Report Evaluates China’s National Carbon Market

A report evaluating the performance of China’s national carbon market was released today by Environmental Defense Fund (EDF) and the Energy Research Institute (ERI) of China’s National Development and Reform Commission. “The Progress of China’s Carbon Market 2017” (English version, Chinese version) establishes a baseline for monitoring year-over-year progress on the legal, policy and accountability mechanisms of the market, which was launched in December and will become the world’s largest emissions trading system. The report, released after the conclusion of the program’s top-level design phase, also offers recommendations for Chinese authorities to address operational, structural and regulatory issues. 

Unveiled at the Innovate4Climate conference co-hosted by the World Bank Group and the governments of Spain and Germany, the report is a unique collaboration between ERI, a prominent think tank in the field of energy related policy research in China, and EDF, the first registered international non-governmental organization under China’s Ministry of Ecology and Environment. The report is the first in a series to be released on an annual basis.  

“This report provides a valuable step toward ensuring a proper annual evaluation of China’s national carbon market that will allow us to watch the market closely, measure progress, and make recommendations to ensure its smooth operation into the future,” Xiaolu Zhao, Climate Change and Carbon Market Project Manager for EDF and one of the report’s authors, said.

The report details the first-ever timeline of the carbon market’s development, including an overview of the seven pilot markets that preceded the national rollout. These pilots covered almost 3,000 entities from more than 20 industry sectors by the end of 2017. The total trading volume reached 200 million tCO2e, and total trading value was about 45.1 billion yuan with a price range between 1-123 yuan/tCO2e. China Certified Emission Reduction (CCER) credits that are allowed to be used for compliance had a total traded volume of 130 million tCO2e with a total value of 920 million yuan. The pilots helped the Chinese government and industry gain experience for the wider, more complicated national carbon market rollout.  

The report also provides recommendations on issuing detailed and operable market rules, and establishing a corresponding support and management system, all of which will help ensure market-wide accountability, investments in clean technology, and emissions reductions.

“The development of China’s carbon market has global significance. This report systematically reviews the progress of China’s carbon market from the pilot to the country under the background of global carbon market development, and focuses on the latest development of the national carbon market system design. The report opens a window for all domestic and international parties who may be concerned about the establishment of China’s carbon market. It also provides recommendations for the next step to improve the national carbon market system design and promote the implementation of the national carbon market,” said Yanbing Kang, Director of Energy Sustainability Center for ERI one of the report’s authors.

The report explains the ideology behind the market’s design and operation processes, such as the “1+3+4” basic framework. The “1” refers to the management decree that serves as the legal basis for the market. The “3” are the three core management measures: Carbon Emission MRV Measures ensures reliable and accurate emission data; Carbon Allowance Management Measures regulates allowance allocation, surrender and compliance; Market Transaction Measures guarantees smooth and efficient market operation, as well as fairness and openness of market transactions. The“4” refers to four supporting infrastructure systems: Carbon Emission Data Reporting System supports emissions reporting from key enterprises; Carbon Registry tracks and keeps records of carbon allowances; Carbon trading system supports the operation of the market transactions; Carbon emissions transaction clearing system supports the clearing of allowance transactions.

“This report provides a comprehensive overview of the development of the global carbon market and the progress of the China’s carbon market. It reviews the purpose, significance, basic principles, framework, and steps for the establishment of China’s carbon market. China’s national carbon market, which will cover the power generation sector in the first phase, will be the largest carbon market in the world. This report has important reference value for the power generation sector that is starting to run the carbon market,” Zhixuan Wang, Secretary General of China Electricity Council, said.

EDF has been working for more than two decades to help build China’s capacity and ambition to address climate change. The report was developed with support from the Children’s Investment Fund Foundation, and was unveiled in Frankfurt at an event co-hosted by the International Emissions Trading Association (IETA) and EDF. 

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Download EDF and ERI’s report, “The Progress of China’s Carbon Market 2017,” in English and Chinese.