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China’s carbon neutral goal
BusinessChina Business

Climate change: China’s emissions-trading market needs fine-tuning as it evolves to help the nation reach decarbonisation goal

  • The launch of Shanghai Environment and Energy Exchange, the world’s largest carbon-trading market, is a step towards net-zero emissions by 2060
  • A market-based pricing mechanism, stiff penalties for firms failing to act and tighter regulations could help trading take off, say analysts

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Illustration: Henry Wong
Eric Ngin Hong KongandYujie Xuein Shenzhen

China kicked off its national carbon-trading exchange last month with little fanfare. The relatively low-key ceremony was unlike the much-trumpeted launch of the Star Market for its budding tech companies in Shanghai two years ago.

Instead of suited-up company executives lining up on a red-carpeted stage to initiate trading, the Shanghai Environment and Energy Exchange’s introduction featured dozens of white-shirted Communist Party cadres and state companies executives seated in rows to watch the first trade on a giant LED screen.
The launch of the world’s largest carbon market underscores Beijing’s attempt to ease the Chinese economy into one of the most consequential steps towards its goal of achieving net-zero carbon emission by 2060.

Like the European Union’s emissions trading system (ETS) – the world’s first large-scale carbon trading scheme set up in 2005 – regulators have started China’s national ETS with a lenient approach. This means the market for emission quotas will be in surplus supply with low trading prices and liquidity, until rules are tightened to make it much more costly for emitters.

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China launches world’s largest carbon-trading scheme as part of 2060 carbon neutrality goal

China launches world’s largest carbon-trading scheme as part of 2060 carbon neutrality goal

“The ETS, as it is currently designed, will have a very marginal impact on [reducing] emissions,” said Li Shuo, a policy adviser at Greenpeace China. “A cap-and-trade system without absolute emissions-based trading benchmarks is a convoluted exercise.”

Li said Beijing should set a time frame in the 2021-25 five-year plan for climate-change actions to be unveiled later this year. He also wants regulators to replace emission intensity-based benchmarks with ones based on annually declining absolute volumes, and to expand the scope to cover heavy industries.
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