The launch of China’s national emissions trading scheme will likely be pushed to the second half of 2017 as more time is needed put in place the necessary legal groundwork, the market’s lead designer told a conference in Guangzhou this week, according to sources who attended the event.

The scheme’s chief architect Duan Maosheng, a Tsinghua University professor and former CDM Executive Board chair, said China’s State Council still needs to provide legal backing for the ETS to impose CO2 caps.

The national ETS, poised to be the world’s largest when it launches, had previously been expected to start earlier in the year.

However, in order to keep the country on track towards meeting its emissions reduction targets, the emissions cap covering more than 10,000 companies set to be brought into the scheme will likely be backdated to Jan. 1, 2017, meaning only the underlying trade would be affected by the delay.

Duan said the government would prefer to make benchmark-based allowance allocations to industry, but this would depend on the quality of the data available.

The drop in fossil-fuelled power generation and manufacturing activity in China has prompted concerns that carbon permit allocations based on historical emissions may lead to an oversupply of units – a situation that has plagued the EU ETS since 2009.

Duan also outlined other recent developments in the Chinese ETS design work:

• Company emissions data reports will be checked with industry association databases to help ensure accuracy.
• Regional governments are allowed to include more companies in the ETS than mandated by national rules. This will give authorities in the seven pilot regions the ability to include emitters that fall below the national market threshold. (Recently there has been talk about some of the pilots, such as Beijing and Shanghai, potentially continuing their local markets for companies that fall outside of the national scope.)
• The carbon offset (CCER) registry will be regulated by the National Center for Climate Change Strategy and International Cooperation (NCSC), a think-tank under the NDRC.
• The government would like to allow individuals to trade in the market alonside companies, but a system is needed to be able to blacklist participants who violate trading rules. Regulators also need to study further how to regulate individual traders.

By Stian Reklev – stian@carbon-pulse.com

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