China launches world’s biggest carbon market

Clare Saxon Ghauri
Reading time: 2 minutes
19 December 2017

BEIJING: Today China launched its long-awaited emissions trading system, making it the largest carbon trading market in the world and helping the country accelerate climate action towards a world of under 2C warming.

The system will debut with coal and natural gas based power production trading only – which is critical as the power sector makes up nearly 1/3 of China’s carbon emissions – with plans to expand to manufacturing and industrial sectors.

The National Development and Reform Commission announced the scheme during a meeting with industry and government, according to newswiresAround 1,700 companies will be included in launch, covering a total of over 3 billion metric tons of carbon emissions.

China is the world's second-largest economy and largest greenhouse gas emitter, so the emissions trading scheme (ETS) will have a global impact far beyond Asia in reducing emissions in line with the goals set out in the Paris Agreement.

Yuming Hui, China Director of The Climate Group said: “An effective carbon trading scheme is anticipated as a key tool to curb China’s greenhouse gas emissions in line with China’s pledge in the global Paris Agreement as well as its commitment to eco-civilization.

“With the debut of a carbon trading market that is the world’s largest, China is demonstrating its dedication to address climate change issues by taking actions towards a low carbon future.”

The ETS launch follows successful pilots of seven regional pilot emissions trading systems that have been running since 2011 in some of China’s largest provincial-level jurisdictions, Beijing, Chongqing, Guangdong, Hubei, Shanghai, Shenzhen and Tianjin

An ETS, also known as a ‘cap and trade’ system, is a market mechanism to ‘cap’ carbon emissions that every company is allowed to produce in a year. In the EU-ETS, previously the world’s largest carbon market, every country has a set amount of free allowances. Companies can then ‘trade’ their permits in a central market. If they need more, permits can be bought from those that haven't used them.

Plans for China’s carbon market were first announced by Chinese President Xi Jinping in September 2015 during a summit with former US President Obama. This followed a series of announcements and increasing climate ambition that was kick-started by Premier Li Keqiang ‘declaring war’ on pollution during important parliamentary sessions the previous year.

More details on China’s ETS, including timelines for roll-out, will be shared by the National Development and Reform Commission in an official policy paper in the coming weeks.

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