Updated: Jul 22, 2021
When the EU's carbon trading mechanism announced its most significant reform since its establishment, China's national carbon emissions trading mechanism, which has been prepared for many years, was launched on July 16. This is one of the important steps for China to reduce greenhouse gas emissions, peak carbon emissions by 2030, and achieve carbon neutrality goals by 2060.
Why is it so-called the “largest” ?
Prior to the launch of the National ETS, China had pilot emission schemes running in 8 provinces. Historically, the highest of carbon trading price per ton is ¥62 RMB, around $9.5 US Dollar. Ministry of Ecology and Environment Press Spokesperson stated that “ China carbon market covers over 40 billion tons of CO2 emissions equivalent.’’
How does it work?
The government grants each company under the regulated industries a certain amount of carbon emissions allowances (CEA) . However, there will be certain companies emitting beyond and/or below their granted emission threshold. As result of this, they can either buy or sell CEAs via the trading system, which comes in the form of agreed transfer, one-way bidding or other means in line with the regulations.
How will it impact the world?
Let’s start with Taiwan as an example. Taiwan launched the Greenhouse Gas Reduction and Management Act since 2015, the Act outlined it’s carbon reduction goals and targets, as well as regulations and penalties. However, there has not been much regulatory forces in terms of carbon reduction to date.
This suggest that countries like Taiwan, can begin by taking from the success and failures from China’s experiences.
On the other hand, EU is taking it one step forward with it’s Carbon Border Adjustment Mechanism (CBAM). According to the CBAM, companies importing into the EU (EU importers) will be required to hold carbon certificates corresponding to the carbon price paid by the goods had the goods, had it been produced under the EU’s carbon pricing rules. Conversely, a non-EU producer can also demonstrate that it has already paid a carbon price in the country of production, where the corresponding cost can then be fully deducted for the EU importer.
The significance of carbon markets has already become a reality worldwide . The effect of it, is rather extensive. As companies writes of an expenses, some may pass on the cost onto customers. In the worst-case scenario, some companies may not be able to afford the internalized externalities, resulting in shutdowns of the most polluting functions. In any regard, the world’s carbon markets has proven the consensus, that systematic changes are critical to making the earth a cleaner place.
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