By Amy Lv and David Stanway
BEIJING/SINGAPORE (Reuters) – China is seeking public feedback on a plan to include cement, steel and aluminium production in its carbon emissions trading scheme (ETS) by the end of the year, in a move it hopes will boost market liquidity.
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Here are some facts about the carbon market in the world’s largest greenhouse gas emitting nation.
WHAT IS CHINA’S CARBON MARKET?
China’s carbon market consists of a mandatory emission trading system (ETS) and a voluntary greenhouse gas (GHG) emissions reduction trading market, also known as the China Certified Emission Reduction (CCER) scheme, revamped earlier this year.
The ETS will eventually include eight major emitting sectors including power generation, steel, building materials, non-ferrous metals, petrochemicals, chemicals, paper and civil aviation, which together account for 75% of China’s total emissions.
The two schemes operate independently but are interconnected via a mechanism that allows firms to buy CCERs on the voluntary market to meet their compliance targets under the ETS.
WHAT IS THE ETS?
China’s mandatory carbon market, the ETS, started trading in July 2021 on the Shanghai Environment and Energy Exchange. During its first phase, it has included more than 2,000 key emitters in the power sector, each with emissions of at least 26,000 metric tons a year. The same threshold will be used for the steel, cement and aluminium sectors.
Under the scheme, firms are granted a quota of free certified emission allowances (CEAs). If actual emissions exceed a company’s quota during a given compliance period, it must buy more allowances from the market to cover the gap. If its emissions are lower, it can sell its surplus CEAs.
Allocations are decided not by absolute emission levels, but by industry carbon intensity benchmarks set by the government, which are reduced over time. Emitters are obliged to submit key parameters on a monthly basis and report emission data every year.
Since its inception, it has become the world’s largest emissions trading platform, covering about 5.1 billion tons of carbon dioxide equivalent, around 40% of China’s total.
By the end of 2023, the trading volume on the national ETS had reached a cumulative total of 442 million tons, with a value of 24.92 billion yuan ($3.50 billion), according to official data.
The inclusion of three more sectors is expected to bring another 1,500 key emitters and 3 billion tons of emissions under the scope of the ETS, raising demand for credits and potentially pushing up prices.
The carbon price on the national ETS, which tends to rise when quota allocations fall, has typically been much lower than overseas markets, but broke through 100 yuan a ton for the first time on April 24.
WHAT IS CCER?
Beijing relaunched its national voluntary GHG emission reduction trading market, known as the CCER, in January, allowing wider participation in the carbon market.
The registration and issuance of CCERs was suspended in 2017 partly due to low trading volumes, although existing credits can still be traded.
The addition of more sectors to the mandatory carbon market is expected to lift demand for CCERs, with key emitters allowed to use the voluntary market credits to offset 5% of their total emissions.
($1 = 7.1196 Chinese yuan)
(Reporting by Amy Lv in Beijing and David Stanway in Singapore; Editing by Christian Schmollinger)
