An NGO Review of China’s Carbon Market, 2013

日期:

2013 witnessed the first moves in exploring and operationalizing carbon pricing in China, with the launch ofChina’s first carbon trading pilots. Drawing from the existing experiences around the world, G:HUB set out toestablish a multi-dimensional assessment framework to evaluate the performance of China’s carbon market. Theframework consists of four aspects, including scheme design, scheme implementation, market performance,transparency and stakeholder engagement. Specific indictors are applied in each aspect to analyze and evaluatethe operation of carbon trading. The Report summarizes the publicly available information related to the sevenpilots and China’s voluntary emissions market up to November 2013, analyses the risks and challenges faced bythe Chinese carbon market, and provides insights and recommendations.

Download:An NGO Review of China’s Carbon Market, 2013

Carbon emissions trading (ETS, emissions trading system) is one of the market-based policy tools to achieve energy conservation and emission reduction with a lower cost. It is also one of the key highlights of the policy innovation and accelerating of emissions reduction efforts of China's Twelfth Five Year Plan. In the latter half of 2011, the National Development and Reform Commission commenced carbon trading pilot program in seven provinces and municipalities. The year of 2013 is the first year of the start of carbon trading by the pilots and has a significant demonstration effect on China’s future carbon pricing policies prospects as the experiment. Given the development status and level of China’s carbon market, and drawing from the existing experiences around the world and the advice from experts, Greenovation Hub set out to establish a multi-dimensional assessment framework to evaluate the performance of China’s carbon market. The framework is consisted of four aspects, including scheme design, scheme implementation, market performance, transparency and stakeholder engagement. Specific indicators are set in each aspect respectively in order to analyze and evaluate the operation of carbon trading.

The Report summarizes the publicly available information related to the seven pilots and China voluntary emission market by November 5, 2013. Due to the prolonged launch schedule of the ETS pilots and limited availability of data, the report conducts mainly the qualitative study. According to the analysis, the risks and challenges of the Chinese carbon market that we identified include: the quality and sufficiency of emission statistics is not satisfactory yet; the cap setting is of risk of being too loose and potentially negative impact on market due to flexible cap e.g. ex-post adjustment; the consideration of reserves for growth space and the interactions with the other policies still need to be improved. In particular, emission allowance allocation methods are mainly using free approach and grandfathering based on the historical emissions. Certain areas are making positive attempts to try benchmarking and auctioning approaches. Another key challenge is that the power sector is faced with structural challenges such as the government control over electricity price. The particular choice of double “regulating” the upstream and downstream (both the direct emissions from power sector and indirect emissions of electricity and heating of industries are covered in each pilot region) and its implications still need careful assessment and examination. The legal basis and punishment/compliance system seem to be inadequate in terms of the existing practices. Monitoring Report and Verification (MRV) mechanism, management of third-party qualification and market risk control also need further improvement. In addition, the revenues (both existing and potential ones) generated by the carbon market lacks specification of provisions of their using and management.

Based on international experiences and the present piloting stage of the ETS in China, carbon market’s development should be a continuous process of identifying and correcting shortages and mistakes as well as a process of continuous participation of stakeholders, to collectively explore ideas, review experiences and improve policy design and implementation. The potential imperfection and room for improvement of policy actually increases the need of information disclosure and transparency. The timely and accurate disclosure of information is an important premise for promoting market evaluation and problem solving. By far, the Chinese carbon market is still not satisfactory with regards to the information disclosure and data accuracy, and it also lacks largely the public and stakeholder engagement mechanism or channels. As an important supplement to the Cap and Trade System, Chinese Certified Emission Reduction (CCER) market was established in parallel, which offers opportunity of further development as well as challenges to China’s carbon offset projects. In order to reach the balance between the supply and demand of offset projects, appropriate management programs need to be formulated to ensure that the carbon offset mechanism can effectively and efficiently promote carbon emissions reduction with a low cost while taking into consideration of multiple factors such as social and environmental safeguards, sustainable development and technology transfer. 

The regional carbon trading pilots started to operationalize in 2013. At the same time, the design and exploration of the national carbon trading system has also started. The pilots will generate precious experience and lessons for China to establish a national and unified carbon market in the future. Furthermore, the carbon tax policy is also on the table and still awaits political decisions. The coming years will be a key period for China’s carbon pricing in terms of policy development and mechanism construction. The ultimate purpose of setting a carbon price and forming an effective market is to realize the reduction of green gas emissions in China, which is also key to the global efforts of combating climate change. As such, the process of carbon market development in China requires comprehensive thinking and practices, the participation and discussion of different stakeholders, as well as effective market monitoring and public supervision, in order to ensure the functioning of the market and fulfillment of its objectives in a fair and effective manner. However, the policy discussions up to date are still concentrated in a relatively small circle and in an enclosed status. The different stakeholders that participate in the market mainly represent the pursuits and concerns of commercial interests. As a non-governmental organization dedicated to environment and climate change, Greenovation Hub has taken the first attempt in China to evaluate the carbon market performance. We plan to continue the annual review of China’s carbon market via more data based, multi-stakeholder engaged approach and objective analysis in the coming years. We will promote the formation of an encompassing and open carbon market policy discussion that involves multiple players/stakeholders and drawn on the best domestic and foreign experiences and lessons learned. We will also explore to form an independent non-governmental platform to observe and provide inputs in policy discussions around carbon pricing in China, so as to ensure the smooth policy formulation and implementation and avoid mistakes.