China Offers Signs for Lenient Launch of National Carbon Trading

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China’s plans to control emissions with the launch of a national carbon market, which will be the world’s biggest, may start off more fossil-fuel friendly than its existing regional systems.

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A proposal for the rules governing the national program, known as an allowance allocation plan, is being circulated by the Ministry of Ecology and Environment for feedback from industrial participants, according to people with knowledge of the issue.

The plan offers some of the most concrete examples yet as to how China’s trading scheme would work. The rules haven’t been finalized and details may change, said the people, who asked not to be identified because the information isn’t public. Ministry officials didn’t respond to a fax requesting comment on the proposal.

The carbon market is expected to cover China’s power sector, which accounts for half its fossil fuel-derived emissions and 14% of the entire world. China currently has several regional pilot programs, while the nationwide plan is scheduled to start by the end of this year.

Those pilot programs — covering Beijing, Chongqing, Fujian, Guangdong, Hubei, Shenzhen, Shanghai and Tianjin — priced carbon emissions between 22 yuan and 94 yuan ($3.22 and $13.75) per ton on Monday, data from exchanges showed.

Here are some key details of the plan, which was reviewed by Bloomberg:

  • It covers carbon emissions from 2019 and 2020, and would give companies allowances for a certain amount of emissions. If their actual emissions were more than the allowed level, the companies would need to buy allowances from other firms.
  • Rules for future years aren’t included, and the plan doesn’t set specific allowance levels or say when trading would begin.
  • It includes formulas for how many allowances would be given for each power plant based on size and hours of operation, and they appear be more lenient than the existing pilot programs. For example, a small coal-fired power plant would get 17% more initial allowances under the national proposal than the same plant would have received in Guangdong province in 2019, according to Bloomberg calculations.
  • The proposal limits the maximum amount of extra allowances a company would have to purchase to the equivalent of 20% of its total emissions.
  • Companies don’t have to purchase extra allowances for emissions from natural gas power plants, and gas-related allowances would be able to be used to offset coal emissions or sold on the open market.

— With assistance by Dan Murtaugh, and Qian Chen

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