Ministry of Ecology and Environment (MEE) issued trial administration measures to regulate national carbon emission permit trading on December 31, 2020, according to the department’s official website on January 5. The new regulation will take effect on February 1, covering emission quota allocation and settlement, emission permits registration, trading and settlement, as well as greenhouse gas (GHG) emission reporting and review. Since this is still at the early stage of building up a national carbon market, only the power generation industry will adopt the measures. The first fulfillment cycle is from January 1 to December 31, 2021, involving 2,225 key companies in the electricity sector. These companies are the majority of domestic thermal power enterprises, which report an annual GHG emission of at least 26,000 tons of carbon dioxide equivalent.

On December 30, 2020, MEE also published a carbon emission quota allocation plan on the electricity industry for 2019 and 2020. To ease pressure on enterprises at the beginning, the 2019-2020 quotas are still being distributed for free. Moreover, the rules allow these companies’ actual emissions to exceed their quota by at most 20% of their actual emission volumes. According to industry insiders, each province is calculating their quota based on the general plan, and should be completed by January 29. With these policies, a national carbon market for the power generation industry is expected to begin operation and trading in the second or third quarter of 2021.

The emission trading system (ETS) is considered to be an effective market-oriented tool to deal with climate change. After the country began piloting carbon emission permit trading in seven cities and provinces from 2011, these general guidelines mark the official launch of a national carbon market. The quality and accuracy of carbon emission data are crucial factors influencing the effectiveness of a carbon market. Thus, the formally issued measures require that provincial environmental departments should take charge of inspecting all companies’ GHG emission reports. Moreover,  involved companies should disclose their annual GHG emission reports and carbon emission permit trading related information in a timely manner for public supervision. Nevertheless, the current quota and allocation methods are moderately easy for companies to operate within. Citing Caixin, the gap between the 2019-2020 quota and the estimated carbon emissions of 2,225 companies in total is less than 5%. This indicates that companies’ costs going towards emission reduction at present may not be that high.

Sources:

http://www.mee.gov.cn/xxgk2018/xxgk/xxgk02/202101/t20210105_816131.html

http://science.caixin.com/2021-01-06/101647459.html

http://www.caixin.com/2021-01-01/101645834.html?sourceEntityId=101647459

http://paper.people.com.cn/rmrb/html/2021-01/07/nw.D110000renmrb_20210107_2-14.htm