First regulations for mandatory carbon market

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China regulations mandatory carbon market
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On 25 January 2024, the State Council promulgated the Interim Regulations on Administration of Carbon Emissions Trading, which will come into force on 1 May 2024.

The interim regulations set out the regulatory regime over carbon emission allowances (CEAs) in the mandatory carbon market, while the Administrative Measures for Voluntary Trading of Greenhouse Gas Emission Reduction (Trial), effective from 19 October 2023, regulate the China Certified Emission Reduction (CCER) in the voluntary carbon market.

The road so far

China has been developing its carbon emissions trading market for years. In October 2011, local carbon emissions trading market pilots were launched in cities including Beijing, Tianjin, Shanghai, Chongqing, Guangdong, Hubei and Shenzhen.

In December 2017, China initiated the establishment of the national carbon emissions trading market. In December 2020, the Ministry of Ecology and Environment and the State Administration for Market Regulation issued the Measures for the Administration of Carbon Emission Right Trading (for Trial Implementation) to establish the more advanced regulatory framework of the carbon emissions trading market in China.

In July 2021, the national carbon emissions trading market formally went online for trading.

Highlights of new regime

Under the new regulations, the national carbon emission rights registration institution is responsible for the registration of carbon emission rights trading products and provision of services such as trade settlement, while the national carbon emission rights trading institution is responsible for organising and carrying out centralised and unified trading of carbon emission rights.

The ecology and environment authority, together with other relevant authorities, will study and propose the types of greenhouse gases (currently only 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 national ecology and environment authority, together with other relevant authorities, will formulate criteria determining key emission entities, as well as the total amount of annual CEAs and allocation plans. Accordingly, the provincial authorities will formulate annual lists of key emission entities and allocate CEAs to them.

Key emission entities shall record and calculate their greenhouse gas emissions accurately and prepare annual greenhouse gas emission reports. Competent ecological and environmental authorities shall verify such reports and confirm the actual emissions.

Key emission entities shall also settle their carbon emission quote in full according to the verification results. They may purchase or sell CEAs through the national carbon emission trading market, and apply the CCER against the settlement of CEAs, subject to certain limitations.

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 new 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 on the 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 help to actively and steadily promote the national goals of carbon peak in 2030, and carbon neutralisation in 2060.


Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice.
You can contact Baker McKenzie by e-mailing Howard Wu (Shanghai) at howard.wu@bakermckenzie.com

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