For the first time, the carbon market has been expanded "on the road", and paid allocation has been introduced to play the role of carbon pricing

In the two and a half years since the launch of the national carbon emission trading market, the Ministry of Ecology and Environment has made it clear that it will strive to achieve the first expansion of China's carbon emission trading market as soon as possible.

"The Ministry of Ecology and Environment is actively promoting, and strive to achieve the first expansion of China's carbon emission trading market as soon as possible", at the State Council Information Office held a regular briefing on the State Council's policy on February 26, Zhao Yingmin, vice minister of the Ministry of Ecology and Environment, introduced the "Interim Regulations on the Management of Carbon Emission Trading" when he said that he would "focus on expanding the coverage of the industry", and introduced that the verification of carbon emission accounting reports in eight major industries has been carried out, and the drafting of technical documents related to the expansion has been basically completed.

Carbon emission trading is an important policy tool to control and reduce greenhouse gas emissions such as carbon dioxide through market mechanisms, and to help actively and steadily promote carbon peak and carbon neutrality. The construction of a unified national carbon market is a major institutional innovation to promote the green and low-carbon development of China's economy and society.

The national carbon emission trading market officially opened in July 2021 and has successfully completed two compliance cycles. According to Zhao Yingmin, the first compliance cycle is from 2019 to 2020, and the second compliance cycle is from 2021 to 2022. At present, the expected construction goals have been achieved. At present, the national carbon emission trading market covers about 5.1 billion tons of annual carbon dioxide emissions, and 2,257 key emitting enterprises are included, making it the world's largest carbon market covering greenhouse gas emissions.

The first climate change law came into effect in May

A few days ago, the "Interim Regulations on the Administration of Carbon Emission Trading" (hereinafter referred to as the "Regulations") was promulgated and made clear that it will come into force on May 1 this year. The Regulations are the first special regulations in the field of climate change in China, and for the first time in the form of administrative regulations, the carbon emission market trading system is of milestone significance.

Zhao Yingmin said that the "Regulations" focus on clarifying the institutional mechanism, regulating trading activities, ensuring data quality, punishing illegal acts and many other aspects have made clear provisions, focusing on enhancing pertinence, effectiveness, and effectively deterring illegal acts.

A number of industry insiders interviewed by the 21st Century Business Herald believe that there are no laws and administrative regulations on the management of carbon emission trading in China before, and the introduction of the special administrative regulations of the "Regulations" is the expectation of the public, which is conducive to standardizing trading activities and ensuring data quality. It is foreseeable that with the formal implementation of the "Regulations", China's carbon market will usher in a huge opportunity for innovation and development, the trading rules will be more complete and clear, the trading subjects will be more extensive and diverse, the trading products will be more abundant and diverse, the trading methods will be more flexible and convenient, the risk control will be more comprehensive and effective, the information disclosure will be more open and transparent, and the market operation will be more dynamic.

Among them, the most concerned in the industry is that the "Regulations" impose a fine of 5 times to 10 times on enterprises that fail to perform the contract, and the increased punishment will help improve the market effectiveness. In addition, civil aviation will be included in the key emitting enterprises to attract major attention, the "Regulations" clarify the national competent authorities on the control of greenhouse gas emissions in civil aviation and other industries, but also lay the foundation for how to participate in the international aviation industry carbon emission reduction in the future.

At the meeting, Zhang Yaobo, director of the Fourth Legislative Bureau of the Ministry of Justice, said that when the "Regulations" were formulated, the focus was on building a framework system for the management of carbon emission trading, providing basic compliance for the operation of the carbon market, ensuring standardization and orderliness, and maintaining the necessary flexibility in the design of relevant systems, leaving enough space for future exploration and development.

Zhang Yaobo said that the authenticity of carbon emission data is the key and premise of whether the policy function of the carbon market can be played and whether the market can operate healthily, and the "Regulations" will effectively prevent and punish carbon emission data fraud as an important content, and strive to improve the institutional mechanism from four aspects: strengthening the main responsibility of key emitting units, strengthening the supervision of technical service institutions, strengthening supervision and inspection, and increasing penalties.

Expand the sectoral coverage of the carbon market

"China's carbon emissions are mainly concentrated in power generation, steel, building materials, nonferrous metals, petrochemicals, chemicals, papermaking, aviation and other key industries, these eight industries account for about 75% of China's carbon dioxide emissions, these key industries have a high degree of industrialization, have a certain talent, technology, management foundation, it is easier to achieve quantitative control of carbon emissions management and affect the price of carbon-containing products and services. Zhao Yingmin pointed out.

Regarding the expansion work, Zhao Yingmin introduced that the Ministry of Ecology and Environment has carried out two tasks:

First, the Ministry of Ecology and Environment has carried out annual carbon emission accounting report verification work on the above-mentioned key industries nationwide every year, and although the other seven industries have not been included in the quota control, the verification of carbon emission accounting reports has been carried out.

The second is to carry out special research on the expansion of the area. The Ministry of Ecology and Environment is actively promoting the first expansion of China's carbon emission trading market as soon as possible.

In addition to focusing on expanding the coverage of the industry, it is worth noting that the "Regulations" also provide for the enrichment of trading entities and products. At present, the national carbon emission trading market only includes carbon dioxide as a greenhouse gas, and the scope of the industry is only the power generation industry, although this industry emits a lot of emissions. Trading products are only spot carbon emission allowances. The Regulations stipulate that the types of greenhouse gases and the scope of industries covered by carbon emission trading shall be proposed by the competent department of ecology and environment of the State Council in conjunction with relevant departments in accordance with the national greenhouse gas emission control target study, and shall be implemented after approval by the State Council. Carbon emission trading products include carbon emission allowances and other spot trading products approved by the State Council.

Lai Xiaoming, chairman of the Shanghai Environment and Energy Exchange, said that the "Regulations" introduced paid distribution on the basis of free distribution. The idea and direction of quota allocation in the national carbon market have been clarified, and the quota will be allocated free of charge, and the combination of free allocation and paid allocation will be gradually implemented according to the relevant national requirements. On the one hand, free distribution is the core allocation idea of the national carbon market. On the other hand, the national carbon market will gradually introduce paid allocation in the future. The introduction of the paid distribution mechanism can further enhance the low-carbon development awareness of enterprises that "carbon emissions have costs and carbon reduction has benefits", and the primary market formed through paid distribution can provide the most basic liquidity and performance guarantees, and the price of the primary market can also form a reference and linkage with the secondary market, further exerting the function of carbon pricing.

With the promulgation of the "Regulations", a number of industry insiders interviewed by the 21st Century Business Herald also generally believe that there is a clear legal basis for how to define the asset attributes of carbon allowances, which also makes the behavior of financial institutions to develop carbon financial products more legally based.

There are three conditions that need to be met for a CCER project

The National Greenhouse Gas Voluntary Emission Reduction Trading Market (CCER) is another important policy tool launched by China to help achieve the "dual carbon" goal based on the national carbon emission trading market. Both tools are to control and reduce greenhouse gas emissions through market mechanisms, and together they constitute China's carbon market system.

According to Zhao Yingmin, voluntary emission reduction projects need to meet three conditions, one is additionality, the second is authenticity, and the third is uniqueness. Zhao Yingmin pointed out that additionality is a feature of the voluntary emission reduction trading market, which is reflected in the fact that the tradable emission reductions must be generated by human activities, and additional efforts have been made to reduce emissions.

"For example, primary forests and oceans absorb carbon dioxide and have carbon sinks, but such carbon sinks are not created by additional human effort, so they cannot be developed into products of voluntary emission reduction projects. In addition, projects that have already reached the average profitability of the market are not additional. Zhao Yingmin further said that for example, some of China's renewable energy investments have already achieved commercial profits, and the emission reductions generated for the purpose of profit-seeking by market capital are non-additional - must be commercially unfeasible, or below the carbon emission reduction baseline in the same industry, and must obtain benefits through the voluntary emission reduction market in order to make the project operate effectively and achieve emission reduction targets, which reflects its additionality.

In addition, the principle of conservatism should be in line with carbon accounting. The emission reduction or absorption of greenhouse gases in the accounting project is a range when selecting parameters, and the principle of conservatism should be complied with to ensure that the carbon emission reduction calculated is not overestimated.

(Real.)practiceSheng Zhouzhou also contributed to this article)

(Author: Li Deshangyu, Lu Taoran)