Climate Cooperation China
On behalf of the International Climate Initiative (IKI)

Status of China’s national ETS and regional Emission Trading Pilots

After years of preparation and piloting, trading in the national Emission Trading System (ETS) was launched in July 2021. The ETS is one of the core pillars of the Chinese strategy to peak carbon emissions by 2030 and reach carbon neutrality by 2060. The system initially covers 2,200 companies from the power sector emitting over 26,000 tons of CO2 annually. On the first trading day, the trading volume of CEA (Chinese Emission Allowance) was 4.104 million tons. By 10 December, the price had stabilized at around CNY 43 per ton while the total turnover of emission quotas has reached 7.52 million tons of CO2 at a value of CNY 308.6 million.

Source: ICAP Allowance Price Explorer

In October, the MEE published the “Notice for the First Compliance of the National ETS”. The notice requires 2,162 power firms to hold carbon allowances equalling at least their emissions in 2019 and 2020. Provincial Departments of Ecology and Environment (DEE) need to submit a list of non-compliant companies by 15 January 2022. Up until the end of December, 99.1% compliance have been reported. Also, the “Guidelines on Greenhouse Gas Emissions Accounting and Reporting for Power Generation Facilities (revised version of 2021)” were released by the MEE in December. The core aim of the guidelines is to improve data quality. It requires the reporting authorities to develop a systematic approach to emission reporting and verification, as well as to update the technical guideline in more detail. Furthermore, companies are asked to develop an internal process for GHG emission data reporting.

The roadmap to develop the national ETS further within the 14th FYP period includes the extension of scope to other industry sectors and improving market liquidity improvements, e.g., by the inclusion of financial institutions in the market and the increase in other trading products (such as carbon futures). The goal for 2025 is to cover those eight industries mainly responsible for China’s CO2 emissions, starting with the electrolytic aluminium and cement industries in 2023.

The eight regional ETS pilots which preceded the national system are intended to run in parallel for a transition period and additionally cover sectors which are not yet included in the national ETS. The long-term strategy foresees an integration of regional systems into the national ETS. Just recently, on 22 November 2021, the Department of Ecology and Environment (DEE) of Fujian Province announced that all companies had fully met their 2020 commitments under the Fujian Province Pilot ETS. The 284 companies obliged to participate had surrendered a total of about 126 million emission allowances. As energy companies have been covered by the national ETS since 2020, the emissions covered by the pilot ETS decreased by about 44 % compared to 2019.

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