China: China's first Regulations on administration of mandatory carbon market

23 Feb 2024 4 minute read

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Energy Transition Carbon Trading Carbon Markets Sustainability

In brief

On 25 January 2024, the State Council of the People's Republic of China (中华人民共和国国务院) promulgated the Interim Regulations on Administration of Carbon Emissions Trading (碳排放权交易管理暂行条例, "Regulations"), which will come into force on 1 May 2024.

The Regulations set out the regulatory regime over carbon emission allowance (CEA) in the mandatory carbon market, while the Administrative Measures for Voluntary Trading of Greenhouse Gas Emission Reduction (Trial) (温室气体自愿减排交易管理办法（试行）), effective from 19 October 2023, regulate the China Certified Emission Reduction (CCER) in the voluntary carbon market.

In depth

China's carbon emissions trading market

China has been forming and developing its carbon emissions trading market over the years, with the following key milestones.

Time	Milestone
October 2011	Local carbon emissions trading market pilots were launched in cities such as Beijing, Tianjin, Shanghai, Chongqing, Guangdong, Hubei and Shenzhen.
December 2017	The national carbon emissions trading market formally went on-line for trading.
December 2020	The Ministry of Ecology and Environment (生态环境部) and the State Administration for Market Regulation (国家市场监督管理总局) issued the Measures for the Administration of Carbon Emission Right Trading (for Trial Implementation) to establish the more advanced regulatory framework of carbon emissions trading market in China.
July 2021	China initiated the establishment of the national carbon emissions trading market.

Regulatory regime for carbon emissions trading under the Regulations

Highlights of the Regulations include the following:

Subject Matter	Key Rules
Registration institution and trading institution	The national carbon emission right registration institution (全国碳排放权注册登记机构) is responsible for registration of carbon emission right trading products and provision of services such as trade settlement. The national carbon emission right trading institution (全国碳排放权交易机构) is responsible for organizing and carrying out centralized and unified trading of carbon emission rights.
Coverage of carbon emission right trading, as well as trading products, parties and methods	The ecology and environment authority (生态环境主管部门), together with other relevant authorities, will study and propose the types of greenhouse gases (currently carbon dioxide) and the scope of industries to be covered by carbon emissions trading, and report the same to the State Council for approval. The products of carbon emissions trading include CEA and other approved spot trading products. The trading parties include key emission entities and other persons eligible under relevant regulations. The trading methods include (i) transfer by agreement, (ii) one-way bidding and (iii) other methods in accordance with relevant regulations.
Determination of key emission entities	The national ecology and environment authority, together with other relevant authorities, will formulate rules on criteria in determining key emission entities. The provincial ecology and environment authorities, together with other relevant authorities, will formulate annual lists of key emission entities accordingly.
Allocation of CEA	The national ecology and environment authority, together with other relevant authorities, will formulate total amount of annual CEA and allocation plans. The provincial ecology and environment authorities, together with other relevant authorities, will allocate CEA to key emission entities accordingly.
Data Quality Control	Key emission entities shall record and calculate their greenhouse gas emissions accurately and truthfully, and prepare annual greenhouse gas emission reports. The competent ecological and environmental authorities shall verify the reports and confirm the actual emissions. Technical service institutions that carry out greenhouse gas emissions related inspection and testing shall comply with relevant national technical procedures and technical specifications, and shall not issue inaccurate or false inspection and testing reports.
Settlement and trading of CEA	Key emission entities shall settle their carbon emission quote in full according to the verification results. Key emission entities may purchase or sell CEA through the national carbon emission trading market. Key emission entities may apply CCER against settlement of CEA, subject to certain limitation.

Remarks

The operation and administration of the national and local carbon emissions trading markets had long been based on rules issued by relevant departments of the State Council which are of relatively lower hierarchy. The Regulations constitute the fundamental administrative regulations for China's carbon market, which will pave the way for further steady development of China's carbon emissions trading system. While details are still contingent upon implementation rules to be issued, the Regulations will function as an important legal tool for controlling and reducing carbon dioxide and other greenhouse gas emissions through market mechanisms, and helping to actively and steadily promote carbon peak and carbon neutralization.

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Contact Information

Zhenyu Ruan
Partner at BakerMcKenzie
Shanghai
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zhenyu.ruan@bakermckenziefenxun.com

Kelly Han
Senior Counsel at BakerMcKenzie
Shanghai
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kelly.han@bakermckenziefenxun.com

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