China’s National Emissions Trading System (ETS) was launched in July 2021, and it has led to considerable discussions between multiple stakeholders regarding the state and future of the emissions-trading exchange. While the regional Emissions Trading Systems had illustrated noteworthy positive implications for decarbonisation, adoption of the nationwide exchange implies new challenges that need to be addressed, including competitive carbon credit values and global standards recognitions.
Huarong Peng and fellow researchers indicated in April 2021 that industries and subsectors covered under the pilot ETS have, experienced a 24.1% decline in total carbon emissions and a 14.4% drop in carbon intensity, compared to subsectors not covered under the ETS, between 2008 and 2016. Furthermore, they highlight that this reduction in emissions is attributable larger to higher energy utilisation efficiency. This indicates that subsectors under the pilot ETS have reduced their energy consumption in proportion to capacity, rather than actively reducing the contribution of coal consumption to the total energy consumption.
Zhonglu Liu & Haibo Sun of the Shandong Technology and Business University, China explained in April 2021 that the pilot ETS can significantly incentivise innovation in application of low-carbon technologies. They postulate this effect that the green consumption concept, improvements to the structure of ETS-covered industries and marketability of carbon credits can be enough of incentives to trigger these innovations. The green consumption concept focuses upon sustainable lifestyles of the national population. Liu and Sun call upon promotion of environmentally friendly practices and lowering of carbon footprint of one’s daily repertoire, which can increase the pressure on enterprises to meet the demand for low-carbon products and services. Moreover, the structure of industrial supply chains and the transitioning to sectors which use energy resources more efficiently can drive adoption of low-carbon technologies. Finally, marketization of carbon credits should increase the cost of carbon emissions significantly enough for enterprises to invest in low-carbon technologies.
Despite these results, the current status of China’s ETS and recognition of its carbon credits warrants further review of efficacy of the system. Eamon Barrett of Forbes elucidates that the price of China’s carbon credits should rise to at least $34 per tonne of CO2 from the ETS’s opening price of $8 per tonne in July 2021. Liu and Sun’s discussions of marketization suggest that this may involvement of investors. Then only the influence of policy on prices can decline. Furthermore, Barrett underscores that the current framework reduces carbon intensity, i.e., the ratio of carbon compared to the overall energy usage, rather than reduction of aggregate carbon emission. Therefore, the question is how thoroughly the outcomes of the current ETS framework will contribute towards the national goal of carbon neutrality.
Furthermore, Jeff Huang, Founder of AEX Holdings, Ltd. in Hong Kong expresses that the standards of Chinese Certified Emissions Reductions (CCERs) carbon credits should be brought in line with international standards. A new governance body for Voluntary Carbon Markets was convened in September 2021. This will determine the Core Carbon Principles applied to assess the quality of carbon credits across international emission trading systems, in an equitable and uniform manner to establish a comprehensive standard for healthy carbon markets. In light of such endeavours, CCERs can benefit from aligning their standards of carbon credits with global standards to promote foreign investment.
