China’s National Carbon Market Makes Headway

(Photo: Dong Wenjie/Getty Images)


Capacity building remains a significant challenge – and need – as China moves to grow coverage of its national carbon market. Yet China remains dedicated to building out and expanding its carbon markets. At a recent meeting hosted by the Ministry of Ecology and the Environment (MEE), the China Electricity Council, and the Environmental Defense Fund, Vice Minister Zhuang Guotai again highlighted the importance of carbon markets in managing global greenhouse gas emissions (GHG) and the expected growth of these markets.

Over 300 diverse stakeholders including representatives from provincial level MEE departments, impacted industrial sectors, and local carbon exchanges gathered to discuss further development of the national carbon exchange. This meeting was significant not only as a forum to demonstrate China’s commitment to developing its carbon market, but also because it was the first meeting post national carbon market launch and post MEE restructuring that featured minister-level officials, attendance by provincial development and reform commissions and environmental protection departments, and participation from the relevant industrial sectors—especially the power sector.

Vice Minister Zhuang emphasized the importance of the carbon market exchange as a policy tool for reducing GHG emission. While China’s current exchange was launched with just the power sector, in time, it will be expanded to include additional sectors and more trading tools. Currently there is limited trading – essentially just managed trades – but the development of spot trading and futures trading is on the horizon and part of the long term outlook for China’s national carbon market.

He principally noted four priorities for the MEE as it works to expand capabilities for the carbon exchange:

  1. Improve regulatory and administrative framework of the national carbon market;
  2. Accelerate construction of the exchange’s infrastructure including a registration system for companies, a financial infrastructure for trading, and working with the currently covered companies to upgrade the data reporting system;
  3. Enhance monitoring, reporting, and verification (MRV) management to ensure transparency and consistency; and
  4. Strengthen capacity and expertise of provincial officers, covered companies, and the third-party verifiers through facilitating capacity-building opportunities.

Stakeholder insights from the meeting touched upon China’s international carbon commitments and the infrastructure needed to build a functioning and effective carbon market.

  1. International commitments—As part of China’s Paris Agreement pledge, it is dedicated to a low-carbon transition and to curb the effects of climate change and this message was reiterated at the Global Climate Action Summit in San Francisco. To ensure follow through on China’s international commitments, it is dedicated to the success of the carbon exchange.
  2. Expanding the exchange—The exchange as it stands covers the power sector. However, China is already thinking ahead and the exchange will be expanded to cover at least three additional industrial sectors (building materials, iron and steel, and non-ferrous metals) with others in the pipeline.
  3. Streamline policy coordination—The reorganization of the government earlier in the year has helped to streamline carbon markets policy coordination by clarifying roles, eliminating redundancy, and simplifying the decision-making progress.
  4. Capacity building—One major challenge in constructing and operating a robust national carbon market is the lack of capacity. There is a need to provide additional training to educate local officials as well as those in the industrial sectors that will be covered. (Read our policy brief on capacity building in the carbon markets.)

Perhaps, one of the most important updates from the meeting was a timeline for the development of the national carbon market. To date, there has been limited information, but it seems clear that MEE has made some important decisions and is ready to continue to make progress.

According to one expert deeply involved in the design of the carbon market, it will be established in three phases.

  • Phase one (2018-2020)—Initiation and Commissioning: The national carbon market will only cover the power industry and local pilot markets will continue to existing alongside.
  • Phase two (2020-2025)—Development and Improvement: The national carbon market will incorporate more industries.
  • Phase three (2025-2030)—National Carbon Market: The local pilot markets and national carbon market will be integrated to become only one single market.

The timing of this event to occur in parallel with the Global Climate Action Summit is no mistake. It was a much needed progress report and pulse check for the development of the national carbon market, but it was also a sign that China is redoubling its messaging around the success of its carbon market and commitment to its carbon reduction goals.