deep reading| Observation on the third anniversary of the development of the national carbon market

At present, the National Carbon Emissions Trading Market (hereinafter referred to as the National Carbon Market) has become the largest market covering greenhouse gas emissions in the world, with a total of 2257 key emission units included, covering approximately 5.1 billion tons of carbon dioxide emissions annually, accounting for more than 40% of the country's carbon dioxide emissions.

In the three years since the launch of trading, what has the construction of the national carbon market gone through? What have changed? How to better play the role of the carbon market in the future and effectively promote green and low-carbon development.

Photo by Zeng Zhen at the China Carbon Market Conference 2024

The market institutional system has been gradually improved

Sound laws and regulations are the prerequisite for the construction of a national carbon market.

After three years of construction and operation, the basic framework of national carbon market policies and regulations has been established. In February 2024, the State Council promulgated the "Interim Regulations on the Administration of Carbon Emissions Trading"(hereinafter referred to as the "Regulations"), which is China's first special regulations in the field of addressing climate change.

The "Measures for the Management of Carbon Emissions Trading (Trial)"(hereinafter referred to as the "Measures") issued by the Ministry of Ecology and Environment in 2021 has formulated normative documents such as three rules for registration, trading, and settlement. The "Regulations" and "Measures" jointly form a multi-level institutional system covering "administrative regulations + departmental rules + normative documents + technical specifications", laying a solid foundation for the smooth and orderly operation of the market.

At present, the national carbon market has basically formed an institutional structure including carbon emission data accounting, reporting and verification, quota allocation and settlement, market transactions and supervision, etc. The competent government department is responsible for formulating a quota allocation plan and issuing annual carbon emission quotas to key emission units. Key emission units calculate and report carbon emission data for the previous year every year, and accept data verification organized by competent government departments. Key emission units must submit quotas no less than their actual emissions for performance before the deadline for performance.

Ensure the authenticity and reliability of data and ensure the fairness of transactions. It is worth mentioning that in August 2023, the Supreme People's Court and the Supreme People's Procuratorate revised and issued the "Interpretation on Several Issues Concerning the Application of Laws in Handling Criminal Cases of Environmental Pollution", which includes carbon emission verification agencies, emission report advisory agencies, inspection and testing agencies and other third-party technical service institutions including carbon emission data fraud into the scope of criminal regulations, clarifying sentencing standards, and playing a deterrent role in criminal justice.

In order to ensure the effective operation of the national carbon market, the Ministry of Ecology and Environment has also organized the establishment of a national carbon market management platform, a national carbon emission rights registration system, and a national carbon emission rights trading system. The national carbon market management platform records data related to carbon emissions of key emission units; the national carbon emission rights registration system records information such as the holding, change, payment, and cancellation of carbon emission quotas in the national carbon emission rights trading market, and provides settlement services; The national carbon emission rights trading system guarantees the centralized and unified trading of carbon emission quotas in the national carbon emission rights trading market.

At present, the national carbon market legal protection has been strengthened, supporting technical specifications have been continuously improved, and on the basis of smooth and orderly operation of the market, various basic tasks for the development of the national carbon market have been continuously consolidated.

Carbon prices are rising steadily, and market expansion will promote green development

On July 16, 2021, the national carbon market officially launched online trading, and achieved a good start on the first day, with a transaction volume of 4.104 million tons, a transaction volume of 210 million yuan, and a closing price of 51.23 yuan/ton, an increase of 6.73% from the opening price of 48 yuan/ton. After two performance cycles in the national carbon market, the scale of market transactions has gradually expanded, transaction prices have stabilized and increased, and trading entities have become more active.

As of the end of July 2024, the cumulative transaction volume of carbon emission quotas in the national carbon emissions trading market was 467 million tons, with a cumulative transaction volume of 27.158 billion yuan. Among them, the growth was significant in the second performance cycle.

According to data from the Shanghai Environmental Energy Exchange, the closing price of the comprehensive price for the second performance cycle fluctuates between 50/ton and 82 yuan/ton. At the end of 2023, the comprehensive price closing price was 79.42 yuan/ton, up 65.46% from the opening price on the first day of opening and 46.48% from the closing price of the first performance cycle. With the continuous advancement of relevant work in the third performance cycle, the overall market transaction price has shown a steady upward trend.

Enterprises can recover the cost of carbon emission reduction through carbon market transactions and make a return. They will be more motivated to promote their own emission reduction actions and form a virtuous cycle. Reasonable expectations of rising carbon prices are the key to promoting low-carbon technology innovation and investment and financing. When the carbon price is higher than the marginal cost of emission reduction, the internal rate of return of enterprises investing in low-carbon technologies will increase significantly, which will attract a large influx of funds and promote the economic transition to low-carbon.

The recently released "National Carbon Market Development Report (2024)"(hereinafter referred to as the "Report") shows that compared with 2018, the national thermal power carbon emission intensity dropped by 2.38% last year, and the power carbon emission intensity dropped by 8.78%. As the coverage of the national carbon market industry gradually expands, the effect of using market means to promote industry emission reduction will be further demonstrated.

"This year, the country will further expand the industry coverage of the national carbon market and include enterprises in the electrolytic aluminum, steel and other industries based on the power industry." Zhu Guohui, general manager of Carbon Emissions Registration and Settlement (Wuhan) Co., Ltd., told reporters.

"At this stage, there is an urgent need to expand the coverage of the national carbon market." Yan Gang, deputy director of the Environmental Planning Institute of the Ministry of Ecology and Environment, said. Expanding the scope of the industry is an important way to enhance the effectiveness, vitality and international influence of the national carbon market. There is an urgent need to scientifically and reasonably determine the inclusion time of different industries, and actively promote the carbon emissions trading market to cover key carbon emission industries in a phased and step-by-step manner.

So, how to determine that the conditions for an industry to be included in the national carbon market are ripe? Yan Gang said that after analysis and judgment, several judgment principles were proposed. First, it depends on the urgency of the industry to reduce emissions; second, it depends on whether the industry can coordinate pollution reduction and carbon reduction; third, it depends on the industry's acceptance; fourth, it depends on the basis of data quality; fifth, It depends on the industry's marginal emission reduction costs; sixth, it depends on the attention of the international community. "Based on these principles, we also conducted an analysis of the maturity of the national carbon market expansion. The research results show that the cement, electrolytic aluminum, and steel industries have more advantages in the above aspects." Yan Gang said.

Restart the voluntary emission reduction market, and international attention continues to increase

The national carbon market and the national voluntary greenhouse gas emission reduction trading market not only have their own focuses and operate independently, but are complementary and interconnected. The "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reforms and Promoting Chinese-Style Modernization" reviewed and approved by the Third Plenary Session of the 20th Central Committee of the Communist Party of China clearly stated that the carbon market trading system and the voluntary greenhouse gas emission reduction trading system must be improved.

However, the development of my country's voluntary emission reduction market has also experienced twists and turns. Previously, the approved emission reductions from China's emission reduction projects were mainly supplied to the EU carbon market. However, in 2012, the EU announced that it would no longer accept approved emission reductions from China after 2013, and external demand shifted to internal supply. As my country establishes its own carbon market, internal demand also expands. In October 2013, my country's voluntary emission reduction trading information platform was launched; in January 2015, the voluntary emission reduction trading registration system was officially launched, marking that CCER entered the trading stage.

In March 2017, due to problems such as the small volume of voluntary greenhouse gas emission reduction trading and insufficient standardization of individual projects, my country suspended the acceptance of voluntary greenhouse gas emission reduction trading methodologies, projects, emission reductions, certification and certification agencies, and trading institutions. Applications, registered existing CCERs can still participate in the transaction.

In October 2023, the Ministry of Ecology and Environment, together with the State Administration for Market Supervision and Administration, issued the "Measures for the Management of Voluntary Greenhouse Gas Emission Reduction Trading (Trial)". Immediately, the methodologies for four voluntary greenhouse gas emission reduction projects, including afforestation carbon sinks, grid-connected solar thermal power generation, grid-connected offshore wind power generation, and mangrove forest construction, were released.

In November 2023, the National Center for Strategic Research and International Cooperation on Climate Change (the National Greenhouse Gas Voluntary Emission Reduction Registration Agency) issued the "Greenhouse Gas Voluntary Emission Reduction Registration Rules (Trial)" and the "Greenhouse Gas Voluntary Emission Reduction Project Design and Implementation Guidelines". The Beijing Green Exchange (the national voluntary greenhouse gas emission reduction trading agency) has formulated and issued the "Greenhouse Gas Voluntary Emission Reduction Trading and Settlement Rules (Trial)". In January 2024, the national voluntary greenhouse gas emission reduction trading market was officially launched. In June 2024, the National Certification and Accreditation Administration released the first batch of five third-party certification and verification agencies. So far, my country's voluntary emission reduction market has assembled the last "puzzle".

On January 22, 2024, since the launch of the National Voluntary Greenhouse Gas Emission Reduction Trading Market, various market entities have actively participated. So far, a total of 4582 accounts have been opened in the registration system and trading system. "Judging from the overall trading situation, the current trading price of CCER has increased from around 10 yuan per ton in 2020 to 77.9 yuan per ton in July this year, and there is still room for increase in the future. In terms of cumulative transaction volume, it has reached 470 million tons as of July this year, which is equivalent to the trading volume of carbon emission rights quotas, and the cumulative transaction amount exceeds 7 billion yuan." Xu Huaqing, chief scientist of the National Climate Strategy Center, said.

Previously, some industry organizations predicted that in the initial stage of the national carbon market, the theoretical demand for CCER would reach about 250 million tons per year. In the future, with the gradual improvement of the market and the release of methodologies, the CCER market is expected to release greater demand.

The continued expansion of the market size has also made it possible for my country to "go out to sea" again with voluntary emission reduction approval. "There are currently considerable conditions for the international development of the voluntary carbon market." Wang Naixiang, chairman of the Beijing Green Exchange, said that at the beginning of the design of my country's voluntary carbon market, relevant management requirements and technical specifications have been consistent with international common practices and the global market mechanism requirements of the Paris Agreement to the greatest extent possible, creating conditions for mutual recognition, including requirements for the authenticity, uniqueness and additionality of emission reduction projects and emission reductions, as well as considerations of the impact on all aspects of sustainable development.