Details of China's carbon emission trading system announced

The first batch of participants will comprise 2,225 coal and gas-fired power plants, which account for 20% of total global carbon emissions. It is expected that the scheme may in time be extended to other sectors including petrochemicals, building materials, steel, cement, paper and aviation.

Shanghai Environment and Energy Exchange will be responsible for opening accounts and the operation of the national carbon emission trading system, according to a statement. The platform will be operated in a way similar to stock markets in Shanghai and Shenzhen, with the same trading hours and daily trading limits.

The exchange will manage opening accounts for traders and the operation of the new trading platform until a formal national carbon emissions trading operator is set up.

Trading of carbon emission allowances (CEA) will be conducted via the trading system and may take the form of agreed transfer, one-way bidding or other means in line with the regulations, with agreement transfer including listed agreement transaction and bulk agreement transaction, according to the statement.

It is reported the trading system will operate on a dual-city arrangement. Shanghai Environment and Energy Exchange will be responsible for building the trading system and the China Hubei Emission Exchange in Wuhan, Hubei province, will deal with applications and data collecting.

National carbon emission trading is scheduled to start at the end of June, although the exact date is yet to be confirmed.

China launched Guangzhou Futures Exchange in April, which will explore introducing electricity futures, climate-related products, commodity index futures and other unspecified "green-linked" commodities.

China announced its goal to have carbon emissions peak by 2030 and to achieve carbon neutrality by 2060 in September 2020.

“The scheme is designed to encourage reporting and voluntary compliance initially but can be expected to be tightened relatively quickly in line with China’s 2060 carbon neutrality target,” said finance expert Kanyi Lui of Pinsent Masons, the law firm behind Out-Law.

“While a number of details need to be worked out in the next few months, the national scheme is a huge initial step in the right direction, with over 90% of the covered enterprises being new participants and accounting for approximately 40% of China’s carbon emissions. It will be interesting to see how the large number of coal-fired power plants in China deal with the cost of emission and whether future offtake prices might take such costs into account,” he said.