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The first year of China’s national carbon market, reviewed
(China Dialogue, 17 Feb 2022) The government is considering eliminating a large surplus of emissions allowances, to avoid market imbalance.
China’s national emissions trading scheme (ETS) became operational last year, obliging more than 2,000 big emitters in the power sector to account for their emissions in 2019 and 2020. The current scope of the ETS includes annual emissions close to 4.5 billion tonnes of CO2 per year, or around 40% of China’s total. Unlike similar schemes elsewhere, such as in the European Union, China’s allocation of emissions allowances is not decided upfront via an absolute cap but is based instead on emissions intensity. One allowance means a company can emit 1 tonne of carbon.
So far, activity has been limited: in 2021 the ETS traded a total of 412.05 million tonnes of allowances, including those on regional pilot schemes and the domestic offsets known as CCERs. However, a slow start is not uncommon: in its first year of trading in 2005, the EU ETS saw 321 million allowances transacted, but this had topped 12 billion by 2021.
China’s ETS pilots – most of which have been active since 2013 – continued operations in parallel, but for the most part saw trade volumes drop as power sector emitters turned increasingly to the national ETS.
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China Dialogue, 17 Feb 2022: The first year of China’s national carbon market, reviewed
