As China begins to implement its emissions trading system, the country may look around the globe for regulatory guidance.
By Paul A. Davies and R. Andrew Westgate
China established its national emissions trading system (ETS) as a key component of the plan to meet its commitments under the Paris Agreement. The country’s participation in the Paris Agreement is significant not only because it contributes 15% toward total global carbon emissions, but because China was a key proponent of the agreement during its negotiation.
China’s initial hurdle was how to systematically collect the emissions data necessary to design and implement the emissions trading scheme. Accurate and comprehensive emissions data is critical not only for setting the level of the overall cap, but also in determining how free allowances will be allocated to regulated companies. Determining the rate at which the emissions cap declines also requires predicting future emission rates and market demand levels.
In tandem with China’s significant economic growth over the past three decades, coal emissions have soared, increasing from 446 million tonnes in 1990 to 2.6 billion tonnes in 2017. Coal remains, and for some time likely will remain, an important source of fuel for the Chinese economy. However, the harmful effects of coal consumption are evident in the shortening life expectancies of Chinese citizens, particularly in northern China. An individual in the north apparently has an average life expectancy that is approximately 3.1 years shorter than an individual in the south, which has been linked to the burning of coal.
The Ministry of Environmental Protection (MEP) will be reconstituted as the Ministry of Ecology and Environment (MEE) as part of the reorganization. The MEE’s authority will expand to consolidate pollution-related responsibilities currently allocated among several other ministries, as well as assuming responsibility for climate change policy from the National Development and Reform Commission, a powerful economic planning agency which developed the national emissions trading system launched in late 2017. Specifically, MEE will expand its authority with respect to supervision and prevention of groundwater pollution, wastewater emission control, protection of rivers, non-point source agricultural runoff, protection of oceanic environments, environmental oversight for China’s massive South-North Water Transfer Project, and responsibility for climate change and emissions reduction policies.
Recent comments from senior communist party leaders indicate that the Chinese government intends to establish a new Ministry of Energy to streamline and consolidate authority for energy-related issues. The responsibility for these issues is currently dispersed among a variety of other ministries. The new ministry will be responsible for managing sectors including electric power generation, oil and natural gas in a bid to improve the workings of government and policymaking in relation to energy. However, the full extent of the new ministry’s authority remains unclear, including whether it will have oversight of China’s state-owned oil companies.
Following China’s 
The China Securities Regulatory Commission (CSRC), in collaboration with China’s Ministry of Environmental Protection, has introduced 
China has issued numerous green policies in an effort to support President Xi’s signature “One Belt, One Road” initiative, which aims to mitigate environmental and social risks arising from China’s overseas lending. Although few of these policies are legally binding, they reflect China’s heightened focus on environmental issues, both at home and abroad. However, given China’s increasing number of foreign direct investments over the last few years, more legally binding obligations may be necessary to better address resulting environmental and social risks.