A national carbon trade program has been a hot topic as soon as
China decided to launch it in 2016. Following the publication of
the Interim Measure for Management of Carbon Emission Trade
(Interim Measure) in December 2014, discussions about the
"national cap," the quantity of exchanges and carbon
finance are at the forefront.
Article 8 of the Interim Measure clarifies that the carbon trade
office of the State Council is responsible for distributing
allowances to each province, based on the consideration of emission
volume, economic developments, industrial structure, energy
structure and the important emission entities—making it a
challenge to determine a national cap at the current stage, while
considering the basic situation of each province. For example,
Shanxi is a big energy-producing and energy-consuming province
which has only achieved 62 percent of its energy conservation and
emission reduction target of the Twelfth Five-Year Plan, while
cities like Shenzhen, which lack manufacturing and heavy
industries, have lower carbon emissions (per unit) than Shanxi.
Allowance allocation is the key element of the carbon trade
program—by determining the reduction cost and performance
cost of each control unit. In a pilot project of seven provinces,
baseline methodology has been used by five pilots (Chongqing and
Shenzhen are excluded), resulting in various valuable experiences,
which can be extrapolated to a national level. It seems likely that
baseline methodology will be introduced to a national level.
The quantity of exchanges
How many exchanges will survive when the national carbon trade
program is effective? As far as we know, there are seven exchanges
in China—Beijing, Tianjin, Shanghai, Shenzhen, Guangzhou,
Wuhan and Chongqing. However, the Chinese market has been
questioning whether China really needs so many exchanges. I am
afraid that the answer is no. One interesting thing, is that a
couple of exchanges have been considering future merges and
acquisitions. For example, Beijing and Tianjin, Shenzhen and
Guangzhou— those exchanges would be the first example of
Enhance of market liquidity
Lack of liquidity is a major problem in the current Chinese
carbon trading program. To enhance liquidity, agencies like banks,
securities companies and trust companies should be encouraged to
participate in the carbon trade program from different sides.
Although the Interim Measure does not state that the authorities
encourage capital markets to join in the big game, the Chinese
market still believes that more agencies will be allowed to
participate in the program in order to better achieve emission
reduction and enhancement of liquidity.
Aside from the Interim Measure, there is no clear policy or
regulation related to the aforementioned topics. However, based on
the current experiences of the seven pilot provinces, our
discussion herein is a reasonable estimation.
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.
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