New carbon trading rules revealed

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By Hou Liqiang (China Daily) 13:44, March 27, 2024

SHI YU/CHINA DAILY

The recent administrative regulations adopted by the State Council, China's Cabinet, to manage the nation's carbon trading market — the world's largest — will help resolve emerging problems in the program and ensure that the market plays a significant role in helping the country realize its ambitious climate targets, experts said.

Compared with previous regulations, which were issued by departments under the State Council, the new ones include much stricter penalties for violations to help deter companies from fraudulently understating their emissions, they said.

Formulated based on pilot experiences and foreign standards, a stipulation was added to gradually introduce a mechanism to charge a fee so that companies who need emissions allowances must pay for them, which will help further raise enterprises' awareness on low-carbon development, they added.

Premier Li Qiang signed a State Council decree last month to adopt the new regulations, which will take effect on May 1.

Carbon trading is the process of buying and selling allowances to emit greenhouse gases among designated emitters.

The country initiated pilot carbon trading programs in October 2011 in seven parts of the country, including Hubei province, Beijing and Shanghai. The pilot programs in these regions started trading in 2013.

The national carbon trading market, which currently only involves the coal-fired power generation sector, started trading in July 2021. The market covers 2,257 power-generating enterprises.

Overall, these companies contribute roughly 5.1 billion metric tons of carbon dioxide emissions, representing about 40 percent of all emissions in the country, according to the ministry.

The national program imposes carbon emission limits for every unit of electricity a power plant generates. After each cycle of trading, operators can sell any carbon allowances they have left after complying with the emissions benchmark. If they exceed their limits, they will have to buy allowances.

Currently, companies get the allowances for free. But the mechanism can reward companies that cut their emissions intensity by allowing them to sell their allowances, and make it so those that do not must purchase them.

Zhu Xiao, a law school professor at the Renmin University of China, said that previously, the operation of the country's carbon trading activities was regulated by rules issued by the National Development and Reform Commission and the Ministry of Ecology and Environment.

In 2014, the commission unveiled an interim regulation on carbon trading. After the responsibility for tackling climate change and emission reductions was transferred to the ministry in a 2018 institutional reshuffle of the State Council, the ministry made public a regulation for trial implementation in 2020.

Compared with the previous rules rolled out by the two State Council departments, the administrative regulations have much greater clout, the professor said.

The national carbon market has demonstrated its role as a market-based instrument that promotes low-carbon development, according to the ministry.

By the end of last year, the national carbon market had seen over 440 million tons of carbon emission allowances change hands for almost 24.9 billion yuan ($3.5 billion).

Companies that exceed their emissions benchmarks are given a yearlong compliance period to bring their emissions down.

During the first compliance period from 2019 to 2020, the trade volume jumped by 19 percent, and the money earned from selling emission allowances increased by 89 percent in the second period from 2021 to 2022, the ministry stated, adding the price of emission allowances has climbed to 80 yuan per ton, compared with 48 yuan per ton when the market was launched.

Despite the progress, the ministry has found that its regulation for trial implementation has failed to adequately address situations that have emerged in the market's governance, the ministry said in a media release following the adoption of the administrative regulations.

The previous regulation for trial implementation, for instance, did not sufficiently ensure the quality of carbon emissions data or crack down on violations, it noted.

Furthermore, Zhang Yaobo, an official with the Ministry of Justice, said in a news conference on Feb 26 that some companies cheat when reporting their emissions data.

The administrative regulation has included much stricter sanctions for violations, including data falsification.

Technical service providers for carbon emissions data will have their illicit gains confiscated and will face fines worth five to 10 times the gains, the new regulations said. The penalties should be a minimum of 200,000 yuan and not exceed 1 million yuan.

Executives responsible for the violations and individuals directly involved will also be punished. Aside from being fined from 20,000 to 200,000 yuan, they will be banned from compiling annual carbon emissions reports and conducting emissions data auditing business for five years.

The ministry's regulation for trial implementation only stipulates penalties for companies, not individuals, that commit such violations, and fines only range from 10,000 to 30,000 yuan.