July 16 2023, will mark two years since power generators across the whole of China first started paying a price for the emissions that they create under the national emissions trading system (ETS). Now in its second compliance phase, the operation of the national ETS was the culmination of a decade of piloting, verifying emissions and adjustment of rules for allowance allocation.
Throughout that decade, the China Carbon Pricing Survey has been tracking the perceptions and expectations of market participants and experts as the market develops, and the cost of carbon emissions is increasingly factored in to the everyday business decisions of Chinese companies.
In conjunction with the anniversary, the 2022 China Carbon Pricing Survey report, conducted by ICF, was launched in Beijing on July 14, 2023. The survey received funding support from Environmental Defense Fund and Energy Foundation China. The Survey was undertaken in late 2022, obtaining expectations about the experience to-date and the future of carbon pricing policies in China from 465 stakeholders. It is intended to serve as a reference tool for the relevant policy makers and those involved in national carbon market.
84% of the respondents to this survey is identified as being from emitting enterprises. Of the emitters, the highest representation is from the power sector (38% of all respondents), followed by building materials (21%), steel (13%), chemicals (5%), non-ferrous metals and petrochemical sectors (3% each). 4% of respondents are from companies providing carbon market-related services, while 3% each came from research institutes and sectoral associations. 32% were from organizations in provinces with regional carbon markets. In terms of experience in carbon market participation, 49% of the respondents were from companies already covered by either a regional or national carbon market.
The key findings of the survey:
- Carbon emissions trading is expected to increasingly affect investment decisions. Respondents expect the effect of carbon pricing on investment decisions to greatly increase between the time of the survey and the end of this decade. By 2025, about three quarters of respondents expect investment decisions to be at least moderately affected. Only 6% of respondents who answered this question expect investment decisions to be unaffected by 2025.
- Which sectors are expected to be included in the national ETS? After power generation, the cement and the iron and steel sectors stand out in terms of perceived carbon market readiness, with over a third of respondents optimistic that they will be ready to join the national carbon market by as early as 2023, and the weighted average of expectations being that those two sectors will have joined by 2024. The other key emitting sectors are expected, on average, to join by 2025.
- China's carbon price is expected to steadily rise. The national carbon price is expected to rise steadily. The average price expectation in the national market was expected to be CNY 59/t in 2022, rising to CNY 87/t in 2025 and CNY 130/t by the end of the decade. While the actual price levels remain highly uncertain, the range of expectations has narrowed somewhat since last year’s survey. Expectations started higher than in the previous survey (CNY 49/t), perhaps influenced by higher-than-expected prices during the first compliance phase of the national carbon market. To the end of this decade are slightly lower than in last year’s survey, however they remain substantially higher than previous surveys up to 2020. Expected prices towards the middle of the century are still significantly lower than the average prices in the EU in the month of January 2023 (about 83 EURO or around CNY 600).
- China's emissions are expected to peak before or no later than 2030. 85% of respondents to this year’s survey expect China to achieve the carbon emissions peak before, or no later than 2030. Only 13% expect China’s emissions to peak by 2025 or earlier, down from 36% two years ago in the 2020 survey.
- The demand for offset credits from Chinese companies has been accelerating quickly since the announcement of China’s national 2060 carbon neutrality goal. On the one hand, enterprises covered by ETS (compliance markets), are able to meet a small share of their compliance obligation with China Certified Emission Reduction (CCER) credits. On the other hand, many large enterprises not currently covered by compliance markets are making voluntary commitments to become carbon neutral including through the use of offset credits that may be validated by a wide range of accreditation systems. Of those companies that do currently purchase offset credits, CCERs are by far the most popular type of offset purchases, according to the survey results.
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