China rolls out much-anticipated carbon trading system in bid to cap greenhouse gas emissions

A man wearing a mask for protection against pollution walks along a street in Beijing. Photo: AP

China has launched its much-delayed carbon emissions trading system, which initially sets the carbon emissions quotas for the heavily polluting power generation enterprises estimated to emit 3.3 billion tons of carbon dioxide every year.

Possibly being the world's largest carbon emissions trading market, China's carbon emissions trading scheme has been delayed repeatedly since 2015 when the country's policymakers announced plans to establish a nationwide carbon emissions trading mechanism in a push to cap its greenhouse gas emissions at a peak by 2030 and increase the share of non-fossil fuels as part of its primary energy consumption to about 20 percent by 2020.

The rollout of the long-awaited carbon emissions trading system is widely considered as China's first major step to make good on its promise to combat global warming, despite the fact that the mechanism only covers some 1,700 enterprises in the power generation sector at first, diverging from the original plan which took aim at eight heavy industry sectors including iron and steel, chemicals and paper-making, which are largely blamed for the deterioration of the country's pollution levels.

And so far, there is no detailed timeframe about when the trading of carbon credits will begin, when other energy-intensive industries will be included and how permits will be allocated.

However, Jiang Zhaoli, vice director at the climate change department of the National Development and Reform Commission, China's top economic planner, said that China's carbon emissions trading system would enforce industrial factories to wipe out outdated capacity and improve production chain.

A report by the Environmental Defense Fund showed that the amount of annual carbon emissions of China's power generation sector accounted for 39 percent of the country's total carbon emissions which surpassed the European Union's Emissions Trade System. The report also predicted that the heavily polluting industries such as cement and electrolytic aluminium would be included into China's carbon emissions trading system.

Experts believed that equally, or even more, important to the carbon quota allocation mechanism would be establishing a data collection system, through which the regulators can set precise target levels and then allocate carbon quotas, and a monitoring and reporting system to enforce compliance.

Under the carbon quota mechanism, the polluting companies buy more carbon credits on the carbon trading market if they emit more greenhouse gas than the carbon allowances given and sell carbon credits to others to make profit if they emit less.

At a press conference after the launch of China's carbon emissions trading system was announced, Zhang Yong, vice chairman of the National Development and Reform Commission, said that the operation of the carbon trading market would be supported by three mechanisms of monitoring, reporting and verification and four systems of data collection, carbon emission right registration, carbon emission right trading and carbon emission right settlement.

"With an initial focus on the power generation sector, we will establish the 'three mechanisms' and 'four systems' from scratch, and then start the genuine trading of carbon credits after systematic tests," said Zhang.

After the trading of carbon credits begins, the carbon prices will be fundamentally determined by the market forces, and will also be affected by the supply and demand of the carbon quotas and the efforts of reducing carbon emissions, said Li Gao, director at the climate change department of the National Development and Reform Commission.

Global climate leadership

After a meeting held in Washington in September 2015, Chinese President Xi Jinping and then US President Barack Obama reaffirmed their joint efforts to combat climate change in a joint communique, which said that China would plan to set up a nationwide carbon emissions trading system in 2017 covering polluting heavy industry sectors including iron and steel, power, chemicals, architectural materials making, paper making and nonferrous metals.

The move was regarded as a clear indication that the two largest carbon dioxide emitters in the world would work more closely on the international task of curbing global warming.

However, the joint effort of the world's two largest economies was thwarted by US President Donald Trump's directive to withdraw from the Paris climate agreement, leaving China an opportunity to become the global environmental action leader.

"As the US government turns its back on the fight against climate change, China, the European Union and many others are forging ahead," European Union Climate Commissioner Miguel Arias Canete said in a statement in Brussels. "With both the European Union and China committed to emissions trading, two major international players are championing carbon markets."

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