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China's carbon trading system to crack down on emissions data falsification

China's regulations for carbon trading and emissions allowance management will include the legal framework to penalize data falsification and allow for tighter government supervision of emissions trading, which is expected to begin "very soon," government officials said at a media briefing on July 14.

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The regulations will fill the gap in China's legislation about punishments for non-compliance behavior associated with carbon trading, especially data falsifications, Zhao Yingmin, vice minister of China's environment ministry, said at the briefing.

"China's national carbon market will start its online trading very soon," Li Gao, head of China's climate change department under the environment ministry, said at the briefing organized by State Council of China, the country's top decision making body.

The State Council gave an update on the progress of China's national carbon market development, but the speakers did not disclose the official starting date for the country's emissions trading system, or ETS, which was expected by end-June but has since been delayed to sometime in July.

On Feb. 1, China's environment ministry published an initial set of general rules and regulations that will govern the national carbon market. On May 19, the ministry released three sets of specialized rules for account registration, trading, and settlement.

These regulations together have been dubbed the '1+3 framework' established for China's national carbon market. What's missing in the '1+3 framework' is the legally effective punishment for non-compliance behaviors.

"The upcoming regulation will serve as a high-level safeguard that ensures all managing rules governing the national carbon market to come into force," Zhao said, adding that all practices of data falsifications will be severely punished under this legal regime.

Falsification of various types of emissions data is a common problem in international emissions control mechanisms, such as the Volkswagen emissions scandal, and is a growing problem in carbon trading. It's a headache for China's environment ministry as well and poses risks for the development of its carbon trading.

In March, four steel producers in Tangshan city in the northeastern Hebei province were charged with omitting and falsifying data in order to evade their obligations for emission reductions, according to the environment ministry's official website, indicating the need for a stringent emissions measurement and supervision system.

While the power sector will be the first participant of China's national carbon market, the steel industry is expected to follow suit. The environment ministry has commissioned the China Iron & Steel Association to prepare the groundwork for carbon trading in the steel sector.

Besides these two sectors, China's national ETS plans to cover the petrochemicals, chemicals, building materials, nonferrous metals, paper and aviation industries, Zhao said at the briefing.