China launches long-awaited carbon trading scheme

The scheme will set pollution caps for big-power businesses for the first time.
The scheme will set pollution caps for big-power businesses for the first time.PHOTO: REUTERS

BEIJING (REUTERS, AFP) - China’s long-awaited national carbon emission trading scheme (ETS) opened at 48 yuan (S$10) per tonne on Friday (July 16), according to reports from Chinese media.

The establishment of a nationwide trading scheme was first pledged by President Xi Jinping ahead of the signing of the Paris climate accord at the end of 2015.

There was a “soft launch” of the scheme in late 2017, but no transactions took place, and plans for a full launch were put back several times before it finally opened for trading at 9:30am on Friday. 

A total of 4.1 million tonnes of carbon dioxide (CO2) quotas worth 210 million yuan (S$44 million) changed hands, Shanghai Securities News reported. 

It is the largest carbon market in the world by volume with more than 2,200 power plants, responsible for more than 4 billion tonnes of carbon dioxide emissions, included in the first phase of trading. 

The price closed at 51.23 yuan  per tonne in its first day of trade, up 6.7 per cent.

“China has reached an important milestone in its progress on climate action, putting the last puzzle piece in place for the largest carbon market in the world,” said Fred Krupp, president of Environmental Defense Fund, an international non-profit organisation. 

More than 2,200 power plants, responsible for more than 4 billion tonnes of carbon dioxide emissions, are included in the first phase of trading, making it the largest carbon market in the world by volume.

The opening price of the national scheme was above the average carbon price 40 yuan per tonne traded at seven pilot markets that began trading in mid-2020, but was well below the average price of about 50 euros (S$80) on the European Union’s ETS. 

Delays to opening China's national ETS partly stemmed concerns over the accuracy and transparency of emission data. 

The environment ministry acknowledged that data accuracy was the top priority for the national 
carbon market.  

China’s central government is working with industrial associations to collect data from the steel, non-ferrous metals, chemicals and other sectors with the aim of expanding carbon trading moving ahead.

Citigroup estimates that US$800 million (S$1.1 billion) worth of credits will be bought for this year, rising to US$25 billion by the end of the decade.

That would make China's trading scheme about a third the size of Europe's market, currently the biggest in the world.

At a press conference this week, Deputy Environment Minister Zhao Yiming described the scheme as "a key tool to help the country achieve its goal of reaching peak emissions before 2030 and carbon neutrality by 2060". 

But analysts say it is not a quick climate fix and could take years before the world's biggest polluter changes course.

Mr Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air, said officials had "pared down ambitions" for the scheme, which was originally expected to cover seven sectors, including aviation and petrochemicals.

"China's coal, cement and steel production have all gone up as the government pours in billions of dollars to energy-intensive sectors to boost growth after the pandemic," he said.

"Rules to limit emissions will disrupt this growth model."

The average price for carbon in China is expected to be about 30 yuan per tonne this year - far below the average European Union price of €42  per tonne, Citic Securities said in a recent research note.