A much-awaited start to carbon trading . . .
China’s first national carbon emissions trading scheme officially began operations on Monday. Emission quotas will be assigned for free to each provincial environment authority, which will then allocate them to the “key carbon emitters” within their jurisdiction. A list of enterprises allowed to participate in the initial round of trading was released in December. This list includes 2,225 companies in the power generation industry, which contributes about 40 per cent of China’s total carbon dioxide emissions. These enlisted companies have each emitted 26,000 tons of carbon dioxide equivalent or above in the past year. Officials expect steel, cement, and petrochemical producers to join the market as the scheme expands.
Ambitious goals, cautious roll-out . . .
The key regulatory document that stipulates how carbon trade-related activities should be conducted came out in early January, with domestic stakeholders drafting their strategies for the first compliance cycle from January 1 to December 31, 2021. The official roll-out of the national carbon trading program comes almost three years after the expected launch date due to delays in building the infrastructure, conducting simulations, and then the onset of COVID-19. Despite delays to the national program, smaller-scale experiments have been conducted in the seven regional pilot carbon markets since 2011 to explore the appropriate quota allocation and pricing mechanism. Carbon trading initiatives are part of China’s efforts to meet its pledge of achieving carbon neutrality by 2060.
Room to improve, expectations to meet . . .
The seemingly cautious approach to the new national program had experts question whether China’s carbon market will be as effective as it needs to be to reach its own carbon emission goals. How and to what degree quotas and fines will pressure carbon emitters to fundamentally change industry practices to reduce their carbon footprints remains to be seen. Many are also calling for the participation of investment and financial institutions to ensure market liquidity and activity levels. Nevertheless, a more inclusive and transparent Chinese carbon market, given its scale and significance, could offer Canadian players and industry participants an opportunity to diversify their investments in this growing market.