Compare ETS

Allowances are distributed for free, using benchmarking or grandparenting. A pre-allocation method is adopted for the annual allowance allocation for sectors using benchmarking or historical intensity methods. Allocation is then adjusted ex-post to reflect the actual production in the respective compliance year.

FREE ALLOCATION:
Benchmarking: Benchmarking is used for the cement sector (except for entities using outsourced clinker) and plate glass.

Grandparenting: Historical emissions intensity is used for heat production and supply, pulp and paper, other glass and building materials, water supply, textile, and automobile and equipment manufacturing. Grandparenting is based on the previous three years’ historical emissions for all other sectors. 

Ex-post allocation adjustments are applied, especially for those sectors that use benchmarks and emissions intensity. In this case, entities first receive half of their total allowances based on the previous year’s actual emissions or historical emissions baseline; actual production data are then used to update allocation ex-post.

Hubei also uses a “market adjustment factor”, which is applied to all covered entities to reduce overall allocation. This is determined based on the previous year’s supply-demand balance, while taking the province’s overall economic development and the achievement of its climate mitigation targets and strategies into consideration. For the 2023 compliance year, it was set at 0.9706 (as compared to 0.9836 for the previous year).

Hubei uses a capping mechanism for compliance obligations. If the difference between an entity’s annual verified emissions and the allocation exceeds either 20% of the allocation or 200,000 tCO₂ (above or below the allocation), the cap will be adjusted accordingly to balance out the surplus or deficit.*

AUCTIONING: A small share of the annual cap can be auctioned. The main purpose of auctions is to promote price discovery and provide regulated entities with additional supply to meet their compliance demand. To date, auctions have been held on an ad hoc basis and took place in 2014, 2019, 2020, 2021, 2022, and 2023. Recent years have seen two auctions per year, with the first for covered entities only and the second open to all participants. The reserve price of the auctions is the weighted average spot market price of the previous two years. Allowances have sold at the reserve price or slightly above.

* Two types of limits, as opposed to only one, are set based on the consideration that 20% may suit smaller entities better while 200,000 tCO₂ may suit larger ones.

In Phase 1, covered entities received allowances for the whole period at once. In Phase 2, allowances are allocated on an annual basis. In addition, allocation methods have been progressively improved, including increased use of benchmarks. 

FREE ALLOCATION: 

Benchmarking: Free allocation based on sector-specific benchmarks is used for electricity and heat producers, the electricity grid, and data centers.

Grandparenting: Grandparenting based on historical emissions intensity is used for some industrial sectors, aviation, ports, shipping, and water suppliers, generally based on the previous three years’ data.

Grandparenting based on historical emissions is used for airports, buildings, the commercial, and some industrial sectors with complex products or a considerable change in emissions boundaries, generally based on the previous three years’ data. 

Ex-post allocation adjustments, e.g., based on production data, are applied for those with historical intensity or benchmarking allocations.

Covered entities that demonstrate strong efforts in reducing both air pollution and carbon emissions and are not subject to environmental penalties or violations during 2023 and 2024, will receive an additional 0.3 to 0.5% allowances.

Covered entities that achieve a reduction in carbon emissions intensity or total carbon emissions in 2023 compared to 2022 and are graded A for air pollution control, will receive an additional 0.5% of their 2023 allocation (maximum 2,000 allowances per company). Those that achieve emission reductions and are graded B for air pollution control, will receive an additional 0.3% of their 2023 allocation.

AUCTIONING: A small share of the annual cap may be auctioned. The main purpose of auctions is to provide entities with additional supply to meet their compliance demand. One auction was held in each of the following years: 2014, 2016, 2018, and 2019. Since then, two auctions have been held each year, until 2023. 

In 2024, three auctions were held in May, July and October. In the May sale, the floor price was set at the weighted average price of all trading days between November 2023 and April 2024, CNY 72.15 (USD 10.02). The auction offered 1 million allowances, all of which were sold at CNY 75.06 (USD 10.43) apiece, 4% above the price floor. 

In July, the floor price was set at the weighted average price of all trading days between January and June 2024. The auction offered 1 million allowances, all which were sold at CNY 75.07 (USD 10.43) apiece.

In October, 2.8 million allowances were offered in the auction, with the floor price of CNY 89.60 (USD 12.45). Only 8.57% of the allowances were sold, at the floor price.

FREE ALLOCATION: From 2014 to 2020, Chongqing employed free allocation through grandparenting based on historical emissions: the highest number in the period spanning 2008 to 2012. Covered entities submitted their allowance allocation demand on a yearly basis, forming the basis of their free allocation. This value was adjusted if it exceeded the highest historical annual emissions (from 2008 to 2012) of the respective entities, by using the average of the two numbers. In addition, if the sum of the allocation for all the entities exceeded the top-down cap (see ‘Cap or Total Emissions Limit’ section), a reduction factor was applied to all the covered entities. 

In the 2021 to 2022 allocation plan, the Chongqing EEB introduced both a historical intensity method and benchmark method for allocation. There were four methods in the plan. Benchmarks were used in cement clinker and electrolytic aluminum production. The historical intensity was used for other processes in the cement and aluminum sector. Grandparenting is used in all other sectors. For waste-to-power plants, shell gas production, new entrants, non-CO₂ emissions in all sectors, allocation was equal to the emissions. 

Chongqing used free allocation in 2021, 2022 and 2023. In 2024, in the absence of the final allocation plan, the government pre-allocated allowances to covered entities, which accounted for 70% of the region’s emissions of 2023. Covered entities from cement, iron and steel and aluminum sectors are to be included under the national ETS from 2024, and their allowances under the regional system will not be pre-allocated.

Covered entities that demonstrate strong efforts in reducing both air pollution and carbon emissions and are not subject to environmental penalties or violations during 2023 and 2024, and will receive an additional 0.3 to 0.5 % of their 2023 allowance.

Covered entities that achieve a reduction in carbon emissions intensity or total carbon emissions in 2023 compared to 2022 and are graded A for air pollution control, will receive an additional 0.5% of their 2023 allowance (maximum 2,000 allowances per company). Those that achieve emission reductions and are graded B for air pollution control, will receive an additional 0.3% of their 2023 allowance. 

Covered entities that met the national benchmark for product energy efficiency in 2023 will also be granted an extra 0.3% of their product allowance (maximum 500 allowances per company.

AUCTIONING: Auctioning was introduced in 2021. A small share of the annual cap could be auctioned. The main purpose of auctions is to provide compliance entities with additional supply to meet their compliance demand. To date, auctions have been held on an ad hoc basis. Three auctions have been held, in November and December 2021, and February 2022.