China prepares new carbon emission trading mechanism

World Today

China is expected to launch a national system for dealing with carbon emissions by the end of this year. The state council is reviewing the final details of the plan.

This comes after years of experiments with emissions trading systems — in several provinces.

As CGTN’s Chen Tong reports, China is becoming a global force in environmental responsibility.

Similar to buying shares in the stock market, companies which produce carbon dioxide will buy permits for it, in carbon emission trading centers. And like the stock market, the price of the carbon emission permits will vary every day.

This form of permit trading is a common method countries utilize to meet their obligations under the Kyoto Protocol, an agreement attempting to reduce future climate change.

The establishment of a national trading center will unify the work of the country’s current nine centers operating in different cities and provinces across the country. It will provide a unified clearing center to serve the spot contracts that companies buy.

“The clearing platforms for the contracts were previously based in banks and clearing houses,” said Yang Bin of Pudong Development Bank. “Once the trading system is unified, the clearing platforms should also be unified to provide basic services for customers.”

Currently, China’s carbon emission trading centers are managed separately in different cities. The establishment of a national trading center will streamline procedures and unify regulations nationwide.

The national trading center will cover contracts in eight industries including steel, non-ferrous metals, papermaking and aviation. Shanghai Zhixin Carbon Asset Management helps companies with carbon emission trading.

The service provider said that because the current trading centers were set up to serve different areas, a manufacturer’s headquarters might be based in one city but its factories in others. Under the original system, the company would have to register separate accounts in all the cities in which it operates.

“A company opening accounts would need to go to different trading centers if their businesses are located in different cities, or if they want to do cross-regional transactions,” said Qian Feng, General Manager of Shanghai Zhixin Carbon Asset Management. “That increases the costs for companies, and they need to keep checking the price changes in different trading centers. Permits used to be traded locally, even though the Chinese Certified Emission Reduction plan was national. That confused investors.”

As of the end of July, Chinese firms had registered for the emission of 197 million tons of carbon dioxide, at a cost of 4.5 billion yuan. Market analysts predict the scale of the national carbon emission plan will reach some 120 billion yuan.

If derivatives such as futures contracts are used, the sales value could conceivably reach some 500 billion yuan. The Chinese government said that at the current rates of growth, the country’s carbon emissions will peak in 2030.