China has launched a national carbon emissions trading scheme (ETS), expected to be the world’s largest carbon market, to curb climate change effects and to achieve the country’s goals of reaching peak emissions by 2030 and net zero emissions by 2060.
What is Happening?
- China has officially rolled out a national carbon emissions trading scheme (ETS) on July 16, which saw 4.1 million tonnes of carbon dioxide quotas worth USD $32 millions traded.
- The ETS is part of China’s long-planned adoption of a market-based mechanism to lower carbon emissions in the country, which is currently the world’s highest emitter, and to reach net zero emissions by 2060.
- The trading scheme allocates emissions permits to participating firms, which they can use to cover their own emissions or sell on the exchange, while penalising companies exceeding carbon quotas – where they must purchase additional permits from more efficient companies.
- Originally pledged by President Xi Jinping ahead of the signing of the Paris Agreement in 2015, the launch of the carbon market has been delayed and failed to realise in previous years due to concerns over the transparency of emissions data.
- Tradings are performed via the Shanghai Environment and Energy Exchange, and are currently only limited to the power-generation sector, as coal- and gas-powered plants account for more than 60% of China’s total power capacity as well as 40% of total carbon emissions.
- More than 2,000 power plants are currently participating in the ETS but officials hope to expand to other sectors including cement, steel and aluminium “in due course”.
- Carbon trading is not new to China. The country has previously set up eight regional pilot exchanges including Beijing and Shanghai.
- It is expected to be the largest carbon in the world based on volume.
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Carbon Trading Gains Momentum
The launch of the National Emissions Trading Scheme comes days after the EU’s sweeping legislations to cut emissions by 55% by 2030 from 1990 levels which include the introduction of a carbon border tax, as well as G20’s endorsement of carbon pricing as a tool to combat climate change.
Some analysts have suggested that the current national carbon trading scheme is too limited. Due to oversupply combined with the lack of a cap on total emissions, the current trading model could prove to be inefficient in reaching the goal of peaking carbon emissions by 2030 and going net-zero by 2060.