China is set to roll out a nationwide carbon emissions trading system (ETS) in 2021, spurred by President Xi Jinping's recent announcement of a 2060 carbon-neutrality target, to be achieved through market-based mechanisms.

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A Chinese central party committee meeting held in late December resulted in calls for establishing the country’s ETS as quickly as possible, although Li Gao, head of the climate department of the Ministry of Ecology and Environment, declined to give a date for the ETS launch at a briefing.

Li had early indicated that the ETS would be up and running by the end of this year.

People familiar with the planned ETS said the country is now working hard to put in place different aspects of the new scheme, including legislation, trading platforms and market oversight, in time for an official launch in the first half of 2021.

Coal-fired power

In its initial phase, the ETS could cover 2267 power plants responsible for annual carbon dioxide emissions of a minimum 26,000 tonnes, according to public consultation documents issued by the Ministry of Ecology and Environment (MEE) in late December.

“The power industry is ready for carbon trading,” said Li, adding that the ETS will cover more industries — including oil, gas, petrochemicals, cement, iron and steel — in the second phase.

Industry officials have acknowledged that the coal-dominated power sector in China is responsible for emitting 4 billion tonnes of CO2 per annum.

Under the EST, the government will offer allowances to companies based on past emissions, but they will have to buy additional permits if they exceed their quota based on emissions levels from 2013-2019.

The total amount they need to buy will account for no more than 20% of their allocation, according to people familiar with the scheme.

In 2010, China launched seven pilot regional carbon markets including Shanghai, Tianjin, Chongqing, Hubei and Guangdong, covering more than 20 industrial sectors and close to 3000 entities, with more than 400 million tonnes of CO2 traded by August this year.

The scale of the operations meant China quickly became the second largest country in terms of carbon trading following the European Union, according to MEE.

The ETS is meant to push energy intensive industries to pursue greener investments and phase out the fossil fuel consumption, particularly that of coal in the power industry, according to industry officials.

Challenges listed

They said that the pilot programmes in seven regions have provided cornerstones for China to overcome such challenges as institutional capacity, allocation of allowances, carbon accounting, plus monitoring, reporting, and verification (MRV) as well as financial regulation to control price volatility.

China is currently responsible for 10 billion tonnes per annum of carbon dioxide emissions, representing about 30% of the world's current total.

Recent research by China National Petroleum Corporation (CNPC) showed that China’s carbon emissions are expected to peak in 2025 before dropping to 2.4 billion metric tonnes in 2050, with petroleum demand down by more than half in that period.

CNPC claims the country’s carbon emissions will level off after 2025, before hitting net zero in 2060.

Lofty aims

In a joint statement issued by China's President Xi Jinping and then-US President Barack Obama at the United States-China Climate Summit in September 2015, China announced that it would legislate for a national emissions trading system (ETS) in 2017 covering power generation, steel, cement and other key industrial sectors.

The 2017 timetable was later deemed too ambitious as China did not have the mechanisms in place for carbon accounting; monitoring, reporting, and verification.

Cleaner: Solar and wind will play a vital role to achieve China's emissions target. Photo: AFP/SCANPIX