Progress seen in carbon trading

With the help of its carbon trading program, China has made notable progress in accelerating the low-carbon transition of the country’s businesses.

As the trading market, now involving the power generation sector only, finished its first cycle of trading, carbon emissions per unit of electricity had already fallen.

With 197 million short tons of carbon emission allowances changing hands, the value of trading last year was almost 7.7 billion yuan ($1.2 billion), said the Shanghai Environment and Energy Exchange, which runs the platform.

“The trading price was stable with a moderate increase,” it said. The market closed with a price of about 49 yuan a short ton on Dec 31, 13% more than on July 16, when it opened.

Carbon trading is the process of buying and selling carbon emissions permits among designated emitters.

China’s trading program, with 2,162 power generators which are responsible for 5 billion tons of carbon dioxide emissions, is the world’s largest. The program imposes carbon emissions limits for every unit of electricity a power plant generates.

After each cycle of trading, operators can sell their carbon allowances if the emissions intensity of their plants is below the benchmark. Otherwise they have to buy allowances.

The allowances are distributed to participating emitters free of charge.

The market has already demonstrated its role as a key policy instrument that could help curb carbon emissions as China forges ahead in meeting its climate targets, said the China Hubei Emission Exchange in Wuhan, Hubei province, in charge of registering applications and collecting and collating data for the trading program.

China aims to peak carbon dioxide emissions before 2030 and realize carbon neutrality before 2060.

The average carbon emissions of the market’s participants from generating every megawatt-hour of electricity fell about 6.9% compared with 2019, it said.

The market has also played a role in helping tap into the value of products with environmental and ecological benefits.

Under China’s carbon trading mechanism, companies are allowed to buy voluntary credits under the name China Certified Emission Reductions to offset 5% of the emissions they need to buy allowances for.

The market’s participants bought about 36 million tons of such credits last year, worth more than 900 million yuan, it said.

China needs to extend carbon trading to other major emitting sectors such as steel, chemicals and cement as soon as possible, said Zhou Xiaoquan, president of the Shanghai United Assets and Equity Exchange, the major shareholder in the Shanghai Environment and Energy Exchange.