China has toughened rules for industrial polluters participating in the carbon trading market, setting stricter penalties for emissions data fabrication, as reported by the South China Morning Post on February 5. The State Council has released an interim regulation with several provisions for the management of China’s carbon Emissions Trading Scheme (ETS). The revised regulations have given the Ministry of Ecology and Environment (MEE) more power to oversee and manage carbon emissions trading activities while reducing the supply of free allowances to facilitate emission reductions. Under the rules, market participants found to have concealed or misreported emissions data could face penalties of up to RMB2m (USD278,000) and deductions from their future pollution allowances. The rules are set to take effect in May.

China is tightening its grip on the carbon market as it looks to expand the ETS to industries beyond the power sector. Established in 2021, the ETS now covers around 2,300 enterprises from China’s power sector, representing more than 40% of China’s annual CO2 emissions. China aims to expand the system’s coverage to around 70% of the country’s emissions by 2030 by including more carbon-intensive sectors, such as aluminum and cement manufacturing. Despite being the world’s largest carbon market since its establishment, China’s ETS has long faced issues of poor-quality data and low trading levels, hindering its effort to reduce emissions. Additionally, both the transaction volume and carbon prices in China’s ETS lag behind those in developed markets like the EU ETS. The revised regulations are intended to address these issues, while the reduction of free emission allowances is expected to drive price growth.

Sources:

https://www.scmp.com/business/china-business/article/3251011/china-strengthens-state-control-carbon-emissions-trading-cracks-down-data-fabrication-new-regulation

https://www.bloomberg.com/news/articles/2024-02-05/china-tightens-rules-on-polluters-before-carbon-market-expansion

China Sets Tougher Regulations for Carbon Trading Market