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On December 31st, 2020, the Chinese Ministry of Ecology and Environment (MEE) issued the Measures on the Administration of Carbon Emissions Trading (Trial) [1] (hereinafter refers to the “Measures”) to replace the Interim Measures on the Administration of Carbon Emissions Trading which was introduced in December 2014. The Measures later took effect on February 1st this year.
Along with the 2019-2020 Implementation Plan for the Setting and Allocation of Total National Carbon Emissions Trading Quotas (Power Sector) [2] which was released the day before, the Measures shores up the top-level policy design for China’s national emissions trading scheme (ETS).
The documents serve as institutional guarantees for the first compliance cycle of the national ETS, which will run from January 1st to December 31st, 2021 and cover the emissions of 2019 and 2020 for 2,225 entities in the power sector. They also represent endeavors made in response to President Xi Jinping’s pledge to have China’s carbon emissions peak before 2030 and achieve carbon neutrality before 2060.
The Measures is designed to regulate carbon emissions trading and relevant activities nationwide, specify the responsibilities, rights and obligations of administrations of ecology and environment at various levels as well as market players, and key links and working requirements for the functioning of the ETS. ChemLinked will elaborate on the Measures in the following four aspects.
Clarified Definitions and Criteria
The definitions of carbon emissions right and China Certified Emissions Reduction (CCER), among others, are made clearer in the Measures compared to those in the Interim Measures. Carbon emissions right is defined as “the carbon emissions quotas allocated to key emissions entities for a given period”. CCER refers to the quantitatively certified greenhouse gas (GHG) emissions reductions which are resulted from renewable energy, forestry carbon sinks, methane utilization and other projects in China and registered in the national voluntary GHG reduction trading and registration system. Entities will be able to use CCERs to offset as much as 5 percent of emissions by volume.
It is made clear that for key emissions entities, the threshold for inclusion is 26,000 tons of CO2 annually. Such entities will not participate in local pilot markets for carbon emissions trading. Moreover, for enterprises which produce GHG emissions of no more than 26,000 tons of CO2 equivalent for two consecutive years or which do not produce GHSs anymore because of discontinuation of their production or business operations, they shall be removed from the list of key emissions entities by the provincial-level authorities concerned.
Establishment of a Three-Tier Regulatory System
The Measures put in place a three-tire (state, provincial and municipal levels) regulatory system, further specifying the regulatory responsibilities of administrations of ecology and environment at different levels.
For instance, the MEE will be responsible for building the national ETS and formulating quota management policies, reporting and verification policies and various technical requirements, provincial-level administrations of ecology and environment are responsible for organizing the allocation of emissions quotas as well as the reporting and verification work, and municipal-level authorities are required to carry out specific tasks and exercise administration and regulation in accordance with the Measures.
Self-verification of Enterprises
According to the Measures, key emissions entities shall prepare their GHG emissions report for the previous year in line with the GHG emission verification and reporting specifications formulated by the MEE, and, in particular, specify the amount of their emissions in the report. The entities shall be responsible for ensuring the authenticity, integrity and accuracy of the reports.
Meanwhile, the annual GHS emissions reports of key emissions entities shall be disclosed on a regular basis for public scrutiny, except those related to State secrets and confidential business information.
More Prudential Rules on Quota Allocation
According to the Measures, principally the entities will get free emissions quotas, and they may be able to get paid quotas allocated from the authorities when appropriate. Additionally, it also encourages entities to voluntarily cancel their emissions quotas, which is similar to the cancellation option provided in the EU market.
Overall, the Measures does not provide detailed rules on how to institutionally adjust emissions quotas, and more supporting documents are needed to further clarify issues such as paid allocation of quotas, reserved quotas and market regulation.
