China’s national emissions trading scheme (ETS) has begun operating on the trading platform run by the Shanghai Environment and Energy Exchange (SEEE). The ETS aims to “contribute to the effective control and gradual reduction of carbon emissions in China and to the achievement of green and low-carbon development.” It will support the country’s key mitigation targets of peaking carbon emissions before 2030 and achieving carbon neutrality by 2060.

Covering more than four billion tons of carbon dioxide (tCO2), which accounts for about 40% of the country’s national carbon emissions, China’s ETS is the largest carbon market in the world by volume.

Three years after its political launch in December 2017, the ETS made debut on 16 July 2021, with the opening price of the carbon emission allowances (CEAs) reported at CNY 48 (USD 7.41) per ton. The first trading day concluded with the closing price of CNY 51.23 (USD 7.89) per ton. The total trading volume reached 4.1 million tons at CNY 210 million (USD 22.12 million).

The International Carbon Action Partnership (ICAP) reports that the prices of the first transactions are higher than the average price of the regional pilots over the past year, which, according to Chinese media, is because of expectations of a “more stringent and expansive ETS in line with the 2030 and 2060 targets.

While China’s national ETS “could be an important market-based instrument to help the country meet its recently enhanced climate goals,” critics have questioned its effectiveness due to its “benchmark”-based design, limited coverage, and the lack of a firm cap on emissions.

In January 2021, China’s Ministry of Ecology and Environment (MEE) published key ETS policy documents outlining its administrative framework and rules about cap setting and allowance; monitoring, reporting, and verification (MRV); and trading and registry. In late June, SEEE released detailed trading rules. In a press conference held two days prior to the commencement of trading, the vice minister of the MEE stated that the market infrastructure of the national ETS, including the national registry and trading platform, had been finalized.

According to ICAP, the ETS regulates more than 2,200 companies from the power sector, which emit more than 26,000 tCO2 per year, and its scope is expected to be expanded in the future. Currently, the ETS is intensity-based, with the cap being adjusted ex post, based on actual production levels. The compliance obligations are also limited.

The existing Chinese regional ETS pilots are expected to gradually transition into the national ETS, ICAP reports. Initially, the pilots will continue to operate in parallel to the national ETS, covering the sectors and entities not included in the national market. As more sectors are included in the national ETS, “overlapping entities are expected to be integrated into the national market.” [ICAP News Release] [China National ETS]