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The rules of China’s national cap and trade program went into effect in February, but the 2,200+ energy sector companies subject to the program are slated to (finally) get to start trading emissions this Friday. Trading was originally set to begin in June, but it was delayed until this week, allegedly due to a lack of organization on the part of China’s Ministry of Ecology and Environment.
China’s national cap and trade program evolved out of several regional emission trading programs dating as far back as 2011. In 2015, Chinese President Xi Jinping promised to transition these regional markets into a national program following fruitful climate talks with the US Obama administration. A plan for the program was announced in December 2017, with implementation expected around 2020. Then, in 2018, responsibility for implementing the program was shifted from China’s National Development and Reform Commission to its newly established Ministry of Ecology and Environment.
China’s national cap and trade program now constitutes the world’s largest emission trading system, covering roughly 14% of humanity’s energy-related emissions. Though it currently only applies with respect to energy sector participants, China is reportedly looking to quickly expand it to cover other economic sectors, such as steel and cement production.
As in all cap and trade programs, the program works by permitting companies a set amount of emissions each year (i.e., their ‘cap’). Parties with emissions exceeding their allotment either have to buy allowances from parties emitting less than their permitted amount, or pay a government fine. The initial emission limits are fairly generous, imposing little cost on program participants, and in several Chinese provinces, the price of carbon is pegged at the low rate of just US $6.18 per metric tonne - by comparison, the EU’s carbon price is roughly US $69.45 per metric tonne, and Canada’s is about US $32 (CAD $40).
If the system is to have any real world impact in the near future and help China reach its 2060 net-zero goal, emission limits will have to decrease while the price of carbon rises.
Canada also has a national carbon pricing program. You can learn more about it with our course, Understanding Canadian Carbon Pricing.