DOSSIER: China’s emissions markets

Published 19:00 on January 1, 2016  /  Last updated at 08:46 on February 15, 2017  /  Conversations, Dossiers  /  No Comments

This dossier unpacks key details from what is due to become the world’s biggest carbon market. It has an overview of the impending national market, outlining issues yet to be resolved before its 2017 launch. It also presents key details about the seven pilot markets and how they are due to interact with the national scheme.

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Summary (ICAP)

ICAPlogoSummary provided by the secretariat of the International Carbon Action Partnership (ICAP), a multilateral forum working on carbon markets. For more information, visit ICAP’s website.  Copyright © ICAP and reproduced with permission.

 

China national

General information:

In its 12th Five Year Plan (2011-2015), China committed to establishing a national carbon market, which is scheduled to launch in 2017.  This intention was reaffirmed in China’s Intended Nationally Determined Contribution (INDC), which was submitted to the UNFCCC in June 2015. On 11 January 2016, the National Development and Reform Commission (NDRC) published the Notice on Key Works in Preparation for the Launch of the National ETS that outlines the next steps for 2016, alongside technical guidance and templates for data reporting and verification.

The ETS will be a key instrument for China to reach its emissions reduction target. The 13th Five Year Plan (2016-2020), adopted in 2016, outlines a national carbon intensity reduction target of 18% by 2020 (compared to 2015 levels), as well as an energy intensity reduction target of 15% for the same time period (also compared to 2015 levels). More broadly, China has also committed to lowering CO2 emissions per unit of GDP by 60-65% from 2005 levels and to increase the share of non-fossil fuels in primary energy consumption to around 20% by 2030.

Background information:

Compliance in the national ETS is expected to be mandatory for entities of covered sectors which fall under the inclusion threshold.

There is an absolute cap of 3,000-4,000 MtCO2e (estimate, no official data published).

Total emissions and proportion covered:

10,975.50 MtCO2e (2012) (45%)

(estimate only)

Liable entities:

Appr. 10,000 (estimate only)

Sector Coverage:

industry, power, aviation

Gas coverage:

CO2

 

Allocation:

Free allocation (main method) & auctioning (estimate only)

 

Offsets and credits

Domestic (Chinese Certified Emission Reduction Credits)

* Please note that the information used in this table represents estimates based on the current state of planning and therefore does not necessarily reflect the actual legislation.

For further information, visit the ICAP ETS Map.

 

Pilot markets

 

Beijing

General information:

On 28 November 2013, Beijing was the third Chinese region, after Shenzhen and Shanghai, to launch its pilot ETS. The pilot covers both direct and indirect emissions from electricity providers, heating, cement, petrochemicals, other industrial enterprises, manufacturers, major public buildings and parts of the transport sector. Initially, the Chinese pilot systems were scheduled to end in 2016 with the launch of a national Chinese ETS. As this launch has been delayed until 2017, Beijing announced the continuation of its pilot until further notice. Several cement and energy companies from the provinces of Inner Mongolia and Hebei are also covered by the system in order to promote cross-regional trading.
Background information:

Compliance in the Beijing pilot ETS is mandatory for entities of covered sectors that fall within the inclusion threshold.

There is an absolute cap of 55 MtCO2e (estimate, no official data published).

Total emissions and proportion covered:

188.1 MtCO2e (2012) (40%)

Liable entities:

981 (2016)

Sector Coverage:

Mixed: buildings, industry, power, transport

Gas coverage: CO2

 

Allocation: Free allocation

 

Offsets/credits: Domestic

 

Phases & Compliance periods:

Trading period: 2013-2016
Compliance period: The annual compliance deadline is 15 June for emissions from the previous calendar year.

Temporal flexibility:

Banking is allowed during the pilot phase.
Borrowing is not allowed.

Provisions for price management:

In case of market fluctuations, the Beijing Development and Reform Commission can buy or auction allowances in order to stabilize the market.

For further information, visit the ICAP ETS Map.

 

Chongqing

General information:

On 19 June 2014, Chongqing was the final Chinese region to start its pilot ETS. The pilot covers both direct and indirect emissions from seven sectors: power, electrolytic aluminum, ferroalloys, calcium carbide, cement, caustic soda, iron and steel. Initially, the Chinese pilot systems were scheduled to end in 2016 with the launch of a national Chinese ETS. As this launch has been delayed until 2017, the pilots will likely be extended until then.

Background information:

Compliance in the Chongqing pilot ETS is mandatory for entities of covered sectors that fall within the inclusion threshold.

There is an absolute cap of 106 MtCO2e (2014).

Total emissions and proportion covered:

243.1 MtCO2e (2012) (40%)

Liable entities: 237 (2014)

Sector Coverage:

Upstream: power

Downstream: industry

Gas coverage: CO2, CH4, N2O, HFCs, PFCs, SF6

Allocation: Free allocation

 

Offsets/credits: Domestic

 

Phases & Compliance periods:

Trading period: 2013-2015
The trading periods will likely be extended until the start of the national Chinese ETS.
Compliance period: Due to the late start, compliance for 2013 and 2014 were combined in one phase. For 2015 onwards, the compliance deadline is 15 June for emissions from the previous calendar year.

Temporal flexibility:

Banking is allowed during the pilot phase.
Borrowing is not allowed.

Provisions for price management:

In case of market fluctuations, the Chongqing Carbon Emissions Exchange can take price stabilization measures. Compliance entities must not sell more than 50% of their free allocation.

For further information, visit the ICAP ETS Map.

 

Guangdong

General information:

On 19 December 2013, Guangdong was the fourth Chinese region, after Shenzhen, Shanghai and Beijing, to start its pilot ETS. The pilot covers both direct and indirect emissions from power, iron and steel, cement, and petrochemicals. Initially, the Chinese pilot systems were scheduled to end in 2016 with the launch of a national Chinese ETS. As this launch has been delayed until 2017, the pilots will likely be extended until then.

Background information:

Compliance in the Guangdong pilot ETS is mandatory for entities of covered sectors that fall within the inclusion threshold.

There is an absolute cap of 408 MtCO2e (2015).

Total emissions and proportion covered:

610.5 MtCO2e (2012) (55%)

Liable entities: 217 (2015)

Sector Coverage:

Mixed: industry, power

 

Gas coverage: CO2

Allocation:

Free allocation (90%) & Auctioning (10%) (2015)

 

Offsets/credits: Domestic

 

Phases & Compliance periods:

Trading period: 2013-2015
The trading periods will be extended until the start of the national Chinese ETS.
Compliance period: the annual compliance deadline is 20 June for emissions from the previous calendar year.

Temporal flexibility:

Banking is allowed during the pilot phase.
Borrowing is not allowed.

Provisions for price management:

Guangdong has a reserve price at auction. Initially, it was set at CNY 60 (EUR 8.81). After the completion of the first compliance phase, the price was first lowered to CNY 25 (EUR 3.67) and increased again to CNY 40 (EUR 5.87) in steps of CNY 5 (EUR 0.73) with each quarterly auction. In the third year, the floor price is set at 80% of the weighted average price for allowances over the previous three months.

For further information, visit the ICAP ETS Map.

 

Hubei

General information:

On 2 April 2014, Hubei was the sixth pilot ETS in China to start trading. Until now, Hubei has been the most active market among the pilot ETSs in terms of trading. Initially, the Chinese pilot systems were scheduled to end in 2016 with the launch of a national Chinese ETS. As this launch has been delayed until 2017, the pilots will likely be extended until then.

Background information:

Compliance in the Hubei pilot ETS is mandatory for entities of covered sectors that fall within the inclusion threshold.

There is an absolute cap of 281 MtCO2e (2015) (not officially confirmed).

Total emissions and proportion covered:

463.1 MtCO2e (2012)  (35%)

Liable entities: 167 (2015)

Sector Coverage:

Mixed: power, industry

Gas coverage: CO2

Allocation:

Free allocation and auctioning1

 

Offsets/credits: Domestic

1 A small proportion of allowances were auctioned at the beginning to complement the allocation process.

Phases & Compliance periods:

Trading period: 2013-2015
The trading periods will likely be extended until the start of the national Chinese ETS.

Compliance period: Due to the late start, compliance for 2013 and 2014 were combined in one phase. As of 2015 onwards, the annual compliance deadline is 31 May for emissions from the previous calendar year.

Temporal flexibility:

Banking is allowed during the pilot phase.
Borrowing is not allowed.

Provisions for price management:

In case of market fluctuations, the Hubei Development and Reform Commission – in consultation with an advisory committee consisting of government institutions and other stakeholders – can buy or sell allowances in order to stabilize the market.

For further information, visit the ICAP ETS Map.

 

Shanghai

General information:

On 26 November 2013, Shanghai was the second Chinese region, after Shenzhen, to start its pilot ETS. The pilot covers both direct and indirect emissions from power, industrial and non-industrial sectors like transportation. Initially, the Chinese pilot systems were scheduled to end in 2016 with the launch of a national Chinese ETS. As this launch has been delayed until 2017, Shanghai announced the continuation of its system in 2016.

Background information:

Compliance in the Shanghai pilot ETS is mandatory for entities of covered sectors that fall within the inclusion threshold.

There is an absolute cap of 160 MtCO2e (2015).

Total emissions and proportion covered:

297.7 MtCO2e (2012) (57%)

Liable entities:

312 (2016)

Sector Coverage:

Mixed: domestic aviation, buildings, industry, power, shipping,

Gas coverage:

CO2

Allocation:

Auctioning and Free Allocation

 

Offsets and credits

Domestic

 

Phases & Compliance periods:

Trading period: 2013-2016
The trading periods will be extended until the start of the national Chinese ETS.
Compliance period: The annual compliance deadline is 30 June for emissions from the previous calendar year..

Temporal flexibility:

Banking is allowed during the pilot phase.
Borrowing is not allowed.

Provisions for price management:                                                     

If prices vary more than 10% in one day, the Shanghai Environment and Energy Exchange can take price stabilization measures, temporarily suspend trading or impose holding limits.

For further information, visit the ICAP ETS Map.

 

Shenzhen

General information:

Shenzhen was the first of the Chinese pilot emission trading schemes (ETSs) to start operation on 18 June 2013. Shenzhen does not have much heavy industry. 635 medium and small emitters from 26 sectors and 197 buildings are covered under the Shenzhen ETS. Initially, the Chinese pilot systems were scheduled to end in 2016 with the launch of a national Chinese ETS. As this launch has been delayed until 2017, the pilots will be extended until then.

Background information:

Compliance in the Shenzhen pilot ETS is mandatory for entities of covered sectors which are captured by the inclusion threshold.

There is an absolute cap at 34.78 MtCO2e (excluding buildings).

Total emissions and proportion covered:

153 MtCO2e (2012) (40%)

Liable entities:

832 (2015)

Sector Coverage:

Mixed: buildings, industry, power.

Gas coverage: CO2

Allocation:

Free allocation & auctioning (up to 3%)

 

Offsets/credits: Domestic

 

Phases & Compliance periods:

Trading period: Three years (2013-2015)
The trading periods will be extended until the start of the national Chinese ETS.

Compliance period: The annual compliance deadline is 30 June for emissions from the previous calendar year.

Temporal flexibility:

Banking is allowed during the pilot phase.
Borrowing is not allowed.

Provisions for price management:

In case of market fluctuations, the Shenzhen Development and Reform Commission can sell extra allowances from a reserve at a fixed price. Such allowances can only be used for compliance and cannot be traded. The DRC can also buy back up to 10% of the total allocation.

For further information, visit the ICAP ETS Map.

 

Tianjin

General information:

On 26 December 2013, Tianjin was the fifth Chinese region, after Shenzhen, Shanghai, Beijing and Guangdong, to start its pilot ETS. The pilot covers both direct and indirect emissions from five sectors: heat and electricity production, iron and steel, petrochemicals, as well as oil and gas exploration. Initially, the Chinese pilot systems were scheduled to end in 2016 with the launch of a national Chinese ETS. In March 2016, Tianjin extended its ETS regulation until 2018.

Background information:

Compliance in the Tianjin pilot ETS is mandatory for entities of covered sectors that fall within the inclusion threshold.

There is an absolute cap of 160 MtCO2e.

Total emissions and proportion covered:

215 MtCO2e (2012) (55%)

Liable entities:

112 (2014)

Sector coverage:

Mixed: power, industry

Gas coverage: CO2

Allocation: Free allocation

 

Offsets/credits: Domestic

 

Phases & Compliance periods:

Trading period: 2013-2016
The trading periods will be extended until the start of the national Chinese ETS.

Compliance period: The annual compliance deadline is 30 June for emissions from the previous calendar year.

Temporal flexibility:

Banking is allowed during the pilot phase.
Borrowing is not allowed.

Provisions for price management:

In case of market fluctuations, the Tianjin Development and Reform Commission can buy or sell allowances in order to stabilize the market.

For further information, visit the ICAP ETS Map.

 

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