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regulations on the management of carbon emissions trading are approaching

regulations on the management of carbon emissions trading are approaching: the establishment of a national carbon emissions trading fund, and no more local carbon markets
On March 30, the General Office of the Ministry of Ecology and Environment issued a notice on publicly soliciting opinions on the “Interim Regulations on Carbon Emission Trading Management (Draft Revised Draft)” (from now on referred to as the “Interim Regulations”). The deadline for soliciting opinions is April 30.

In April 2019, the Ministry of Ecology and Environment issued the “Interim Regulations on the Management of Carbon Emissions Trading (Draft for Comment)”, and nearly two years have passed so far.

However, since China promised carbon peak and carbon neutrality to the world last year, carbon emissions trading’s legislative process is expected to accelerate. On March 18th, Lu Xinming, deputy director of the Department of Climate Change Response of the Ministry of Ecology and Environment, stated at the China Carbon Peak Carbon Neutralization Achievement Release and Seminar that he would accelerate the construction of the national carbon market and promote the legislation of the “Interim Regulations on Carbon Emission Trading Management” Review the progress and strive to be released this year.

On March 30, a person from the Climate Strategy Center of the Ministry of Ecology and Environment told a reporter from 21st Century Business Herald that the regulations’ introduction involves the solicitation of opinions and subsequent adoption and revision. There is a certain degree of uncertainty in the timing, but we strive to be issued within this year.

It is also worth noting that on January 5 this year, the Ministry of Ecology and Environment also issued the “Management Measures for Carbon Emission Trading (Trial)” (from now on referred to as the “Management Measures”), which came into effect on February 1.

As a market-oriented mechanism, carbon emissions trading will play an essential role in China’s carbon peak and carbon-neutral process. Lin Boqiang, dean of the China Energy Policy Research Institute of Xiamen University, told the 21st Century Business Herald reporter that the national carbon market is standard to achieve carbon neutrality.

In the past carbon market pilots, one of the problems faced was that the local regulations and laws of carbon trading in most regions were of low level, limited effectiveness, and limited binding force on market entities’ formation.

Today, the national carbon market’s first compliance cycle was officially launched on January 1 this year. With the upcoming upgrade of carbon emission trading management methods to regulations and the importance of low-carbon development has been raised to an unprecedented height. These will become the fundamental driving force for the growth of the national carbon market.

What are the new formulations in the Provisional Regulations?

Compared with the 2019 Interim Regulations on Carbon Emission Trading Management (Draft for Comment), the latest Interim Regulations have added trading products, determination of total allowances and allocation methods, voluntary emission reduction certification, and government funds for carbon emissions. And other aspects.

Among them, about trading products, the “Interim Regulations” propose that the trading products of the national carbon emission trading market are mainly carbon emission allowances, and other trading products can be added in due course with the approval of the State Council.

Regarding the determination of the total amount of allowances and the allocation method, the “Interim Regulations” propose that the State Council’s ecological and environmental authorities shall, in consultation with the relevant departments of the State Council, put forward the total amount of carbon emission allowances and allocation plans following the requirements of the national complete greenhouse gas emission control and phased targets, and report to them. It was announced after approval by the State Council.

The provincial-level ecological and environmental authorities shall allocate the prescribed annual carbon emission quotas to critical emission units in their administrative regions based on the total amount of carbon emission allowances and allocation plans announced. The allocation of carbon emission allowances includes free allocation and paid allocation. In the early stage, free allocation will be the primary method. National requirements will introduce the paid allocation, and the proportion of paid allocation will be gradually expanded.

Besides, the “Interim Regulations” proposed that the state establish a carbon emissions trading fund. The income generated by the paid distribution of carbon emission rights to critical emission units will be incorporated into the National Carbon Emission Trading Fund’s management to support the construction of the national carbon emission rights trading market and key greenhouse gas reduction projects.

Lin Boqiang told the 21st Century Business Herald reporter that carbon emission allowances are dynamic adjustment and slowly tightening. The expansion of the paid allocation ratio of allowances will be a general direction in the future, including the establishment of a carbon emission trading fund, which reflects The basic logic of carbon emission rights trading is used to increase the cost of high-emission companies in a market-oriented way to subsidise companies that reduce emissions.

“Our energy system needs to shift from fossil energy-based to renewable energy-based. This cost is huge, and it is necessary to transfer a large part of government subsidies to the market to solve it.” Lin Boqiang said.

Chai Qimin, director of the Strategic Planning Department of the National Climate Strategy Center of the Ministry of Ecology and Environment, once disclosed an estimate that the total funding demand for achieving the carbon-neutral vision by 2060 will reach about 139 trillion yuan, an annual average of about 3.5 trillion yuan, accounting for the fixed amount of the entire society. About 6% of asset investment, while the long-term funding gap averages over 1.6 trillion yuan per year.

It is also worth noting that the previous “Management Measures” has proposed that key emission units can use national certified voluntary emission reductions to offset the payment of carbon emission allowances each year, and the offset ratio shall not exceed 5 per cent of the carbon emission allowances that should be paid. %. The “Interim Regulations” did not mention the 5% limit but pointed out that the state encourages enterprises and institutions to implement renewable energy, forestry carbon sinks, methane utilisation and other projects in my country to achieve substitution adsorption or absorption of greenhouse gas emissions. Cut back. Key emission units can purchase certified and registered greenhouse gas reduction emissions to offset a certain percentage of their carbon emission allowances.

The person above from the Climate Strategy Center of the Ministry of Ecology and Environment explained to the 21st Century Business Herald reporter that the “Interim Regulations” will not be exceptionally detailed, and specific proportion restrictions may appear in other management documents.

The “Temporary Regulations” also pointed out that there will be no more local carbon emission trading markets after implementing this regulation. The provincial carbon emission rights trading market that already existed before implementing this Regulation should be gradually incorporated into the national carbon emission rights trading market.

More stringent accountability for illegal businesses and illegal transactions

In fact, regarding the construction of the national carbon market, the market has been looking forward to relevant legislation for a long time. During the National Two Sessions this year, members of the National Committee of the Chinese People’s Political Consultative Conference proposed that legislation should be the first to ensure the carbon market’s authority with higher-level legislation. The National Regulations on Carbon Emission Trading Management should be published as soon as possible to provide legal support for constructing the carbon market system.

The current “Interim Regulations” also reflect stricter requirements on the accountability of illegal enterprises.

For comparison, the previous “Administrative Measures” stated that if key emission units fail to pay their carbon emission allowances on time and in full, the local ecological and environmental authorities at or above the municipal level where their production and business sites are located shall order them to make corrections within a time limit and deal with them. A fine of not less than 20,000 yuan but not more than 30,000 yuan; if the payment is not corrected within the time limit, the provincial ecological and environmental authority at the location of the key emission unit’s the production and business site will reduce its carbon emission quota for the next year by an equivalent amount.

At that time, some market participants pointed out to the 21st Century Business Herald reporter that the penalty limit is only 30,000 yuan, which hardly constitutes a substantial cost for emission violations. That is, the illegal cost is too low to restrain the enterprise effectively.

In contrast, the “Interim Regulations” have significantly increased the number of penalties. If key emission units violate the regulations and fail to pay or fail to pay their carbon emission allowances in full, they shall be at or above the districted city level where their production and business sites are located. The ecological environment’s local competent department shall order corrections and impose a fine of 100,000 yuan up to 500,000 yuan.

Zou Ji, CEO and President of the Energy Foundation, told the 21st Century Business Herald that one of the factors affecting carbon trading’s price is the strictness of compliance, supervision, and law enforcement. If carbon allowances become scarcer in the future, law enforcement will be stricter. , The carbon price will go up, and only by establishing such a price expectation will it be more helpful for us to achieve the goal of carbon peak and carbon neutrality.

The “Interim Regulations” specifically provide for “responsibility for illegal transactions”. Anyone who manipulates the carbon emission trading market through fraud, malicious collusion, spreading false information, etc., shall be ordered to make corrections by the State Council’s competent ecological environment department. The illegal proceeds shall be confiscated. A fine of not less than 1 million yuan but not more than 10 million yuan shall also be imposed.

Suppose an entity manipulates the carbon emission rights trading market. In that case, it shall also impose a fine of between 500,000 yuan and 5 million yuan on the person in charge and other directly responsible persons.

The carbon trading market itself is a government-led market. The government’s influence on the carbon market is much more significant than that of other naturally formed markets. In many market participants’ eyes, the most important thing the government does is to establish rules. Strict supervision and leave the rest to the market.

The government sent a strong signal to the market and did an excellent job in measuring, monitoring, statistics verification, and carbon emissions supervision.
Severe penalties for violations of laws and regulations. Also, more transaction parties must be added, and different participants have different understandings of the market.
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