Three Chinese regional systems update their ETS policies

In the first half of the year, three of China’s well-established regional emission trading systems – Chongqing, Shenzhen, and Shanghai - have updated their carbon market policies. Shanghai and Shenzhen completed annual regular updates, while Chongqing released a new legal document updating its ETS legislation.

Chongqing

On 24 Feb 2023, Chongqing Municipal People's Government published the Management Rules for Emissions Trading in Chongqing, which replaces the 2014 Interim Management Rules as the major supporting legislation for the Chongqing ETS. The new Management Rules incorporate several key developments, by:  

1. Clarifying the shift of the Management Authority from the Chongqing Development and Reform Committee to the Chongqing Environment and Ecology Bureau.
2. Arranging the long-term transition from the Chongqing ETS to the Chinese national ETS.
3. Requiring the establishment of a market stabilization mechanism, allowance auctions, and a local Chongqing crediting mechanism for offsets.
4. Improving market monitoring measures, including the monitoring of market participants, third-party verifiers, and covered entities.

Following this legislation, additional rules on allowance management, registry management, and the management of verification agencies are expected to be approved soon, after they were released for public consultation in August 2022.

Shenzhen

On 17 March 2023, the Shenzhen Environment and Ecology Bureau updated its coverage list, removing 63 companies from the list of covered entities for 2022. While one company moved out of Shenzhen, the other 62 companies were removed from the list as their emissions were below the participation threshold (3000 tonnes CO₂-e) for three consecutive years. After the adjustment, the Shenzhen ETS now covers 684 entities.

Shanghai

On 20 May 2023, the Shanghai Ecology and Environment Bureau (Shanghai EEB) released the retroactive Allocation Plan for Vintage 2022 (including the list of covered entities). The plan includes three significant changes compared to the previous year:

1. Shanghai has added the Data Center Industry as a new sector with compliance obligations. Indirect emissions from electricity consumption will be regulated. Covered entities in this sector will be granted free allocation based on a benchmark of 0.588 tonnes/MWh, multiplied by their electricity consumption. Their compliance obligation includes both emissions from the covered facility and its supporting facilities, such as air-conditioning, lighting, and back-up power providers. The policy thereby encourages data centers to drive power savings in their supporting facilities as well. Shanghai is the second regional carbon market to cover data centers, after Beijing.
2. In the road transport sector, 20 logistics companies have been newly added to the list. They are currently only required to fulfill MRV obligations, and it is unclear when they may receive free allocation and face compliance obligations. Shanghai is the first Chinese regional market to cover logistic service providers in the road transport sector. Beijing and Shenzhen already cover road transport, but only public transport providers.
3. Even though the number of covered entities with compliance obligations has increased from 323 to 357, the cap declines from 109 million tonnes in 2021 to 100 million tonnes in 2022.
4. Shanghai has introduced a new local crediting system (SHCER) aimed at incentivizing personal low-carbon activities. Offsetting in Shanghai, as the total of both the CCER and SHCER credits, is limited to 5% of the compliance obligation.