Launch of National Carbon Market Moves China Closer to Clean Power, NDC Fulfillment
UN Photo/R Marklin
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In China's pilot areas, both the amount and intensity of carbon emissions have dropped.

China's NDRC outlined three steps towards completing the design and implementation of the system, and preparing it for actual trading around 2020.

7 January 2018: On 19 December 2017, the government of China launched a process to design and implement a national carbon emissions trading system. Once enacted, the system will cover about 3.5 billion tonnes of carbon dioxide (CO2) emissions in the country’s electrical power sector, and surpass the EU Emissions Trading System (about 2 billion tonnes) as the world’s largest carbon trading system.

The intention to create a national carbon emissions trading system was noted in China’s 12th Five-Year Plan (2011-2015). In 2013 and 2014, the Government launched seven pilot emissions trading programs in five cities and two provinces, to facilitate learning and capacity building. According to Li Gao, China’s National Development and Reform Commission (NDRC), in the pilot areas, both “the total amount and intensity of carbon emissions have dropped,” which provides “valuable experience for designing and building the national carbon market.” As of November 2017, traded carbon emissions permits already exceeded the equivalent of 200 billion tonnes of CO2, with total transactions of over RMB 4.6 billion (US$718 million).

The transfer and trading of carbon emissions are likely to begin around 2020.

The NDRC has outlined three steps towards completing the design and implementation of the system, and preparing it for actual trading. The system will begin with the electrical power sector, and eventually become more comprehensive. According to its published plan, the first step is to develop systems for data reporting, registration and trading, while developing institutions for regulating the carbon market. It will use collected and verified plant-level emissions data to establish baselines, as well as allocate credits to participating power companies. The second step is for companies to test out the system by “mock-trading” credits, before emissions limits are formally enforced in the spot market. Finally, the plan states, the actual transfer and trading of carbon emissions are likely to begin around 2020.

Li said this is “only the beginning [of building a comprehensive system],” and that trading will eventually extend to other energy-intensive and high-emission sectors. These may include petroleum refining, chemicals, building materials, iron and steel, non-ferrous metal processing, paper production, and aviation.

Carbon Market Watch commented that the launch shows “increased commitment,” and is significant for addressing climate change. As Li points out, the participating 1,700 power companies, with annual emissions of over 26,000 tonnes of CO2 equivalent, account for over 3 billion tonnes of carbon emissions. According to China Carbon Forum, an independent research and convening platform, the estimated 3.5 billion tonnes in CO2 emissions to be covered in the nationwide trading accounts for 74%of China’s power sector, and 39%of the total emissions of the whole country.

The launch of the national carbon emissions trading system will ultimately help China meet its emissions target, said Robert Stavins, Harvard University, as part of its Nationally Determined Contribution (NDC) under the Paris Agreement on climate change, to peak CO2 emissions by 2030 and decrease reliance on traditional fossil fuels such as coal. It also fulfills the promise made by President Xi Jinpin when meeting with US President Barack Obama in September 2015. [Launch Announcement (in Chinese)] [NDRC Policy Notice (in Chinese)] [Policy Document (in Chinese)] [Stavins Comment] [Carbon Market Watch Comment] [Carbon Emissions Statistics] [SDG Knowledge Hub Story on Carbon Pricing and Markets]

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