On 20 November 2020, the Chinese Ministry of Ecology and Environment (MEE) released an updated version of the draft allocation plan for the power sector.

This is the third version since September 2019, when a trial plan was released. After broad-based testing of the allocation methodologies outlined in the trial plan through a series of regional ETS capacity building activities, an updated version was sent for consultation to key stakeholders in August 2020. This latest allocation plan, together with other key ETS policy drafts released over the past few weeks, have brought the country’s national ETS closer to its operational phase.

The plan, titled “2019-2020 National Carbon Emission Trading Cap Setting and Allowance Allocation Implementation Plan (Power Generation Industry)” is now under public consultation. The deadline for submitting comments is 29 November 2020.

Compared to the previous versions, the draft continues to use benchmarking as the main allocation method, with four distinct benchmarks for conventional coal plants below and above an installed capacity threshold of 300 MW, unconventional coal plants ( such as coal gangue, coal slime, and coal water slurry), and natural gas plants, respectively. The table below provides an overview of changes in benchmark values as compared to the previous version in August 2020. Overall, benchmarks have been mainly tightened.


 

Benchmark for electricity production (tCOper MWh)

Benchmark for heat production
(tCOper GJ)

 

New

Old

New

Old

Conventional coal plants above 300 MW

0.877

1.003

0.126

0.135

Conventional coal plants below 300 MW

0.979

1.089

0.126

0.135

Unconventional coal

1.146

1.256

0.126

0.135

Natural gas

0.392

0.404

0.059

0.059

Note: the old version here specifically refers to the version released in August 2020. In previous versions the benchmark value for some categories was even more stringent, for example natural gas fired power plants (0.382 tCOper MWh in the September 2019 version).

The updated allocation plan continues to include processes for pre allocation and ex-post adjustments. At first entities will receive allowances at 70% of their 2018 output multiplied by the corresponding benchmark factor. Allocation will be adjusted later to reflect actual generation in 2019 and 2020.  The sum of the total allocated allowances of all covered entities will form the cap.

Compliance obligations remain the same in the updated draft. Gas-fired plants will not face compliance obligations,  while other power generation facilities and combined heat and power plants will need to surrender their free allocation and allowances for up to 20% of verified emissions above the benchmark. These arrangements aim at promoting gas-fired units and reducing the overall compliance burden. 

There are also a few changes to the allocation methodology presented in the latest draft, including a new regional adjustment factor. This offers the chance for regional governments to further align allocation to regional climate targets but only by tightening rather than loosening allocation. Second, the updated allocation plan adds a new unit load (output) adjustment factor, which may provide less efficient power units more allowances.

The draft further clarified the relationship between regional ETS pilots and the national ETS. Entities that are already covered by regional allocation plans in 2019 and 2020 will be excluded from the national ETS for those years. However, after the release of the final national allocation plan, the covered entities will then be covered under the national ETS and no longer subject to regional schemes.

Together with the draft allocation plan, the MEE also released the list of covered entities that emit more than 26,000 tons of GHGs or consume more than 10,000 tons of coal equivalent per year (including combined heat and power facilities). In this new list of covered entities, the national ETS will cover 2,233 companies. The confirmation of the covered entities builds on an extensive historical data collection process that started in 2013 and continued until this year.

Following the latest policy development, the national ETS is expected to start operation in the coming months.