SINGAPORE, Sept 10 (Askume) – China plans to expand its carbon market to steel, cement and aluminium, covering 60% of its climate-changing greenhouse gas emissions, but will set relatively low limits, experts told Askume.
The long-awaited expansion of China’s emissions trading scheme (ETS) will allow Baosteel (601600.SS) and Chinalco (600585.SS) , Anhui Conch (600019.SS) .
Although they will be under pressure to meet the technical requirements of the scheme, they will also receive large amounts of free quota and supply CEA during the “implementation phase” of 2024-2026, according to the plan released on Monday for public feedback.
“The action plan lacks sufficient details and appears to be too loose in terms of quota allocation and compliance deadlines,” said He Xiaoxiao, a Beijing-based lawyer who advises companies on carbon compliance.
China’s National Carbon Market has become the world’s largest carbon market, launched in 2021, involving 2,257 power plants with total emissions of nearly 5 billion tons. The cumulative carbon dioxide trading volume will reach 442 million tons by the end of 2023.
However, as carbon prices continue to rise, surpassing the 100 yuan ($14.05) per tonne mark for the first time this year, the environment ministry said on Monday that market “shortcomings” were limiting participation.
Expanding into new regions would help it connect with more established carbon trading schemes such as those in Europe, but an oversupply of permits could still hinder progress, the company said.
“So far, China’s carbon emissions trading system has had minimal impact on carbon dioxide emissions, mainly due to factors such as the generous supply of permits,” said Shen Xinyi, an analyst at the Energy and Clean Air Research Center.
The ministry said the main goals of the first phase of expansion were to familiarise companies with market rules and improve data collection, adding that any profit or loss from carbon trading “represents only a small portion of a company’s operating income”.
It said the allowances, which are based on carbon intensity criteria rather than absolute emissions, would be allocated completely free of charge, meaning only “trailing” companies would buy additional allowances.
Jia Jingwei, a carbon market analyst at Fitch Ratings in Hong Kong, said the government would conduct a “trial and error” process in the initial stage to see how the new industry fits into the existing market infrastructure.
“Currently they will be using a free allocation approach… this will give companies experience in how to do carbon reporting and how to adapt to new regulatory requirements,” he said.
The ministry said it would begin to “strengthen” incentives after 2026, which could include reducing freebies and setting tougher industry targets to boost market activity.
“(This will) gradually lower carbon intensity standards, allow more companies and more industries to enter the market, and gradually increase the demand for carbon quotas, leading to higher carbon trading prices,” Jia said.
(1 US dollar = 7.1197 yuan)
