China optimizes and improves carbon emission trading rights

Image description: This is a photo taken on June 19 of the Baihetan Hydropower Station located on the main stream of the Jinsha River at the junction of Ningnan County, Sichuan Province and Qiaojia County, Yunnan Province. As of the end of March this year, the Baihetan Hydropower Station has generated more than 120 billion kWh of electricity, equivalent to reducing standard coal consumption by more than 36 million tons and reducing carbon dioxide emissions by more than 98 million tons. (Photo by Hu Chao)

[Bloomberg News website reported on July 2] Title: China's new carbon market rules aim to reduce oversupply

China has announced new rules for its national carbon market, aimed at reducing an oversupply of carbon emission permits, forcing large polluters to accelerate their green transformation.

Market participants will not be able to prepay subsequent annual quotas and will be subject to stricter restrictions when carrying forward previous annual quotas, China's Ministry of Ecology and Environment said in a draft for comments published on July 2. The deadline for comments is July 10, 2024. The Ministry of Ecology and Environment said in a statement that these measures will leave a "slight gap" in quotas on the market.

This will represent a change from the early years of the market, when ample free quotas kept prices low and limited the motivation of power companies to reduce emissions. The national carbon market, which began trading in July 2021, has faced criticism for its limited impact on emissions from the world's largest polluters. China has put energy security above long-term climate goals amid rising geopolitical tensions.

"Confirming tightening supply will send a strong signal to market participants," said Yan Qin, an analyst at the London Stock Exchange Group, which estimates that China's carbon market has a total oversupply of about 360 million tons.

However, the draft regulations released on the 2nd canceled one of the more severe penalties in the earlier version - retroactive cuts to emission permits granted in 2023. The Ministry of Ecology and Environment also set new emission targets for 2023 and 2024 for more than 2,200 power companies covered by the mandatory market.

The Ministry of Ecology and Environment said in a separate document that the regulations will not restrict power generation, will create benefits for the most efficient power plants, and will continue to exempt gas-fired power plants. It also said that peak-shaving facilities operating at low loads will be compensated and indirect emissions from purchased electricity will be excluded to avoid calculation complexity.