In August 2023, the Department of Ecology and Environment of Guangdong Province (DEEG) in China released a document known as the “Implementation Plan of Guangdong Emissions Trading to Support Peaking Carbon Emissions and Achieving Carbon Neutrality (2023-2030)” (hereafter referred to as the “Plan”). 

Guangdong Province is one of seven regional ETS pilots initiated by the Chinese national government between 2013 and 2014, designed to provide practical experience for the now operational national ETS. The Guangdong ETS is the largest pilot in terms of covered emissions and trading volume. It currently runs in parallel with the Chinese national ETS, with the pilot covering sectors not included in the national ETS.

However, since the launch of the national ETS in 2021, market participants have begun to question the future of the ETS pilots. In this context, the DEEG’s release of this Plan is a key milestone, serving as the first mid-term implementation strategy introduced by a Chinese regional ETS. The Plan lays out intentions to further expand the province’s ETS coverage; improve the overall carbon trading ecosystem through the use of offsetting, linking, and increased investment from outside mainland China; and bolster the drive towards carbon neutrality in Guangdong. Key highlights of the Plan are summarized as follows:

1. The Plan sets a new target to expand the Guangdong ETS to ensure 75% of total emissions from intra-province energy sources are covered by 2030. Currently, carbon-intensive industries are already covered, and the power sector in Guangdong is covered by the national ETS. Beyond this, the DEEG will gradually expand the coverage of the Guangdong ETS to textiles, ceramics, data centers, transportation, and construction industries, focusing especially on sectors covered by the EU’s carbon border adjustment mechanism. The DEEG will also explore the coverage of greenhouse gases other than carbon dioxide, such as methane, nitrous oxide, sulfur hexafluoride, nitrogen trifluoride, and hydrofluorocarbons.
2. With the guidance of the Ministry of Ecology and Environment (MEE), the Plan aims to establish carbon pricing schemes in the Guangdong-Hong Kong-Macao Greater Bay Area. MRV guidelines for transportation and construction industries will be developed, followed by research on allowance allocation and capacity-building activities. Other infrastructure, such as registries, trading platforms, and Guangdong’s domestic crediting mechanism, Tan Pu Hui, will also be integrated into the Greater Bay Area.
3. The Plan encourages the innovation of financial products for carbon trading. The DEEG encourages traders from Hong Kong, Macao, and other jurisdictions to take part in the ETS. The DEEG intends to improve the rules and product designs for carbon forwards, allowance repurchasing, and allowance pledges. It will also use auction revenues – coupled with private capital – to establish a low-carbon fund to invest in projects that generate emissions reduction units. Furthermore, the DEEG will support the Guangzhou Futures Exchange to develop carbon future products for the market.
4. Guided by the MEE, the Plan aims to forge further international connections. The DEEG currently engages with mature compliance markets such as the European Union ETS and California’s Cap-and-Trade Program. Guangdong Province aims to bolster the credibility of its domestic crediting mechanism, Tan Pu Hui, by leveraging partnerships with international crediting organizations such as the Verra and Gold Standard. The DEEG also intends to offer carbon market capacity-building services and infrastructure to ASEAN and Belt and Road countries.
5. The Plan mandates all relevant departments within the Guangdong Provincial Government to continue to enhance the policy design of the Guangdong ETS. This involves a range of strategic measures, including aligning the cap with the province’s roadmap to peak carbon emissions, increasing the share of auctioning, refining the domestic crediting mechanism, improving market monitoring mechanisms, enhancing transparency, and increasing penalties.

With its defined timeline, objectives, and allocated responsibilities for various government departments, the Plan aims to bolster market confidence and draw increased investor participation in support of Guangdong’s low-carbon transition.

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