China continues to implement an IT-based big data system of market regulation that rewards and punishes individuals and enterprises.

By Paul A. Davies and R. Andrew Westgate

China is currently implementing an innovative approach to monitoring, rating, and regulating the behaviour of market participants through a new “social credit system” (SCS) set forth in the Plan for Establishing a Social Credit System (the Plan). The Plan, first published in 2014, applies credit ratings across social, political, and environmental sectors. For example, a company breaching emissions targets will receive a lower rating (resulting in punitive measures, higher taxes, or other sanctions).

The Plan aims to implement a self-enforcing mechanism for regulation built on big data that monitors and evaluates economic and social behaviour using real-time feedback. The system is designed to incentivise companies to make decisions in line with laws, regulations, and governmental policy targets.

This blog will focus on the application of the SCS to environmental matters.

China’s NDRC will provide green subsidies to projects that address significant environmental problems.

By Paul A. Davies and R. Andrew Westgate

China’s National Development and Reform Commission (NDRC) has announced plans to provide subsidies of up to 60% for “green” investment projects in the Yangtze River Economic Belt (YREB) in China’s latest attempt to combat pollution while stimulating growth.

Yangtze River Economic Belt Development Plan 2016

The Chinese government announced the launch of the YREB in 2016. President Xi Jinping stated that the YREB should focus primarily on environmental protection rather than economic growth, due to rapid deterioration in the Yangtze River and the Yangtze Delta. Previously, steel mills and petrochemical factories lined the riverbanks to access cheap water transport, and in 2016, more than 45% of China’s sewerage was discharged into the Yangtze River.

The YREB Development Plan, published in March 2016 following approval by the Central Committee Political Bureau, outlined a “one axis, two wings, three poles and multiple points” pattern of improvement, focusing on ecological and green development.

By Paul Davies, Andrew Westgate, and Bridget Reineking

China’s chief economic planning body, the National Development and Reform Commission (NDRC), has today announced the launch of its national Emissions Trading System (ETS). The ETS is an ambitious effort that likely will surpass every other emissions trading system in the world, including that of the European Union.

Many observers anticipated that China would launch the national ETS at the 23rd Conference of the Parties (COP 23) to the Paris Agreement in Bonn, Germany, in November 2017. However, Chinese officials at COP 23 merely previewed that the national ETS still required government approval. The delay in launching the national ETS likely stems from the system’s logistical challenges, including the following:

  • The need for timely and comprehensive emissions data for each industrial sector covered by the system
  • Issues relating to the determination of consistent methods for setting benchmarks for free allowances
  • Coordinating utilization of offset credits to satisfy compliance obligations during the initial compliance period

By Paul Davies and Andrew Westgate

Chinese policymakers have indicated that the country’s Emissions Trading System (ETS) — which will be the largest system of its kind globally and the centerpiece of Chinese climate change policy — is likely to launch in November 2017 “at the very earliest”. The delay will enable China to announce the launch at the next UN Climate Change Conference in Bonn, Germany. However, Chinese officials have privately indicated that this likely will be a “formal” launch only, with allocation of emissions allowances and compliance obligations coming into effect during 2018. As a result, several of the existing ETS pilot programmes in Chinese provinces and major cities have begun to announce new allowance allocations for 2017, including for sectors covered by the national ETS.

The delay reflects a number of policy challenges that regulators at the National Development and Reform Commission (NDRC), China’s primary economic policy-making body, have struggled with in designing the ETS. For example, difficulties in obtaining accurate emissions data for each industrial sector covered by the system, determining benchmarks for the allocation of free allowances to industry, and whether pilot programmes may use offset credits (Chinese Certified Emissions Reductions) to satisfy compliance obligations during the initial compliance period. Verifying emissions data has been an issue for regulators managing China’s eight pilot programmes, with the Hubei Province recently delaying its compliance deadline due to problems verifying total emissions for 2016. The carbon market remains concerned about a potential oversupply of offset credits and reports that policymakers will exclude offset credits from the initial compliance phase of the new National ETS.

By Paul Davies and Andrew Westgate

The National Development and Reform Commission (NDRC), China’s central economic planning agency, issued several guidance documents relating to the upcoming national Emissions Trading System (ETS) in January this year. The documents, released in Chinese only, include: the forms that companies will be required to use to report their annual carbon emissions to NDRC;  the list of industries that will be subject to the ETS; the requirements for companies and personnel involved in the verification process; and a verification reference guide.

These guidance documents build on the preliminary rules for the ETS that NDRC released in December 2014, and represent another step in the development of the ETS, which President Xi Jinping has announced will be launched in 2017.