 million tonnes of carbon dioxide quotas worth 210 million yuan (USD 32 million) changing hands. It is the world’s largest ETS, responsible for more than 4 billion tonnes of carbon dioxide emissions, included in the first phase of trading, overtaking the European Union’s ETS and covering 12% of global carbon dioxide emissions.

The national ETS only cover the power sector initially, 2225 power generation companies are included into the carbon trading system, monitoring, reporting and verification (MRV) obligations are being rolled out to other sectors to facilitate their gradual inclusion in the carbon market. The trading products of the national ETS are carbon emission allowances, and the Ministry of Ecology and Environment can add other trading products in due course in accordance with relevant national regulations. Shanghai is in charge of the construction of trading system, and Hubei is in charge of the construction of registration and liquidation system. The companies which be included in the national ETS will not be permit to participate in the regional ETS. After the national ETS going online, there will be different carbon trading prices at the national and regional ETS in the future. Liu Jie, general manager of the Shanghai Environment and Energy Exchange, said that the national ETS and the regional ETS are independent trading markets, and there is no linkage mechanism between prices, but the price of the national market will affect the price of the regional market.

The “China Carbon Price Survey Report 2020” jointly published by the China Carbon Forum and other institutions at the end of last year predicts that the carbon price at the beginning of the establishment of the national ETS is about RMB 49 /ton, almost the same with the opening price of the first day trade of National ETS, and it is expected to reach 93 yuan/ton by 2030. In the middle of the century, it will exceed 167 yuan/ton. In addition, the report takes into account China’s commitment to carbon neutrality after the investigation, and believes that the latest price expectations are likely to be higher than the results of the investigation.

Currently, there is no CCER trading product in the National ETS, and CCER is still only traded in major pilot regional ETS. But the “Measures for the Administration of Carbon Emissions Trading (for Trial)” published this January stated that the CCER can be used to offset up to 5% of the verified carbon emissions in the National ETS. Since March 2017, Chinese government suspended the issuance of new CCER, the issued ones can still be traded, but the supply market is actually frozen. As the National ETS has been officially launched, we can expect CCER trading products may also appear in the National ETS, and the issuance of CCER will also resume in the foreseeable future.

This year, China also launched green power trading pilot in September in Beijing and Guangzhou. Beijing Power Exchange Centre and the Guangzhou Power Exchange Centre will be responsible for drafting trading rules, improving the technical functions of trading platform and organising trading relevant work. The pilot is targeting to enable renewable energy generators and corporate users to trade directly on green power, starting with wind and solar power and will be extended to hydropower and other renewables in near future. Green power that has not received government subsidies will be prioritised in trading. If the pilot does not have enough unsubsidised green power, subsidised green power or renewable power purchased by the government can also be traded. The first green power trade was launched on 7 September, with participation of 259 power generators and trade 7.93 billion kilowatt-hour (kWh) electricity (6.89 in Beijing, 1.04 in Guangzhou), which is estimated to reduce carbon dioxide emissions by 6.07 million tonnes.