China’s Pilot Emissions Trading Systems (Newsletter #3)
Carbon Market Watch is currently in China to follow developments around the expected launch of 7 regional pilot emissions trading systems. We give a first overview about the state of play of the 7 pilots.
China’s emissions have more than doubled over the last decade. It now contributes about 30% of global greenhouse (GHG) gases and has per capita CO2 emissions that are almost as high as the ones in the European Union.
China is taking climate actions on many levels. It has made a voluntary pledge under the UNFCCC to lower CO2 per unit of GDP by 40-45% in 2020 compared to 2005 levels. It further committed to increase the share of non-fossil fuels in primary energy consumption to around 15% by 2020 and to increase forest coverage by 40 million hectares and forest stock volume by 1.3 billion cubic meters by 2020 from 2005 levels.
|Shanghai, Courtesy Diego Martinez
Towards a national Emissions Trading Scheme
China’s 12th Five Year Plan (2011-2015) lays out plans to “gradually develop a carbon trading market”. Recently, some sources have indicated that the National Development and Reform Commission (NDRC), which manages the implementation of climate policy in China, may propose an absolute emissions cap for China for the next Five Year Plan from 2016 – 2020.
China’s 12th Five Year Plan lays out plans to “gradually develop a carbon trading market”. China is currently implementing seven pilot emissions trading systems (ETS) which are expected to serve as testing ground for a national ETS to be implemented after 2016. The seven ETS could eventually regulate between 0.8 -1 billion tonnes of CO2. If those trading schemes were to be linked they could becoming the second largest cap-and-trade programme aside from the EU-ETS (which is about twice as big).
China has announced it will allow for policy interventions, such as price control mechanisms to ensure stable market conditions and to potentially avoid some of the difficulties that have marred the EU-ETS.
China’s Pilot Schemes
In October 2011, the NDRC designated 4 municipalities (Beijing, Chongqing, Shanghai and Tianjin), 2 provinces (Guangdong and Hubei) and the special economic zone of Shenzhen City as regions for ETS pilots. All except two have already adopted their implementation plans and are expected to start their ETS in the course of 2013. The emission caps for these scemes are not yet known.
|Source: SEI, 2012|
Shenzhen and Shanghai will launch operations in June 2013. Given that both cities have few heavy industries, their ETS will also cover medium and small emitters commercial sectors such as airports, hotels and financial service providers. Shanghai’s ETS will also include its domestic aviation sector in its ETS.
Table 1 below summarized some of the features of the seven ETS pilots.
|Table 1: Summary of features of Chinese ETS pilots (2013-2015) 
Chinese domestic offsets (CCERs)
All ETS pilots are expected to allow the use of Chinese Certified Emissions Reductions (CCERs) offsets. These offsets will be issued under a voluntary, government-administered Chinese offset program that is based on the CDM. The table above outlines likely provisions of CCERs in all seven ETS pilots. Demand for CCERs could be as high as 100 million per year by 2015.
The CCER program is currently being developed. China is the largest CDM host country in the world with more than 3600 projects registered and more than 800 million CDM offsets issued to date. CCER program rules will likely be similar to those of the CDM. The NDRC is expected to act as the ruling body, similar to the CDM Executive Board. The methodologies will be based on CDM methodologies and possibly include some simplifications.
It is too early to comment the ETS pilots or the CCER programme. It is for example unclear how China will address potential double counting issues. These could be partially avoided by focusing on non-CO2 projects in sectors that are not covered by any ETS. The CCER programme so far does not seem to limit project types to those that have more certain environmental integrity, such as for example coal-power projects. Carbon Market Watch will continue to observe the Chinese efforts to establish market-based mechanisms.
 Offset information taken from Presentation by Duan Maosheng from Tsinghua University, China / CDM Executive Board at the ETS Conference in Berlin 11 April 2013
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