How China's New Carbon Market Will Work
Comment of the Day

July 14 2021

Commentary by Eoin Treacy

How China's New Carbon Market Will Work

This article from Caixin may be of interest to subscribers. Here is a section:

Before the launch of the national ETS, China had already established regional ETSs in eight provinces and cities, including Beijing, Shanghai and Shenzhen. Seven of the regional ETSs started trading in 2013, while the one in the eastern province of Fujian kicked off three years later. These regions allow companies to buy carbon credits equivalent to as much as 5% to 10% of their original quotas or actual emissions. The average price of carbon credits traded on the regional ETSs stands at 50 yuan ($7.73) per ton, analysts at Guotai Junan Securities Co. Ltd. estimate, far lower than the 250 yuan equivalent per ton in the EU ETS in 2020.


Initially, China’s national ETS will only cover the electricity generation sector. A batch of 2,225 electricity companies (link in Chinese) will participate in the trading.

In addition to electricity, the trading system will eventually cover seven other industries (link in Chinese), including petrochemical, chemical, construction materials, steel, nonferrous metal, papermaking and aviation. Companies that emit greenhouse gases equivalent to more than 26,000 tons of carbon dioxide a year will be included in the system.

It is expected that financial institutions will indirectly engage in the carbon market, as central bank Governor Yi Gang in April said that “the carbon market should be a financial market in nature and allow carbon financial derivatives trading.”

Eoin Treacy's view

China appears to be serious about its intentions to migrate away from its reliance on coal (65%) for electricity generation. As a country’s economy progresses the relative value received from the health and wellbeing of citizens increases relative to the benefit gained from physical output. China crossed that barrier a decade ago so it is logical to expect greater focus on air and water resources.

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