China's highly anticipated national carbon market was launched July 16 and is expected to become the world's largest by volume of carbon allowances traded.
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The launch of China's carbon market is an early step toward the decarbonization of the country's industrial sectors, even as the government strikes a precarious balance between maintaining economic growth and putting a price on carbon.
The launch comes in the backdrop of an intensifying global regulatory push toward emissions reduction. Earlier in the week, Europe unveiled its package of legislative measures called 'Fit for 55' targeting a 55% reduction in emissions by 2030.
The Ministry of Ecology and Environment (MEE) will take charge of managing China's carbon market.
**The first online transaction of China's Carbon Emission Allowances, or CEAs, was priced at Yuan 52.8/mt ($8.20) with a transaction volume of 160,000 tons of CO2 on July 16 at 9:30 am, according to state media.
**Platts voluntary carbon credit assessments on July 15: Platts CORSIA-Eligible Carbon Credit at $3.10/mtCOe, Platts Nature-Based Carbon Credit at $4.80/mtCOe, Platts Household Devices Carbon Credit at $6.20/mtCOe
**Other compliance carbon market prices: EU ETS European spot CO2 allowances at Eur52.30/mt ($61.90) on July 15 close on the European Energy Exchange, California's cap and trade program at $24.30/mt last week, South Korea carbon market at $18.70/mt at the July 15 close on the Korea Exchange, Australian Carbon Credit Unit averaged $13.80/mt CO2 in Q1, according to Clean Energy Regulator
**China's carbon market will allow only spot trades of carbon allowances, but carbon futures will be introduced at a later date, according to China Securities Regulatory Commission on June 18
**Other specifications -
Commodity: CO2 / Carbon Emission Allowance or CEA
Quote: Yuan per ton of CO2 equivalent (Yuan/mtCO20e)
Transaction type: Physical spot trade
Minimum price fluctuation: 0.01 Yuan
Daily price limit: Day-to-day deviations in carbon price are to be limited to 10% on transactions below 100,000 tons of CO2, and 30% on larger transactions
Trading Location: Shanghai Environment & Energy Exchange (Interim)
Trading Hours: 9:30-11:30 and 13:00-15:00, Monday to Friday
**China's carbon market will eventually cover eight carbon intensive energy consuming sectors by the end of 2025 -- power, petrochemicals, chemicals, building materials, steel, nonferrous metals, paper and aviation.
**The first rollout of will be in the power sector, covering 2,225 power companies with coal and gas fired generation units. These companies are the market participants.
**The power sector is estimated to account for 40% of China's energy consumption-based carbon emissions, according to a Peking University study in 2017 that informed the market design.
**Power companies are enrolled if they had annual emissions over 26,000 mt of CO2 equivalent or annual energy consumption of over 10,000 mt of standard coal equivalent in any year between 2013 and 2019 (MEE).
**The government will retrospectively allocate CEAs or carbon allowances for power plant emissions in 2019 and 2020 based on total power output (mWH) multiplied with benchmark emission rates. Power companies need to purchase additional CEAs if emissions exceed the benchmark quantity (MEE).
**Four types of power generation units are covered with different benchmark emission rates: 0.877 mt of CO2/mWH for conventional coal-firing units above 300 MW, 0.979 mt of CO2/mWH for conventional coal-firing units below 300 MW, 1.146 mt of CO2/mWH for unconventional coal-firing units, and 0.392 mt of CO2/mWH for gas-firing units (MEE).
**Conventional coal-firing units use lignite, bituminous and anthracite coals as fuels. Unconventional units use other fuel sources such as coal gangue or coal water slurry. The carbon market will also cover cogeneration units supplying both power and heat (MEE).
**Additional CEAs will be awarded to cogeneration units based on its total heat output (Gj) multiplied with different benchmark emission rates: 0.126 mt of CO2/Gj for all types of coal-firing units, and 0.059 mt of CO2/Gj for gas-firing units (MEE).
**The purchase of voluntary credits called China Certified Emission Reductions (CCERs) will be allowed to offset 5% of emissions that exceed targets. The CCER registry was launched in 2015 and suspended in 2017, but MEE plans to resume the CCER market again.
**China's Big 5 state-owned power generation utilities: Huaneng Group, Huadian Group, China Energy Investment Corp (CEIC), State Power Investment Corp (SPIC) and Datang Group collectively accounted for 44% of the country's total installed generating capacity of 2.2 TW by the end of 2020.
**Besides the Big 5, ETS participants will include subsidiaries of smaller state-owned generation companies, such as SDIC Huajing Power Holdings (SDIC Power), China Shenhua Group Guohua Power Branch (Guohua Power), China Resources Power Holdings and numerous provincial power producers.
**China started carbon trading pilots in eight markets in 2013 to gather data and study the impact of carbon trading -- Shanghai Environment and Energy Exchange, Hubei Emission Exchange, Beijing Environmental Exchange, Tianjin Climate Exchange, Chongqing Carbon Emissions Exchange, Fujian Haixia Equity Exchange, China Emissions Exchange Guangzhou, and China Emissions Exchange Shenzhen.
**As of March 2021, the pilot carbon markets covered nearly 3,000 key emitters from more than 20 industries, covering a total of 440 million tons of carbon emissions, with a total turnover of about Yuan 10.47 billion. (MEE)
**China aims to peak CO2 emissions before 2030 and achieve carbon neutrality before 2060. For 2030, China will lower its CO2 emissions per unit of GDP by over 65% from the 2005 level, increase the share of non-fossil fuels in primary energy consumption to around 25%, increase the forest stock volume by 6 billion cu m from 2005 level, and bring its total installed capacity of wind and solar power to more than 1.2 billion kW. (30th BASIC Ministerial Meeting on Climate Change)
**By the end of the 14th Five-Year Plan period (2025), renewables' installation capacities will occupy more than 50% of China's total power generation capacities, and renewables will account for 50% of the increase in China's total primary energy consumption. (National Energy Administration)