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China's carbon market will take two more years to set up: SinoCarbon

  • Author
  • Charles Newbery
  • Editor
  • Alisdair Bowles
  • Commodity
  • Electric Power

London — China's nationwide emissions trading system will probably take another two years to develop, according to an analyst with low-carbon services company SinoCarbon.

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The State Council approved in December last year a plan to develop the market, beginning with the power sector, and a total of eight industrial sectors will eventually be covered by the system.

"It will take one year to complete the legal foundations of the market," Chen Zhibin, a senior analyst at SinoCarbon, told a webinar organized by the International Carbon Action Partnership on Tuesday. "Then there will be one year to simulate a trading period, to test the design and the functioning of different elements."

In the third year, spot trading would be launched for the power sector, while authorities work to expand the coverage of the market to other industries, and to develop additional trading products such as futures and options, Chen said.

In 2018, regulators are aiming to complete rules regarding the reporting and verification of emissions data, to build an electronic registry that will be based in Wuhan in Hubei province, and to develop trading systems for the market that will be hosted in Shanghai, Chen added.

"The goal is to gather 2016 and 2017 verified emissions data for all eight sectors," he said. "We already have a draft allocation plan for the power sector, and the data will allow the allocation plan to be updated in the second half of the year."

There remain a number of key uncertainties that need to be clarified before the market can progress, Chen noted.

"We still do not know when the deadline will be for the first compliance. The National Development and Reform Commission has not given us a time," he said, adding that stakeholders are assuming the first deadline to surrender allowances will be in June 2020 "if all goes well".

There is also no timeline at present for the entry of other industrial sectors into the market, Chen said.

"This is a more political matter. There are not as many state-owned enterprises in industrials sectors as there are in the power sector."

Chen added that industrial companies will be concerned that paying for emissions allowances may increase their costs and reduce competitiveness compared to companies from other parts of the world.

Regulators will need to address these concerns as they develop rules and limits on emissions for those sectors, he said.

A third area of uncertainty concerns the market for carbon offsets, known as China Certified Emission Reductions (CCERs).

In 2017 the government suspended all work on developing updated regulations for offset use, and is presently considering how to improve the offset market.

"We don't yet know what percentage of compliance offsets will be allowed to cover, or when the work on offsets rules will restart," Chen said. "We also don't know when investors and banks will be allowed to participate in the market."

Since 2013, China has operated eight pilot markets in cities and provinces across the nation, each of them using different rules as part of a learning exercise.

These markets continue to trade, but will be absorbed into the national ETS at some stage, Chen said, though details of the transition are not yet known.

--Alessandro Vitelli, by Alisdair Bowles,