Snapshot

·        Experts from the EU and China kick off joint research on MRV, with the aim to provide recommendations on improved MRV guidelines and templates for emitting sectors under China national ETS.

·        China is establishing and improving policy infrastructure for achieving its ambitious climate targets, with the national ETS as a key element. Meanwhile, China plans to establish a comprehensive carbon account system by 2025 to ensure the quality of carbon emission data.

·        After debates and revisions, MEPs finally agreed on the reform proposal of the EU ETS to accelerate industrial decarbonisation and make the EU ETS better serve the EU’s “Fits for 55” plan.

Project Progress

Experts from the EU and China kick off joint research on MRV. On June 30, 2022, the kick-off meeting of the Project’s Joint Research working group 1 was held online. This joint research focuses on issues related to MRV and will provide recommendations on improved MRV guidelines and templates through deep and practical joint analysis and research outputs. Read more

1^st PSC Meeting of the Project held to approve the work plan. On July 4, 2022, the 1^st meeting of the Project Steering Committee of the Project was held in the hybrid format combining in-person and virtual participants. Ms. Polona Gregorin, Deputy Head of Unit Policy Coordination, International Carbon Market, DG CLIMA and Deputy Director-general Lu Shize, Climate Change Department of MEE gave welcome remarks and implementation advice and guidance to the PSC meeting. Read more

Prepare for the Minister Policy Dialogue. On September 16, 2022, a technical meeting on EU-China climate policy dialogue follow-up and cooperation proposals was held virtually by Climate Change Department of the MEE and DG Climate Action (DG CLIMA) of the European Commission. This is a preparing meeting for the following high-level EU-China ETS Policy Dialogue. In the meeting, both parties exchanged views on the cooperation priority areas on ETS and agreed on the next steps of further strengthening cooperation through the support of the Project. Read more

Key Policy Highlights

China aims to establish a comprehensive carbon accounting system by 2025

As an essential foundation for achieving China’s ‘2030&2060’ climate targets, carbon emission data is a core basis for relevant policy formulation and promotion, as well as ETS compliance. In August 2022, China’s NDRC, MEE and the National Bureau of Statistics jointly issued 'Implementation Plan on Accelerating the Establishment of a Unified and Standardised Carbon Emission Statistics and Accounting System'. In this policy document, China states that a comprehensive carbon emission statistics and accounting system will be established by 2025, which is able to provide reliable emission data for the work related to carbon emission peaking and carbon neutrality.

In this policy document, a series of key tasks are listed, including: to establish national and local carbon emissions statistics and accounting systems, to improve carbon accounting mechanism for enterprises of key emitting sectors, to establish and improve carbon accounting methodologies for key industrial products, and to improve the national GHG inventory preparation mechanism.  

ETS as a key element: China is gradually improving its ‘1+N’ structure for achieving the ‘2030&2060’ climate target

China is establishing a well-functioned ‘1+N’ policy structure with the aim of achieving its ambitious climate targets, and during this period, China’s national ETS will play a key role. From May to August 2022, China issued a series of policy documents that did not explicitly focus on ETS, while all of them provided supportive narratives for developing China’s national ETS. These documents can be seen as ‘up-to-bottom’ action plans for different sectors, such as industrial sectors, to guide and promote the working tasks related to achieving China’s ‘2030&2060’ carbon emissions peaking and carbon neutrality targets.

Implementation action plan to synergise the reduction of pollution and carbon emissions

In this action plan, it is mentioned that China shall crack down hard on carbon emission data falsification, strengthen ETS daily supervision, strictly implement the compliance system and optimise the methodologies of allowance allocation. To this end, the regulation of China’s national ETS should be developed and implemented as soon as possible so as to accelerate the construction of the national ETS. 

Carbon peaking action plan for industrial sectors

This action plan provides a guideline for industrial sectors in terms of carrying out carbon peaking work and requires that industrial sectors achieve the carbon peaking target by 2030 and continue to improve their capacities to achieve carbon neutrality. To contribute this aim, it is mentioned in this policy that China will improve the market support system, gradually expand the coverage of other key emitting sectors, and co-ordinate the construction of markets mechanisms such as carbon emissions trading, energy consumption quota trading and electricity trading, etc.

Opinions on financial support for achieving the targets of carbon emissions peaking and carbon neutrality

This opinions issued by the Ministry of Finance points out that public finance should support the improvement of green and low-carbon market systems and give full play to the role of carbon emissions trading, energy consumption quota trading and electricity trading. It is also mentioned that China’s national ETS should gradually enrich trading varieties and trading methods and introduce paid allowance allocation in due course.

Implementation plan to promote the high-quality development of new energy in the new era

This implementation plan suggests that the CCERs generated from eligible new energy projects should be able to be used for compliance in China’s national ETS as carbon offsetting credits.

National ETS 101: A comprehensive technical guideline for the practices in China’s national ETS

In September 2022, the MEE issues ‘National ETS 101’ (《全国碳市场百问百答》) a technical guideline for China’s national ETS, which integrated consultation on ETS issues since the official launch of the national ETS. According to the MEE, so far, nearly 1,000 questions have been received and answered through various channels, issues of which cover MRV, allowance allocation, compliance, carbon emission data reporting system, and the usage of registry system and trading system, etc. This technical guideline aims to provide official responses to frequently asked questions and references for daily practice in the national ETS, which will be easily accessible to all stakeholders, especially technical staff at the frontline.

Revision of the EU ETS has been approved by the European Parliament

After a rejection of the initial proposal on the EU ETS revision in early June, Members of the European Parliament (MEPs) finally reached an agreement and approved a further revised EU ETS reform plan, which aims to make the EU ETS better serve the EU’s ‘Fit for 55’ target.

Increase annual reduction of emission allowances: MEPs want to increase the European Commission’s overall ambition to reduce GHG emissions in the sectors covered by the EU ETS from 61% to 63% by 2030, compared to 2005. To this end, the annual reduction of allowances will be increased to 4.4% until the end of 2025, then be raised to 4.5% from 2026 and to 4.6% from 2029. In the previous version, which was refused by the Parliament, the annual reduction will be increased annually by 0.1 per cent compared to the previous year until 2030, starting from 4.2% in the year following the entry into force of the reform amendment.

Incentivise best-performers and innovation and extend to maritime transport: The proposed bonus-malus-system and the proposal to extend the ETS coverage to maritime transport keep the same as the previous idea. The most efficient installations in a sector will be awarding additional free allowances, and those who do not implement the recommendations of the energy audits or certified energy systems or do not establish a decarbonisation plan will get penalised, losing some or even all free allowances. Until the end of the year 2026, all emissions from intra-European maritime transport routes as of 2024 and 50% of emissions from extra-European routes from and to the EU as of 2024 will be covered. From 2027, emissions from all trips should be covered 100% with possible derogations for non-EU countries where coverage could be reduced to 50 % subject to certain conditions. 75% of the revenues generated form the auctioning of maritime allowances shall be put into a specific public fund to support energy efficient transition and increase the EU maritime sector’s climate resilience.

End free allowances: The free allowance in the ETS sectors covered by the Carbon Border Adjustment Mechanism (CBAM) should be phased out from 2027 and disappear by 2032, compared with “from 2026 and disappear by 2030” in the previous version. It is noted that previously the Parliament wanted the CBAM to be fully operational by 2030, while now the expectation is that the mechanism can be fully implemented by 2032, which is still three years earlier than foreseen by the Commission. Under the current scenario, the free allowances should be reduced to 93% in 2027, 84% in 2028, 69% in 2029, 50% in 2030, 25% in 2031, and 0% in 2032. 

ETS II for commercial buildings and transport: The separate new ETS for fuel distribution for commercial road transport and buildings shall be established on January 1, 2024, one year earlier than the previous version. To prevent that citizen have to bear additional energy costs, private buildings and private transport should not be included before 2029. MEPs also propose inserting a price cap of 50 EUR so that if the average price of allowances in ETS II exceeds this cap prior to January 1, 2030, 10 million allowances should be released from the Market Stability Reserve.

MEPs remind that a well-defined share of the auctioning revenue of the ETS should be used as an own resource to finance the EU budget as a general income. Both the EU and member states must spend all of their ETS revenues on climate action or on upskilling and re-skilling of workers potentially affected by the green transition. Only member states that have adopted legally binding targets for achieving climate neutrality by 2050 and measures for the phase out of all fossil fuels should be eligible for accessing the proposed Modernisation Fund, which is set to improve energy efficiency and modernise the energy system in less wealthy member states. 

What We’re Reading

News of Policy development

Carbon emissions trading regulations ‘pending’ as some issues to be clarified: MEE (YICAI)

Early promotion of the "dual control" shift and better use of the carbon market (China Electricity and Energy)

Overall smooth operation of the national ETS in the first year since its launch, with a cumulative turnover of RMB 8.492 billion: MEE (People.cn)

How ‘Made in China’ can response to the EU’s ‘Green Shockwave’ (Financial Times Chinese)

Critics take aim at ‘wild west’ carbon offset market (Financial Times)

MEPs land climate package rescue deal (POLITICO)

EU countries consider options to avoid carbon market fundraising plan (Reuters)

Countries back rewritten EU plan to raise carbon market cash (Reuters)

Climate change: World aviation agrees 'aspirational' net zero plan (BBC)

Analysis and Reports

Opinion: Better data is key to success of China’s carbon market (China Dialogue)

The rile and potential of the financial sector in addressing climate change and establishing ETS (36Kr)

Carbon credit due diligence: 7 factors that will help you choose high quality offsets (Sylvera)

IEA Net Zero by 2050: a Roadmap for the Global Energy Sector (IEA)