China’s new carbon emissions trading scheme explained

China’s long-awaited national carbon emissions trading scheme – or ETS – made its debut in mid-July.

It’s the world’s largest carbon market by volume, with more than 2,000 power plants, responsible for over 4 million ton of carbon dioxide emissions – and that’s just phase one.

Here’s what you need to know about the ETS.

The national ETS is a trading platform where carbon emission permits are allocated to participating firms.

Firms can use the permits to cover their own emissions or sell on the exchange. The world’s top greenhouse emitter has set up the trading platform on the Shanghai Environment and Energy Exchange. The scheme is part of China’s plans to use market mechanisms to help bring emissions to a peak before 2030 and to net zero by 2060.

Phase one covers 2,225 power plants.

They are responsible for about 40% of the national carbon dioxide emissions per year.

But the allocation of permits is based on “carbon intensity” or the amount of emissions per unit of power generation, rather than absolute levels.

Experts say this could reduce the scheme’s effectiveness.

On opening day, 4.1 million tons of carbon dioxide quotas worth $32 million changed hands, Shanghai Securities News reported.

The opening price of 48 yuan a ton, which equals about $7.40 a ton, was above the average price of 40 yuan at seven pilot markets that began trading in 2011. But it’s well below the average of about $59 on the European Union's ETS.

Though the timescale remains unclear, China aims to expand the ETS to cover eight high-emission industries, including petrochemicals, chemicals, building materials, non-ferrous metals, papermaking, steel, power generation and aviation.

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