China plans to include financial institutions, non-ferrous metals, and building materials in its national emissions trading scheme (ETS), as reported by Reuters on December 29. Specifically, the non-ferrous metal and building materials sectors are expected to join the ETS market as early as 2022. Other industries, including petrochemicals, chemicals, steel, paper, and domestic aviation, are expected to be introduced to the market as well, though the country is yet to set a specific timetable for these industries. Additionally, China will release derivative products of carbon emissions, including swaps, forwards, and options to grow the liquidity of carbon products, as it looks to become a global center for carbon trading and pricing.

The National ETS of China started trading on July 16 this year and ranked first in the world by carbon transaction volume. ETS now oversees over 2,225 companies in China’s power sector, which are required to comply with emission limitations by reducing emissions or purchasing emissions allowances from other emitters in the ETS market. The power companies currently included in the ETS account for around 40% of China’s carbon emissions. The move to include other carbon-intensive industries in the ETS serves to further supervise and mitigate domestic carbon emissions following a successful launch of the ETS for the power sector. According to a report published by AIGCC and Schroders, the ETS could reduce China’s total carbon emissions in 2060 by between 3bn and 6bn tons per year, equivalent to 30% to 60% of the country’s 2020 emissions.

Sources:

https://www.reuters.com/markets/commodities/china-plans-new-participants-derivatives-carbon-trading-market-shanghai-sec-news-2021-12-29/

https://www.scmp.com/business/article/3145433/chinas-emissions-trading-scheme-could-reduce-carbon-emissions-30-60-cent

https://www.scmp.com/business/banking-finance/article/3158141/chinas-carbon-trading-exchange-struggles-unclear-policies