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China to launch national carbon emissions trading scheme on Feb 1

Highlights

Power generation the pilot sector for national scheme

Power plants to gain allowances covering 70% of emissions

Regulates entities with over 26,000 mt/year of CO2 equivalent emissions

Singapore — China will launch a national carbon emissions trading scheme Feb. 1 as part of efforts to meet a 2060 carbon neutrality target by developing market mechanisms, according to the trial rules for the scheme released Jan. 5 by the Ministry of Ecology and Environment.

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Under the trial rules, which were approved by the ministry Dec. 25 after draft rules were released Nov. 2, the ministry will act as the national regulator and supervisor of the country's carbon trade, while provincial environmental authorities will manage quota allocations, emissions inspections and other administrative work.

The rules require all enterprises in specific sectors with more than 26,000 mt/year of CO2 equivalent emissions be included in the scheme.

China has developed pilot emission trading platforms in nine cities and provinces since 2011, and started to pave the way for a national trading scheme in 2017 with an emission trade market development plan for the power generation sector.

Entities registered under the national scheme will sign off from the regional schemes, and will be allowed to use voluntary Chinese Certified Emissions Reductions or CCERs to meet up to 5% of their compliance obligations under the scheme each year.

The imminent launch of the national emission trading scheme, and its inclusion of CCERs for offsetting compliance obligations, is widely seen as a boost to the voluntary market.

In addition, emissions can be traded on the national carbon emission trading platform by negotiation, auction or other permitted modes, according to the trial rules.

Emission policy observers said launching the national scheme will pave the way for developing China's first carbon emission futures, on the new Guangzhou Futures Exchange.

PILOT PLAYERS

Power generation is the pilot sector for the national emission trading scheme, with MEE releasing the 2019-20 carbon emission allowance allocation action plan for the sector on Dec. 30.

Power plants, especially coal-fired plants, are key entities being targeted to control carbon emissions, and market sources expect industries including cement, steel, refining and petrochemical, paper and aviation to be gradually required to join the scheme after it is successfully launched.

According to the action plan, 2,225 power plants across China with annual emissions of 26,000 mt of CO2 equivalent or 10,000 mt of standard coal equivalent energy consumption in any year between 2013 and 2019 are eligible for emissions allowances for 2019 and 2020 and are required to meet the compliance obligations of the trading scheme.

The emissions allowance will be calculated initially based on 70% of a plant's heat and power production in 2018, then finalized after an inspection based on the production in 2019 and 2020, according to the action plan, which divides power generators into four categories to calculate the CO2 allowance for power generation.

The benchmark is 0.877 mt of CO2/mWH for standard coal plants over 300 MW and 0.979 mt of CO2/mWH for standard coal plants below 300 MW. For less common plants that burn coal gangue or coal water slurry, the benchmark is 1.146 mt of CO2/mWH, while for gas-fired power plants it is 0.392 mt of CO2/mWH.