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Experience from Chinese Pilot ETSs and Prospects for a National ETS

Lina Li, ICAP Secretariat

September 7th 2016, Jeju Island

The International Carbon Action Partnership – fostering ETS development globally

International Carbon Action Partnership 2

•  Founded in 2007 in Lisbon •  A multilateral platform focussing on cap and trade

systems •  31 members and 4 observers from four continents

covering the majority of ETS jurisdictions

ETS in China- country background


•  Largest GHG emitter & 2nd largest economy, with high speed of industrialization, urbanization and motorization

•  +30 years of high speed economic development (since " reform and opening-up" in late 1970s), with increased environmental pressure

•  Continuous reform and transformation process ("the new normal", "ecological civilization"): slower, less resource- and pollution-intensive growth; market reforms are incomplete

•  Transformation of energy system and reform of electricity market

ETS in China- evolving carbon market policy


Slow (2005-09)

•  Initial learning: CDM projects •  Setup of Exchanges

Turning- point (2010)

•  International carbon market conference (Jun 2010) • Mention ‚carbon trading‘ in official document ‚ decision to Speed up Cultivating and

Developing Strategic Emerging Industries‘ (October 2010)

Launch of Pilots

(2011-12)

•  12th FYP endorcement (Mar 2011), Work Plan for controlling GHG emission (Dec 2011) • NDRC offical notice on launching ETS pilots (Nov 2011), NDRC voluntary emission reduction

trading regulation (Jun 2012)

Piloting (2013-15)

•  Seven regional pilots in operation ; setup of China Certified Emission Reductions (CCERs) voluntary offsets system

•  Intensive research on national ETS design; Interim Administrative Measures on Emissions Trading (Dec 2014)

• Announcement of the National ETS schedule with national ETS to be launched in 2017 (Sep 2015)

National ETS Prep (2015-17)

•  Legislation, policy design, MRV and registry system, capacity building etc. • Mobilise local government and enterprises •  Transition from pilots to naitonal ETS

Experience and lessons from pilots


•  Strong political leadership, with human and financial resources despite the ambitious timeline

•  Focussing on large emitters first

•  Institutional capacity has been improved for government agency, supplemented by outside expertise e.g. exchanges, research institutes, third party verifiers, consultancies etc.

•  Building up the foundation for a carbon market: legislation, data collection and MRV capacity etc.

1. A learning by doing process


NDRC

Local DRCs

Other relevant departments

Research institutes

Supporting agencies Exchanges Third party verifiers

Compliance entities

Source: Sino-Carbon and World Bank adjusted



Drawing on international experiences and lessons learned •  Allocation •  Offsets •  MRV

Particular challenges require localised solutions •  Indirect emissions are included •  Divergent free allocation approaches •  Price control mechanisms

Soft cap •  No national GHG absolute reduction target •  Uncertainty with regard to economic growth •  Most pilots feature ex-post adjustments (based on activity data)

2. Different design options have been tested



Part of a bigger process: ETS was included in economic and ecological reform works led by the Party, directly supervised and examined by the Party‘s Reform Leading Office Rules of carbon market are evolving

•  Coverage and scope •  Free allocation approaches •  CCER limits

Special system of power sector: fixed price, planned generation •  Final allocation determined by actual activities, and carbon

intensity based on either benchmark or historic intensity •  Allocation is adjusted after the verification

3. Role of government vs. market

2017 – China‘s year


11.500+ installations 2007 MtCO2e

525 entities 562 MtCO2e

~ 7.000 companies ~ 3,000-4,000 MtCO2e

543 companies 445.59 MtCO2e


Intensive preparation for the national ETS

Legislation •  Department Regulation from NDRC came out. •  Promoting State Council Regulation, intensive consultations – both across ministries and

with private sectors Policy Design •  Ongoing including coverage, cap setting, allocation, market monitor and evaluation etc MRV •  Accounting and Reporting Guidelines Published. •  Historical emissions data collection expect to conclude including verification to provide

basis for allocation Market infrastructure •  Registry established. •  System is used for CCER transaction. Offsets/CCER •  Offset system established. •  CCERs were issued, traded and used to compliance in pilots and expected to play a role in

national ETS Capacity building •  Experts from EU, World Bank and other foreign organizations provided different trainings

NDRC organized different level training sessions. •  Local DRCs join and also start to offer local trainings.

China national ETS prospects

•  Eight sectors : petrochemicals, chemicals, building materials, iron and steel, non-ferrous metals, paper making, power generation and aviation

•  Annual energy consumption exceeds 10,000 tons of Coal Equivalent in any year from 2013 to 2015

•  Considering a rolling model for allocation and compliance.

•  Initial allowance allocation will roll out across different regions starting from October 2016 and to be finished by the end of March 2017.

•  Trading is expected to begin in the first half of 2017.

•  Most of allowance are expected to be given for free; while considering a share of allowances.

•  Nine exchanges approved: seven pilots + Fujian and Sichuan


2016

Towards a global carbon price


Development of NDCs

Carbon Pricing/ETS as key

building block in many countries

Rising ambition through reviews under the Paris

regime

Gradual linking of systems,

under Art. 6 of the Paris

Agreement

2020 2030


ICAP as ETS information platform •  ICAP interactive world map

•  Latest information on existing and planned systems

•  ICAP Status Report Emissions Trading Worldwide •  Detailed factsheets on all systems,

infographics and articles on the latest trends in ETS

•  ICAP-PMR ETS Handbook ‘Emissions Trading in Practice’

•  Newsletter “Global Trends in Emissions Trading” in six languages – English, Chinese, Korean, Spanish, French, Russian

www.icapcarbonaction.com


Thank you!

www.icapcarbonaction.com [email protected]

[email protected]

@ICAPSecretariat

@ICAP

Backup slides

4 strategies to ETS success


ü Be informed globally, but design locally

ü Build a strong foundation of data and institutions

ü Learn by doing, but provide predictable processes for adjustment

ü Bring people with you

ETS pilots carbon prices


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CNY 1 <=> EUR 0,13

ETS in China- policy context


Policy *: •  Climate change mitigation incorporated as a major strategy in their planning

for economic and social development (Five Year Plans, FYPs). •  Controlling GHG emission is an important policy in economic restructuring

and transformation of growth pattern. Targets: •  By 2020, reducing carbon emission per unit GDP by 40% -45%, compared

to 2005 (Copenhagen pledge) •  By 2015, reducing carbon emission per unit GDP by 17% against 2005

(12th FYP); over-achieved (20% reduction) •  By 2020, reducing carbon emission per unit GDP by 18% against 2015

(13th FYP), leading to 48% reduction than against 2005 •  By 2030, China will cap its GHG emissions by 2030; carbon emission per

unit GDP decrease 60% -65%, compared to 2005 (INDC**)

* NDRC presentation to World Bank Partnership for Market Readiness ** Intended Nationally Determined Contributions submitted to UNFCCC

Overview of 7 ETS pilots in China

Pilots Industries included Inclusion standard （annual emission tCO2）

NO. entities

Allocation methodology

Shanghai

Industrial sectors: electricity, iron and steel, petrochemical, chemical, non-ferrous metal, building materials, textile, paper making, rubber and chemical fiber； Non-industrial sectors: airlines, airports, shipping, ports, shopping malls, hotels, commercial office buildings and railway stations.

Industrial enterprises: 20,000 tons, Non-industrial enterprises: 10,000 tons, Shipping enterprises: 100,000 tons

191 (2014) 368 (2016)

Free. Benchmark& Grandfathering

Shenzhen

Industrial sectors: electricity, water, manufacturing industries, etc. Service sector (building)

Industries: over 3,000 tons； Public buildings:20,000 square meters; State organ office buildings: 10,000 square meters

Industries: 635; Buildings: 197

Free. Benchmark& Grandfathering Auctioning

Beijing

Industrial sectors: Electricity, cement, iron and steel, petrochemical, other manufactures. Service sector (building) Public Transportation

Over 5,000 tons (initially 10,000 tons)

415（2014） 543（2015） 983（2016）


Guangdong Industrial sectors: Electricity, cement, iron and steel, and petrochemical Over 20,000 tons 193

3%-5% Auction Benchmark& Grandfathering

Tianjin Industrial sectors: Electricity, heat, iron and steel, chemical, petrochemical, and oil and gas exploration Over 20,000 tons 114


Hubei

Industrial sectors: Electricity, heat, non-ferrous metal, iron and steel, petrochemical, chemical, cement, motor making, glass making, chemical fiber, paper making, medical industry, food and beverage

Energy consumption over 60,000 tons of standard coal equivalent (~150,000 tCO2)

167

Free. Benchmark& Grandfathering Auction.

Chongqing Industrial sectors: Electricity, Aluminum, Ferroalloy, Calcium Carbide, Caustic Soda, Cement, Iron & Steel Over 20,000 tons 242 Application and

Free allocation


Conclusion


Diversified and comprehensive piloting Strong political commitment National ETS is coming Integration of pilot regions and enhancing preparation and capacity of non-pilots as key strategies

Tasks for NDRC and Local DRCs

　 Coverage The Cap Allocation MRV Compliance Registration System

NDRC

Establish sectoral scope and emissions threshold

Establish allocation plan

Establish allocation plan

Establish technical guidelines and oversee the qualification of verification bodies

Set compliance guidelines, including punitive measures

Establish and manage the system

Local DRCs

Determine specific coverage for respective region. Scope can be made broader at the provincial level

--

Implement allocation plan; DRC can be more stringent vis a vis allocation than the NDRC mandate

Manage reporting and verification at provincial level

Compliance enforcement and management

Manage provincial-level registries activities.

Legislation

•  Accounting and Reporting Guidelines Published.

•  Historical emissions data collection

•  Reporting Started in some provinces.

•  Verification related work started.

MRV

•  Offset system established.

•  CCERs were issued, traded and used to compliance in pilots and expected to play a role in national ETS

CCER

•  Registry established.

•  System is used for CCER transaction.

Registration

• Ongoing including coverage, cap setting, allocation, MRV, market monitor and evaluation

Policy Design

•  Experts from EU, World Bank and other foreign organizations provided different training sessions.

•  NDRC organized different level training sessions.

•  Local DRCs join and also start to offer local trainings.

Capacity Building

•  Department Regulation from NDRC came out.

•  Promoting State Council Regulation, intensive consultations – both across ministries and with private sectors


Intensive preparation for the national ETS

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