On 27 March 2017, an official Chinese newspaper (the Economic Information Daily (Chinese)), reported that the cap setting and allowance allocation framework plan (hereafter the Plan) of China’s national emissions trading system (ETS) has been approved by the State Council. The first three-year phase of the national system is set to start by the end of 2017 and will form the world’s largest carbon market, covering 3-5 billion tons of CO2e with an expected trading volume of 1.2 -8 billion CNY (EUR 161 million – 1.08 billion).

The Plan provides details on general principles guiding the design, methods and procedures for allocation. Allocation will be done jointly by the national and provincial authorities, with the latter in charge of implementation in their respective jurisdictions. Free allocation will be based on benchmarking (i.e. at the level of advanced performers in the respective sectors) and historical intensity. At the same time, the essential ETS infrastructure, national registry and trading platforms, are also being developed (Chinese).

In addition, there are a few outstanding tasks prior to the launch of the national ETS, including confirming the list of covered companies, implementing the cap setting and allocation, defining offset rules, constructing the market infrastructure, as well as building up a solid legal basis to ensure strict compliance.

Meanwhile, the National Development and Reform Commission (NDRC) is revising the Interim Regulation of Voluntary Greenhouse Gases Emission Trading (English), to control the quality and flow of China Certified Emissions Reduction (CCER) credits. The NDRC also issued a notice on the suspension of CCER registration (Chinese) earlier this month, which temporarily halts registration applications on CCER methodology, projects, issuance, designated operational entity and trading agency. Applications will resume once the interim regulation has been revised (Chinese).

The NDRC is still striving to pass the ETS regulation at the State Council Level this year, even though it was not listed in the 2017 legislative work plan of the General Office of State Council (Chinese). The draft regulation has been submitted to the Legislative Affairs Office, which is currently revising the regulation based on an intensive consultation process.