China establishes national carbon emissions trading guideline

China establishes national carbon emissions trading guideline


At a time when the market is in high anticipation of China’s new action plan to meet the carbon emission target set by President Xi Jinping, the Ministry of Ecology and Environment (MEE) has announced two major policies that will take effect by New Year’s Eve, marking a new start of China’s carbon emission control action.

  1. Management guideline of the transaction of Carbon Emission Right (released by MEE on Dec. 31, 2020 and effective from Feb. 1, 2021)

    • The power generation industry is the first industry covered in the scope of the national carbon emissions right trading market (hereafter referred to as national carbon market).
    • Key emitters that have been included in the national carbon market will no longer participate in the pilot markets of regional carbon trading.
    • Quota of carbon emissions right is allocated free of charge. Paid allocation could be invoked when appropriate according to the national requirement.
    • Key emitters can solve the problem of excess carbon emission by purchasing carbon emission quotas in the national carbon market.
    • Carbon emissions trading shall be conducted through the national carbon emissions trading system.
    • Key emitters may also offset excess carbon emission annually using China Carbon Emission Reduction (CCER), which shall not exceed 5% of the carbon emission quota.
  2. Implementation Plan for the Setting and Distribution of the National Carbon Emissions Trading Quotas 2019-2020 and the list of key emitters included in the quota management (released by MEE on Dec. 29, 2020)

    The list of key emitters, which has been confirmed by the provincial ecological environment authorities, is comprised of 2,225 heavy carbon emitters in the power generation sector, which accounted for 46% of China’s total carbon emissions in 2019 and has become the primary industry taking part in the carbon trading market.

    (Source: MEE)

    The first compliance cycle of the national carbon market was officially launched on January 1, 2021, marking a new stage in the construction of the national carbon trading market. For the next step, the MEE will focus on building the system for quota registration and trading, and then gradually expand the scope to cover more market industries and enrich the variety of transaction products and trading methods. The ultimate goal is to enable the carbon market to play an effective role in controlling greenhouse gas emissions and guiding climate investment and financing.

    The MEE policy specifies the criteria for the key emitters to be included in the management of national carbon market, and makes it clear that these key emitters don’t participate in the regional pilot carbon markets, which indicates that the national government will centralize the carbon emission control for the key emitters of certain levels (e.g. the list of 2,225 key emitters). In light of big gaps among the different carbon quota prices in the 7 regional Pilot Carbon Emission Trading Market (average price of 2019 varying from ~15CNY/ton in Fujian, Shenzhen and Tianjin  to ~80 CNY/ton in Beijing), a centralized national carbon market would be a more effective platform to strictly control the key emitters. At the same time, it is important to note that the top five provinces where the first batch of key emitters is located have not yet set up regional carbon trading markets. Setting up a national carbon market is thus absolutely imperative for the central government to place strict control over carbon emissions.

    According to the Management Guideline, Clause 37 stipulates that “If the relevant governmental staff of the administration of ecology and environment neglect their duties or commit fraud in the supervision and management of carbon emissions trading and related activities throughout the country, they shall be ordered to make corrections by their higher administrative or supervisory organization and shall be punished according to law.” Regarding the punitive measures on emitters, Clause 39 specifies that “If a key emitter falsely reports or conceals a report on greenhouse gas emissions, or refuses to fulfill its obligation to report greenhouse gas emissions, the local ecological environment department shall order it to make corrections within a time limit and the emitter shall be fined between 10,000 yuan and 30,000 yuan.” It appears that the local environmental department would bear most of the responsibility for emission target achievement and supervision.