On 30 September 2019 the Chinese Ministry of Ecology and Environment (MEE) released a trial plan for allocating emissions allowances to the power sector. This plan is expected to be the basis for further refinement of the allocation plan for the upcoming simulation phase of the Chinese national ETS.  

The trial plan is attached to a notice of training for allowance allocation and management by MEE. The training will cover the following aspects:

  • climate change policies such as the national ETS and the related planning
  • management of emissions data reporting, allowance allocation, trading, surrendering allowances, and compliance management by the provincial departments
  • the registry system and account management in trading system, emissions data reporting, surrendering allowances, and compliance by the covered entities, including the trial calculation of allowance allocation and simulation trading.

The trial plan includes two allocation schemes which are identical in most respects but differ in their benchmarks. As scheduled in Work Plan for Construction of the National Emissions Trading System (Power Sector), simulation trading is expected to begin around the end of 2019, with the deepening and expanding phase starting approximately one year after the simulation period is launched.

The first scheme categorizes the power sector into conventional coal, unconventional coal (coal gangue and coal water slurry), and natural gas, setting the corresponding benchmark factors at 0.848, 1.002, and 0.382 tons of CO2 per MWh, respectively. The second scheme provides two distinct benchmarks for conventional coal plants based on an installed capacity threshold of 300 MW. The benchmark factor for plants above 300 MW would be 0.827 tons of CO2 per MWh, while plants below that threshold would receive free allowances up to a benchmark of 0.879 tons of CO2 per MWh. The benchmark factors for unconventional coal and natural gas categories are the same for both schemes at 1.002 and 0.382 tons of CO2 per MWh, respectively. Based on progress in addressing climate change, the categorization of the power sector may be adjusted further in the future to encourage the development of additional low-carbon power generation, MEE stated. 

Both schemes calculate the amount of allowances allocated to entities using the same baselines. At first entities will receive allowances at 70% of their 2018 output multiplied by the corresponding benchmark factor. Allocation will be adjusted later reflecting the actual generation in 2019.   

The national ETS is expected to cover some 1,700 companies accounting for more than three billion tons of CO2e per year in its initial phase and then gradually expand to other key emitting sectors, including petrochemical, chemical, building materials, steel, nonferrous metals, paper, and domestic aviation (see previous ICAP ETS news).