The draft New Measure aims to enhance the environmental integrity of China’s carbon market by introducing new requirements for project registration and credit issuance.

By Paul A. Davies, Jean-Philippe Brisson, Michael Dreibelbis, and Qingyi Pan

China is preparing to relaunch its carbon credits program, the Chinese Certified Emission Reduction (CCER) Scheme, after suspending the program for over six years. On July 7, 2023, the Ministry of Ecology and Environment (MEE) and the State Administration for Market Regulation (SAMR) of the People’s Republic of China jointly released the draft Measure for the Administration of Voluntary Emission Reduction Trading (the New Measure).

The public consultation for the draft New Measure ended on August 6, 2023, and on September 15, 2023, the MEE ministry conference reviewed and passed the New Measure in principle. The formal release is expected to happen in October 2023, upon which the New Measure would replace the previous set of rules and become the governing law of the CCER Scheme.

Together with the national emission trading scheme (the China ETS) launched two years ago, the CCER Scheme represents China’s continuous efforts towards adopting market-based mechanisms for achieving its climate pledges (peaking emissions before 2030 and reaching carbon neutrality before 2060).[i]

The start of trading represents a significant opportunity for businesses able to achieve meaningful reductions.

By Paul A. Davies and R. Andrew Westgate

Nearly four years after China’s national emissions trading scheme (ETS) was announced in late 2017, trading of emissions quotas officially commenced on July 16. The start of trading represents a significant step in China’s adoption of market-based mechanisms for addressing climate change, while also signifying a major opportunity for businesses able to achieve meaningful reductions.

More than 4.1 million tonnes of Chinese Carbon Emission Allowances (CEAs) traded on the first day at a price of RMB52.78 (or US$7.42) per tonne — an amount that was in line with analysts’ expectations for launch. Although this price is significantly below the prices of allowances in the EU ETS (€52.89 per tonne on July 16) or California (US$18.80 per tonne at the May 2021 auction), it is close to the allowance price in the Regional Greenhouse Gas Initiative (RGGI) — a cap-and-trade program covering 11 states on the east coast of the United States (US$7.97 per tonne at the auction held on June 2, 2021). Like China’s ETS in its initial phase, the RGGI covers only power plants. Since the launch, prices have largely held steady, although volume fell significantly after the initial flurry of activity.

New trade arrangement incentivizes power operators to be more energy-efficient.

By Paul A. Davies, R. Andrew Westgate, Qingyi Pan, and Jacqueline J. Yap

On January 1, 2021, the long-awaited China Emissions Trading Scheme (ETS) commenced operation, with 2,225 coal-fired power plants participating. Under this new ETS, China’s power operators will have to buy emissions permits if their coal plant exceeds carbon intensity benchmarks, giving power operators an incentive to improve efficiency. Since 2011, China has developed pilot emissions trading platforms in nine cities and provinces, paving the way for a national trading scheme that was first announced in 2017, along with an emissions trading market development plan for the power generation sector. After almost four years of development, the first annual compliance cycle officially began on January 1. China’s Ministry of Ecology and Environment (MEE) has published several policy documents on the national ETS that establish regulatory authority and specify general rules for key areas of market operation and design, including the Carbon Emissions Rights Trading Regulations (Trial), which was published in November 2020.

The proposal signals continued convergence of international standards as the green bond market further matures.

By Paul Davies, Michael Green, and Aaron Franklin

On 29 May 2020, Chinese regulators published a draft of their 2020 revision to the Green Bond-supported Project Catalogue (Green Project Catalogue) for comments. The Green Project Catalogue comprises a list of projects that are eligible to be included as green projects in a green bond framework approved by Chinese regulators — with the 2020 version marking the first revision to the list since 2015. Perhaps the most eye-catching development in the new Green Project Catalogue is the exclusion of “clean fossil fuels”, a previously included project category that had led to a notable divergence between the projects that are eligible for green financing in China, and those that meet generally accepted market standards in other parts of the world.

MEE declares full steam ahead on China’s environmental initiatives, including an NGDF, private sector finance, Yangtze River conservation, and the social credit system.

By Paul A. Davies and Zoe Liu

Xu Bijiu, director general of the general office of China’s Ministry of Ecology and Environment (MEE), has given the clearest signal to date that China’s environmental ambitions will not be impeded by the projected slowdown of the Chinese economy.

Dismissing suggestions that increased environmental protection had led to downward pressures on the economy in recent years, Xu stated that China has, in fact, benefitted from a “harmonious, win-win relationship” between economic development and increased environmental protection. Xu confirmed that the pollution targets MEE set last year for the end of 2020 would not be altered, despite the fact that some areas of the country (such as Hunan in south-central China) missed their PM 2.5 air quality targets in 2019.