China: China Outlines Plans For Its Carbon Trading Markets

The Climate Department of China's National Development and Reform Commission (NDRC) recently published an article entitled "Regarding the Fundamental Conditions and Operational Thinking Behind the Promotion and Establishment of the National Carbon Emissions Rights Trading Market" (National Market Plan).1 This is significant as it addresses some basic questions that many observers have been asking about China's anticipated national carbon trading market, and lays out a roadmap of how China plans to develop this market over the coming years. At this moment, much remains to be done in terms of liquidity and efficiency for this market to achieve its real potential.

Background Last November, China announced its aim for the country's overall carbon emissions to peak and then start to decline by 2030.2 The development of its domestic carbon trading market is a major component of China's strategy to reduce carbon emissions. To this end, China has launched seven regional emissions trading schemes, the first of which opened in Shenzhen in June 2013. The schemes are pilots for a proposed national market which was at one stage expected to come into operation in 2015.

All seven pilot schemes are now operational and have developed systems for (1) setting carbon emissions caps for relevant emitters; (2) allocating emissions allowances; (3) monitoring, reporting, and verifying emissions; (4) offsetting allowances with carbon credits; and (5) registering and trading the allowances and offsets. However, they suffer from illiquidity to varying degrees due to limitations of scale, rigid participation requirements and product limitations (for example, spot trading only).3

In December, the NDRC published the Provisional Measures for the Administration of Carbon Emission Rights Trading (the Provisional Measures).4 These set out the basic regulations that will govern the nationwide emissions trading scheme that is now expected to be launched in 2016. The new national registry created by the Provisional Measures allows carbon offsets, Chinese Certified Emissions Reductions (CCERs), to be purchased through spot trading on the seven regional exchanges for the first time.

Significantly, foreign entities are not allowed to open a CCER account. This means that if a foreign entity wants to participate in trading CCERs in China, it needs to set up a Chinese subsidiary to do so (discussed in more detail below). Furthermore, CCER trading is still a work in progress, and much work needs to be done to facilitate efficient trading.

Although the relevant exchange under each pilot scheme is linked to the national CCER registry, the exchanges are not linked to one another. A CCER must be transferred to a local exchange before it can be traded; if someone wants to trade a CCER on the Shanghai exchange, but that CCER is currently listed on the Beijing exchange, the CCER must first be delisted from the Beijing exchange and then relisted on the Shanghai exchange. This is inefficient, but it is hoped such inefficiencies will be eliminated after the national exchange has been established.

The Timeline The NDRC's roadmap for the development of this national exchange is found in the National Market Plan. It divides the development of China's carbon markets into three periods; it tells us where the market is now and predicts how it will develop:

  1. The preparatory phase (2014-2015) During 2015, the most important task will be for the State Council to issue State Council level regulations as quickly as possible. As those who trade CCERs on the local exchanges already know, the seven pilot schemes are governed by varying levels of local regulations. The carbon markets of the pilot schemes therefore operate quite differently from the anticipated national market. The national market should be subject to a national level of regulation, which would be expected to be uniform and more readily enforceable. A national market will also be welcomed by foreign participants, as CCER trading on the current seven exchanges requires considerable duplication of effort.

    During 2015, the NDRC plans to: (1) issue supporting details and technical standards; (2) determine greenhouse gas accounting methods and standards for all regulated industries and enterprises; (3) define the total quota, allocation methods and standards for national carbon emissions; and (4) improve the registration system to prepare for the commencement of trading.
  2. The operational improvement phase (2016-2020) 2016 through 2020 will be a period of trial operations. The most important tasks will include: (1) gradually incorporating China's 31 provinces and other regions into the scope of the national carbon trading rights system (it is not yet clear how the transition from the seven pilots to the national exchange will be effected); (2) distributing the first allocation of allowances; and (3) commencing market operations. For the remaining years of this phase, the National Market Plan emphasises: (1) fully implementing the carbon rights trading system; (2) adjusting and perfecting the trading system; and (3) achieving stable market operations.
  3. The stabilisation and maturation phase (after 2020) The National Market Plan's most important tasks after 2020 will include: (1) increasing the number of product categories traded; (2) developing diverse trading modes; (3) gradually forming stable, healthy, active trading markets; (4) further upgrading market capacity; and (5) exploring the feasibility of linking with other international carbon markets.

The NDRC also says that, for the time being, trading will be limited to spot trading, and that futures will be introduced when "conditions permit".

CCERs: Trading Begins China's partial progress on its path to a national exchange is visible in the way that CCER trading is developing on the seven exchanges.

First, the procedures for opening, closing, and changing accounts to trade CCERs are governed by one set of rules and standard forms promulgated by the NDRC: the Provisional Procedures for Opening an Account in the National CCER Registration System (CCER Registration).5

Applying for a Trading Account As foreign entities are not allowed to open a CCER account, if a foreign entity wishes to participate in the trading of CCERs, it must establish a Chinese subsidiary. This is not currently the case for trading in allowances in certain of the pilots (such as Shenzhen and Guangdong), which allow direct access to trading for foreign entities.

How a Foreign Entity Establishes a Chinese Subsidiary To set up a Chinese subsidiary, a foreign entity needs to establish a foreign-invested enterprise (FIE) in China in accordance with Chinese law. The FIE could be either a wholly-owned subsidiary or a joint venture with a Chinese partner. To establish an FIE, the foreign investor normally needs to: (i) obtain the approval of, or complete a filing with, the local bureau of commerce (BOC), (ii) register with the administration for industry and commerce (AIC); and (iii) complete post-registration formalities, including tax and foreign exchange registrations.

The exposure to PRC taxation, such as enterprise income tax on trading profits and withholding tax on dividends remitted overseas, as well as administrative and other compliance costs, will need to be weighed up, as well as the location of the FIE. For example, establishment in the Shanghai Free Trade Zone could be advantageous, although this will depend on the particular circumstances of the entity.

The pilot exchanges do not currently require trading participants to have a specific business scope; a general business scope that includes trading, investment or consulting is therefore sufficient to become a member of an exchange and to participate directly in trading. Some pilot exchanges, however, require that trading members have been in operation for a certain number of years, have a particular level of registered capital, and so forth. However, if a company (including an FIE) fails to satisfy these requirements, it is nevertheless still able to participate indirectly in trading through a brokerage firm.

Trading on the Exchanges Since CCER trading does not occur between the local exchanges, and because national trading has not yet been enabled, those who want to trade CCERs on a particular exchange have to open an account on that exchange. Those who wish to trade on all seven exchanges will have to open seven separate accounts. In most cases, one must open both trading and funds accounts in order to trade CCERs.

It appears that it is not possible for traders to exchange CCERs except through the local exchanges. The private exchange of a CCER is not possible, as there is no provision for notifying the national register of the transfer of a CCER except through an exchange, and, of course, one must be a member of an exchange in order to trade on it.

Local Criteria for CCER Use One aspect of CCER trading of particular note is that the local exchanges are free to reject CCERs that do not meet local criteria. For example, the Beijing and Shanghai exchanges do not allow CCERs generated before 1 January 2013 to fulfil compliance obligations.6 This means that of the nearly 14 million CCERs that have been approved by the NDRC to date, merely 68,000 can be used for compliance purposes on those exchanges.

Furthermore, CCERs that the Shanghai and Beijing exchanges do recognise can be used to offset no more than 5 percent of an entity's compliance obligations. The Beijing exchange also requires that half of the compliance obligations that a CCER may offset must have been generated in the Beijing area.7 Some CCERs will, therefore, be worth less than other CCERs. It is not known how this issue will be resolved by the national scheme, as the National Market Plan does not address it.

Conclusion China's carbon markets are developing rapidly. The process of trading CCERs is cumbersome, and the rules vary from exchange to exchange. As the National Market Plan notes, one of the top priorities is to formulate one set of rules and to adjust and improve the trading system for a stable market that will also improve trading efficiency.

As has been frequently noted, one of the most serious weaknesses of the pilot exchanges is the lack of liquidity; the anticipated availability of futures and derivatives in due course on the national exchange ought to provide a significant boost in that respect.

However, while the National Market Plan refers to the development of futures, it provides little detail. As the CSRC will continue to oversee the financial products and trading practices of the exchanges, how the NDRC and CSRC work together will, to a large extent, influence how China's carbon markets develop and how trading will be conducted on the exchanges.

Further, it seems unlikely that futures trading on the carbon market would precede futures trading on domestic equity markets, for which a clear timetable is still awaited. Although with stock options trading just launched on 9 February 2015, this might be nearer than recently anticipated. China's regulators no doubt want to see the young carbon market walking well before it tries running.


1 "Regarding the Fundamental Conditions and Operational Thinking Behind the Promotion and Establishment of the National Carbon Emissions Rights Trading Market", China Economic & Trade Herald, January 2015, vol. 1; the Chinese text is available at:

2 "U.S.-China Joint Announcement on Climate Change"; available at:

3 For an analysis of the challenges that currently face China's carbon exchanges, see: China Environmental News, "Is carbon emissions trading still half baked?", 18 December 2014 (Chinese); available at:

4 The full Chinese text of the Provisional Measures is available at:

5 The Chinese text of the Provisional Procedures is available at:

6 Shanghai Environment Energy Exchange, 26 January 2015:

7 See "City of Beijing Provisional Measures on The Administration of Offset Carbon Emissions Rights", Articles 5-6; for the Chinese text, see:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions