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On April 3, 2019, the Chinese Ministry of Ecology and Environment issued a notice [1] seeking feedback on the Provisional Administrative Rules on Carbon Emission Trading, in a bid to control green-house gas emissions with a market-oriented mechanism and promote the green and environment-friendly development of China’s economy.
Major responsibilities of regulatory authorities
According to the Rules, it applies to all carbon emission trading activities and relevant regulatory practices within the territory of China. The MEE is responsible for supervising and managing carbon emission trading activities across the country, the central government will establish a coordination mechanism for carbon emission trading, and local authorities of ecology and environment should assume the regulatory responsibility for relevant activities within their respective administrative jurisdiction.
In line with the national goals regarding greenhouse-gas emission control, the MEE will work with relevant agencies to specify the types of greenhouse gases and industries involved in carbon emission trading as well as criteria for determining key emission entities, which will all be released upon the approval of the State Council. Based on these specifications and criteria, local authorities of ecology and environment will then propose the list of key emission entities and submit it to the State Council upon the approval of people’s governments at local levels. The list should be published by the MEE after deliberation in a timely manner.
Meanwhile, two systems will be established, operated, and maintained by the MEE and subject to the management of the MEE and other relevant agencies under the State Council, namely the national registration system of carbon emission rights and the national carbon emission trading system.
Carbon emission allowances
The MEE and other relevant agencies under the State Council will work together to determine the standards and methodology for determining carbon emission allowances. Following the standards and methodology, local authorities will then determine the carbon emission allowances for each key emission unit.
Key emission entities should monitor their own emissions of green-house gases, and submit the greenhouse-gas emission report and a verification report issued by a review agency for the previous year on an annual basis to local authorities of ecology and environment. The authorities should verify the actual emissions and relevant data of key emission entities within 30 days of receiving the reports.
Moreover, the ownership of carbon emission allowances as well as the annual emission quantity and carbon emission allowances of key emission entities should be all registered and confirmed on the national registration system of carbon emission rights.
In addition, according to the standards and methodology for determining carbon emission allowances, local authorities can pre-allocate a share of allowances to key emission entities, and such allowances should be deducted from the total annual allowances of units.
Key emission entities should submit allowances equaling their actual emission quantity in the previous year to local authorities within a given period. The remaining allowances can be either sold or carried forward to the next year; the shortfalls in allowances can be covered with allowances purchased from others before December 31 of that year.
Emission reduction targets which comply with the MEE regulations can be used in fulfilling the obligation of allowance clearance and should be regulated as carbon emission allowances.
Carbon emission trading
Key emission entities and other eligible entities and individuals which voluntarily participate in carbon emission trading are allowed to be engaged in carbon emission trading. And agencies operating or reviewing the aforementioned two systems and their staff must not be engaged in such trading procedures.
Following trading rules developed by the MEE, eligible entities and individuals can purchase and sell carbon emission rights or use them as collateral. The trading can be performed in the forms of centralized bargaining and agreement.
In terms of information disclosure, the MEE should release the information of carbon emission trading and the annual allowance submission by key emission entities on a regular basis. Meanwhile, to ensure the market order and strengthen risk management, it should also establish a series of management systems for risk warning, disposal of disputed transactions, etc.
