China's Guangdong province to build carbon trading hub with Hong Kong, Macau

China's Guangdong province plans to establish a local carbon market covering the neighboring administrative regions of Hong Kong and Macau -- a region that's collectively called the Greater Bay Area -- according to guidelines published late Aug. 23 to align provincial carbon policies with national carbon neutrality targets.

The Greater Bay Area is one of the world's most heavily industrialized and urbanized regions, with significant potential for emissions reductions and well-developed financial markets for the launch of new products.

The government plans to exploit these advantages to build a carbon market that can attract foreign investment and promote the use of the yuan for settlement in cross-border carbon trading, according to the guideline.

This include creating a pool of professional carbon traders, develop products like carbon futures and derivatives, encourage participation of financial institutions in the carbon space and shape the province into a carbon finance hub.

Guangdong, which contributes the highest GDP among all provinces in China, would also serve as a testbed for advanced carbon market frameworks that can later be adopted in to the national compliance market, the guidelines said.

The inclusion of the administrative regions of Hong Kong and Macau is significant because they are not part of China's national compliance carbon market yet, mainly due to difficulties in tracking the required data.

Guangdong, which hosts two of the eight pilot carbon exchanges in China, also plans to strengthen ties with EU Emissions Trading System and California's cap-and-trade system, aligning practices and collaborating in product development, work with the Association of Southeast Asian Nations group and under the Belt and Road Initiative to expand the carbon market.

In the voluntary carbon market, Guangdong plans to work with standards agencies Verra and Gold Standard and get mainstream recognition for its local carbon crediting program, called Tan Pu Hui, meaning "benefits from carbon reduction for everyone."

Tan Pu Hui, initiated in 2015, is unique because it facilitates decarbonization from the demand side by spreading awareness among consumers. Guangdong also plans to enroll industries that would come under the EU's Carbon Border Adjustment Mechanism, a carbon tariff on emissions-intensive imports.