Report evaluates China’s national carbon market

Report published May 23, 2018

Last December, China launched what will become the world’s largest emissions trading system. In the report “The Progress of China’s Carbon Market 2017,” Environmental Defense Fund (EDF) and the Energy Research Institute (ERI) take a close look at how the carbon market has performed to date. It is the first in a series of annual reports that will evaluate the performance of China’s emissions trading system.

The report is a unique collaboration between ERI, a prominent think tank in the field of energy related policy research in China, and EDF, the first registered international non-governmental organization under China’s Ministry of Ecology and Environment.

Improving the carbon market

Released after the conclusion of the carbon market’s top-level design phase, the report:

  • Establishes a baseline for monitoring year-over-year progress on the legal, policy and accountability mechanisms of the market.
  • Offers recommendations for Chinese authorities to address operational, structural and regulatory issues.
  • Details the first-ever timeline of the carbon market’s development, including an overview of the seven pilot markets that preceded the national rollout.
  • Provides recommendations on issuing detailed and operable market rules, and establishing a corresponding support and management system.

All of these recommendations will help ensure market-wide accountability, investments in clean technology, and emissions reductions.

Overview of the carbon market pilots

These pilots covered almost 3,000 entities from more than 20 industry sectors by the end of 2017. The total trading volume reached 200 million tCO2e, and total trading value was about 45.1 billion yuan with a price range between 1-123 yuan/tCO2e. China Certified Emission Reduction (CCER) credits that are allowed to be used for compliance had a total traded volume of 130 million tCO2e with a total value of 920 million yuan. The pilots helped the Chinese government and industry gain experience for the wider, more complicated national carbon market rollout.

"1+3+4” framework

The report explains the ideology behind the market’s design and operation processes, such as the “1+3+4” basic framework.

The “1” refers to the management decree that serves as the legal basis for the market.

The “3” are the three core management measures:

  • Carbon Emission MRV Measures ensures reliable and accurate emission data;
  • Carbon Allowance Management Measures regulates allowance allocation, surrender and compliance;
  • Market Transaction Measures guarantee smooth and efficient market operation, as well as fairness and openness of market transactions.

The“4” refers to four supporting infrastructure systems:

  • Carbon Emission Data Reporting System supports emissions reporting from key enterprises;
  • Carbon Registry tracks and keeps records of carbon allowances;
  • Carbon trading system supports the operation of the market transactions;
  • Carbon emissions transaction clearing system supports the clearing of allowance transactions.

EDF has been working for more than two decades to help build China’s capacity and ambition to address climate change. The report was developed with support from the Children's Investment Fund Foundation, and was unveiled in Frankfurt at an event co-hosted by the International Emissions Trading Association (IETA) and EDF.

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