China aims to launch a nationwide emissions trading scheme in the next five years, starting with the power sector and expanding to other industries, the environment ministry said on Wednesday.
“The 14th five-year plan (2021-25) will be a landmark period for the establishment of the carbon trading scheme,” said Li Gao, head of the ministry’s climate change department.
“We will transition from the pilot carbon trading schemes to a national programme, and expand from one sector to cover other industries,” he said.
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The ministry would speed up the process of reviewing the regulations, system building and data checking to prepare for the launch of the national system, Li said.
The carbon trading platform aims to encourage polluters to reduce emissions through a market mechanism. Observers said there was new impetus to set up the national scheme after President Xi Jinping’s pledge at the UN General Assembly last month that China would be carbon neutral – or reach net-zero emissions – by 2060 and that it aimed to hit peak carbon emissions before 2030.
Yang Fuqiang, a senior adviser on energy and climate change policy for environmental group the Natural Resources Defence Council in Beijing, said the pilot schemes were “progressing well”.
“But the system urgently needs to evolve into a national market to increase its activity, because the trading volumes [at the moment] are small,” Yang said. “A national scheme means the market mechanism will be used to set a price for carbon dioxide [emissions] and to encourage entities to effectively reduce those emissions.”
The pilot schemes have been running in seven provinces and municipalities since 2013. By August, they covered some 3,000 polluters in over 20 sectors including steel, power generation and cement, according to the environment ministry.
It said the accumulated trading volume of those schemes was 406 million tonnes of carbon-dioxide equivalent greenhouse gas emissions, with a total value of 9.28 billion yuan (US$1.38 billion).
Xi first talked about the national trading system in 2015 during a visit to the United States before the Paris climate accord was signed. A plan was released in late 2017, setting out a gradual transition from pilot markets to a national carbon trading scheme in three phases.
“As China’s ETS will be the largest carbon market in the world, its experience could shape other carbon markets and set an example for other emerging economies,” the International Energy Agency said in a June report.
But it has been delayed – Beijing had planned to have a national scheme for the power sector in place by this year, and on Wednesday Li described it as “complicated and systemic work”.
“We’ve overcome various challenges, including [administrative changes] and the coronavirus pandemic,” he said, referring to the climate change department being merged with the Ministry of Ecology and Environment in 2018.
However Yang, with the environmental group, said the size of China’s national market was an advantage. He expected coal-fired power plants to be retired faster once the national scheme was up and running, because they would become less competitive due to higher operating costs.
China plans to gradually extend the carbon trading platform to seven other industries that are heavy emitters – oil, chemicals, construction materials, steel, non-ferrous metals, paper and aviation.
Yang said the power sector was a good place to start. “[It] accounts for about 40 per cent of the country’s total carbon dioxide emissions, so cutting emissions from this sector will make it easier for China to reach its [climate] target,” he said.
But he said it was important to launch the national system as quickly as possible. “Without the carbon trading market or a tax on carbon, no one will care about [reducing] emissions because there’s no price on it.”
Transparency and accuracy of the emissions data being reported by polluters is another concern, and experts said regulations on carbon trading schemes often lacked teeth.
“The key is that it needs a solid legal basis, a set of robust rules and guidelines, a sound infrastructure system, intensive training, proper management of verification process and oversight,” said Lina Li, China ETS and climate policy expert at Berlin-based consultancy Adelphi.
Ma Jun, director of Beijing-based NGO the Institute of Public and Environmental Affairs, said emissions data disclosure and transparency was needed at the company level.
“Polluters won’t effectively reduce their emissions without [it],” he said.
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