Draft of China’s national emissions trading scheme rules released

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Details of the National Development and Reform Commission’s (NDRC’s) opening draft of China’s national emissions trading scheme rules have emerged and they give some insight into the structure, rules and regulations that will make up the national scheme. The national cap and trade scheme is due to start in 2017, currently there are 7 pilot schemes running. Changes may still be made to the draft before the final legislation governing the scheme is set but it lays out the starting point for negotiations.

The NDRC will be in charge of the national scheme overall and will be the central administrator to regions and provinces who will draw up the lists of participants as well as calculating the allocations they are entitled to. By maintaining overall control the NDRC hope to allay fears of non-compliance by large state owned companies, cited by Carbon Pulse as a major issue with current environmental laws. NDRC will also ensure that the integrity of the cap is maintained by having the final say on allocation plans drawn up at regional and provincial level.

There are some parallels with the EU ETS, a stability reserve features in the proposal in a bid to try and avoid the over-supply issues that have swamped the EU market with allowances and led to prices below a level thought to incentivise investment in emissions reducing technology. In addition, some free allocations will be handed out to installations alongside national auctions that will be run by the NDRC with the money raised going to an incentive fund for national low-carbon development. The use of offsets (CCERs) will also be permitted for a certain, currently unspecified, percentage of an installations obligations. Trading will be encouraged and futures trading will be permitted on NDRC designated exchanges.

Failure to comply with the legislation will lead to penalties linked to the average price of the allowances in the 12 months prior and further punishment will come in the form of reduced allocation in the following year.