China

CN-22:Carbon Emissions Trading Pilots

Policy Description

In March 2011, China officially announced it would be developing carbon emissions trading pilots to support its 12th Five Year Plan carbon intensity target, signaling its increasing interest in the use of market mechanisms. Shenzhen will be the first of seven pilots to officially come online in June 2013.

Description

In March 2011, China officially announced it would be developing carbon emissions trading pilots to support its 12th Five Year Plan carbon intensity target, signaling its increasing interest in the use of market mechanisms.

Domestic carbon trading has been in development in China since 2008. With the government increasing its number of policies around climate change and clean energy, private exchanges began setting up in the fall of 2008 with hopes that China would develop market mechanisms to achieve its targets. The first exchanges to set up were the China Beijing Environment Exchange (CBEEX), the Tianjin Climate Exchange (TCX), and the Shanghai Environment and Energy Exchange (SEEE). Before 2011, these exchanges’ activity focused on the Clean Development Mechanism (CDM) and voluntary carbon credit markets.

Moving forward, Beijing, Tianjin, and Shanghai will be joined by four other regions (Chongqing, Hubei, Guangdong, and Shenzhen) in launching official, state-sanctioned carbon trading pilots. The 12th Five Year Plan released in March 2011 was the first indication of official Chinese government support for emission trading. (*1) The plan iterated that “a carbon trading market will be established gradually” and “the promotion and regulation of a comprehensive mechanism for energy savings markets will be emphasized.” [1]

In April 2011, Sun Cuihua, the Vice-Director of the Climate Change Department at the National Development and Reform Commission (NDRC), announced that – in support of the goal to gradually establish a carbon trading market – pilot carbon trading schemes in seven regions (Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong, and Shenzhen) would be set up with an eye toward a national market for the next five year plan (2016-2020). Sun Cuihua said emissions trading would be based on provincial-level energy consumption caps for the seven pilot regions in order to facilitate trading of absolute volumes of energy or carbon emissions saved. [2] More recently, the timeline for a national scheme has been delayed. A national scheme is not expected until 2020, according to one expert Wang Xueman, senior counsel on carbon finance at the World Bank. [10]

In January 2012, the NDRC issued an order to the seven pilot regions that each region should set a cap on carbon emissions in preparation for the launch of their pilot trading schemes. The notice also required that each region set up a fund to support the trading program and draw up comprehensive implementation plans. [3] According to reports, Guangdong's plan has already been written and approved by the NDRC. Their plan commits the province to cut carbon intensity by 19.5% off 2010 levels by 2015 and raise the level of non-fossil energy (as proportion of total energy consumption) to 20% by 2015. [4] The reported cap on CO2 emissions is 660 MtCO2, and given their emissions of 508 MtCO2 in 2007, this would - while being a cap - still allow some room for continued emissions growth. [5]

A new report by the Stockholm Environment Institute provides the most comprehensive and in-depth look at the development of these trading schemes. [6] The report finds that "setting emission caps – an essential departure point for any emission trading scheme – and allocating permits equitably could be challenging for China, given the wide differences in economic structure, growth rates, energy consumption and carbon intensities across Chinese provinces. There is also a lack of reliable carbon emission data, which makes it very hard to set a realistic target, given uncertainties about baselines."

According to another report by a UK NGO known as Sandbag, Beijing also released draft rules for its trading scheme in March 2012. [7] In regards to design of the trading scheme, the report found: "Although just a draft it gives vital insight into how the Beijing pilot scheme may operate. The draft design suggests that the pilot is considering three classes of tradable emissions certificates: those covering upstream direct emissions, downstream indirect emissions and "baseline and credit' project emissions to be used as offsets. In order to avoid double counting the upstream and downstream markets may be kept as separately traded markets but with offset credits from sectors outside of the two markets being available for use in both." The trading scheme is expected to cover any enterprises that emitted more than 10000 tons of CO2 per year between 2009 and 2011.

The mayor of Shenzhen recently reported that the Shenzhen scheme would be the first to become operational in June 2013; others are expected to follow later in 2013 and 2014, with a view to have an assessment of how they operated at the end of 2016. Covered sectors are expected to include power generators as well as other large industrial emitters of carbon dioxide, including cement, steel, and petroleum. Reportedly, since Shenzhen has a smaller amount of heavy industry, the sector coverage has been expanded so that at least 50% of carbon emissions will be covered under the scheme. 800 enterprises from 26 sectors will be included. [10]

In the end, the seven pilot trading systems may all end up with different design schemes. Jiang Kejun of the NDRC notes that different design schemes will allow the government to find the best possible design for China's national scheme. [8] Additional guidance and funding for the research and development of a national trading scheme is being provided through the World Bank's Partnership for Market Readiness. It is estimated that China will need to spend at least $100 million just to establish the national trading scheme. [11]

Greenhouse Gases Emissions Voluntary Trading 

The Department of Climate Change of the National Development and Reform Commission (NDRC) issued the Interim Regulation on Voluntary Trading Greenhouse Gas Emissions [9](《温室气体自愿减排交易管理暂行办法》) to local Development and Reform Commissions on June 13, 2012.

Currently, several voluntary emissions trading projects have been conducted in China and emission trading exchanges are set up in multiple cities, such as in Beijing, Shanghai, Tianjin, and Shenzhen. In the regulation, NDRC recognized that these explorative activities are meaningful for further understanding the procedures and standards, and accumulating more experience in carbon emission trading. This regulation aims at promoting voluntary participation of emission trading, providing technical and procedural foundations, and paving the way to a carbon emission trading market under emissions caps.

The regulation covers key topics related to emission trading, including discussions on methodologies to calculate and verify avoided emissions, steps for establishing an emissions reduction registry, and procedures for emission trading. A set of methodologies are mentioned, including methodologies for determining project baselines and additionality, calculating emissions and developing monitoring plans to be used in the GHG emissions voluntary trading scheme. However, the regulation does not give specifics on each of these methodologies, only pointing out that they should be registered at NDRC and evaluated by evaluating agencies.  To register avoided emissions and apply for emissions trading, the applicants need to submit a series of documents, as listed in the regulation.

Six types of greenhouse gas (GHG) emissions are covered by the regulation, including CO2, CH4, N2O, HFCs, PFCs, and SF6. Voluntary emission trading in China is open to both domestic and international institutes, companies, groups and individuals. NDRC is the main managing agency. Emissions avoided from projects should be registered at NDRC (under the “National Registration of Voluntary Emission Trading”), after submitting the project evaluation reports, which should include evaluation procedures, project baselines and calculation of avoided emissions, additionality of the project , and a monitoring plan. After registering, avoided emissions can be traded at the trading agencies that are registered in China. Companies that are registered in China can register voluntary emission reduction projects and their avoided emissions.

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Emissions Trading

Position in the Pyramid

About Us

Participation: Mandatory

Period

Start Date: 2013

End Date: 2015

Policy Linkages

Supports Energy and Carbon Intensity Targets of the 12th Five Year Plan Effort Defining

Agencies Responsible

National Development and Reform Commission
Local, Provincial, Central governments

Primary Objective: GHG Emissions

Objective

To pilot the use of emissions trading as an effective market mechanism for meeting energy and emissions targets

Target Group

Industrial enterprises and buildings

Driver of energy consumption or emissions affected by policy: Energy consumption and GHG emissions

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

Sector coverage has not yet been defined, but is expected to include most major industrial sectors and buildings.

Quantitative Target? yes

Progress Monitored? yes

Verification Required? no

Enforced? no

Requirements on the Target Group

Support by Government

Implementation Toolbox

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions
Estimated costs/benefits for industry
Estimated cost for government

References & Footnotes

References

[1] Chinese text of National People’s Congress 12th Five Year Plan http://www.moa.gov.cn/fwllm/jjps/201103/t20110317_1949003.htm Chinese text of Chinese Communist Party Opinion on the 12th Five Year Plan http://www.ndrc.gov.cn/125gh.pdf

[2] David Stanway, Reuters. "China planning emissions trading in 6 regions" http://af.reuters.com/article/energyOilNews/idAFL3E7FB1Q320110411

[3] Chinese text of NDRC notice to set caps http://www.ccchina.gov.cn/cn/NewsInfo.asp?NewsId=30912

[4] David Stanway, Reuters. "China orders 7 pilot cities and provinces to set CO2 caps" http://www.reuters.com/article/2012/01/13/us-china-carbon-idUSTRE80C0GZ20120113

[5] Chen, K. "China sets 660-mln tonne CO2 cap for Guangdong." Point Carbon 13 March 2012 http://www.pointcarbon.com/news/1.1798440.

[6] Han, Guoyi et al. "China's Carbon Emissions Trading: An Overview of Current Development." April 2012. Stockholm Environment Institute and Forum for Reforms, Entrepreneurship and Sustainability. http://www.sei-international.org/mediamanager/documents/Publications/china-cluster/SEI-FORES-2012-China-Carbon-Emissions.pdf

[7] Sandbag. "Turning the Tanker: China's changing economic imperatives and its tentative look to emissions trading." April 2012. http://www.sandbag.org.uk/site_media/pdfs/reports/Sandbag_Turning_the_Tanker_Final.pdf

[8] Morton, A. "Beijing praises emissions plan." Sydney Morning Herald. 8 September 2011. http://www.smh.com.au/environment/climate-change/beijing-praises-emissions-plan-20110907-1jxql.html

[9] National Development and Reform Commission, 2012. The Notice on The Interim Regulation on Voluntary Trading Greenhouse Gas Emissions. [2012]1668. June 13, 2012. http://cdm.ccchina.gov.cn/WebSite/CDM/UpFile/File2894.pdf

[10] Ed King, 2013. "China’s emissions trading scheme in line for 2020 launch." http://www.rtcc.org/chinas-emissions-trading-scheme-in-line-for-2020-launch/

[11] World Bank, 2013. "China's Final Market Readiness Proposal." http://www.thepmr.org/system/files/documents/PA5_China_Final_MRP__presentation.pdf

Footnotes

(*1) The Chinese Communist Party Opinion on the 12th Five Year Plan released at the end of October 2010 also indicated support for carbon emissions trading.