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Building the Chinese Carbon Market and Its Regional Connections

 

ABOUT THE PROJECT

The Asia Society Policy Institute’s project ‘Building the Chinese Carbon Market and Its Regional Connections’ seeks to contribute to China’s national ETS policy construction in order to benefit China’s environmental trajectory and enhance the regional and global fight against climate change through carbon market maturation and cooperation in Asia. ASPI aims to realize these goals through three interrelated approaches: contributing to resolving design challenges of China’s national ETS; building regional and international connections; and supporting its prioritization and implementation.

 

 

Map data as of December 15, 2022

AREAS OF WORK

ETS Policymaking Processes

Investigate the detailed development work, decision-making and designs of ETS.

ETS policymaking processes include but are not limited to gaining high-level political support, facilitating effective and informed decision-making on ETS design, gaining necessary levels of buy-in from affected industries and support from other government departments, and determining the optimal role of ETSs in the policy mix. Related to these processes is capacity building of policymakers, competent authorities, 3rd party verifiers and covered entities.

Summary: Dialogue Meeting on ETS Policymaking Processes


Coverage and Cap Setting

Support the development of practical cap setting policies that reflect the contribution expected to national GHG mitigation targets of the covered sectors and their technical mitigation potential and costs.

Decisions surrounding coverage and cap-setting are fundamental for ETS design, determining its environmental and economic impacts. Myriad approaches are pursued throughout Asia and internationally. Key considerations include deciding what sectors and entities to cover, how to implement an absolute cap, deciding the level and trajectory of the cap, how to align the cap with Nationally Determined Contributions and net-zero GHG emission targets, as well as other detailed cap-setting issues.

Summary: Dialogue Meeting on ETS Coverage and Cap-Setting

ETS Allocation

Identify solutions for an effective ETS allocation policy.

A key concern for governments and industry in implementation of emissions trading systems is how to protect industry’s global competitiveness and prevent “carbon leakage”, that is, the transfer of production to world regions with less ambitious climate policies that would lead to an increase in total emissions. To address this concern, ETS allowances are typically allocated for free to GHG-intensive or trade-intensive industries at risk of carbon leakage using emissions intensity benchmarks. At the same time, it is recognized that auctioning of allowances should be introduced where possible, to more completely adopt the polluter pays principle and strengthen the carbon price signal to drive low carbon action. An emerging tool to consider for carbon leakage prevention is a carbon border adjustment mechanism as proposed by the EU, which would gradually phase-out free allocation and replace this with auctioning. Determining an effective mix and design of allocation approaches, and their trajectory across phases, is therefore a challenging and critical aspect of developing an effective ETS. 

Summary: Dialogue Meeting on ETS Allocation

Paper: Developing Effective Benchmark-Based Allocation for Industrial Sectors: The Case of the Korean ETS


ETS and the Power Sector

Identify how an ETS can support power sector decarbonization, driving fuel switching away from coal to low-carbon fuels and renewables.   

Critical challenges to enable an ETS to support power sector decarbonization include implementing power generation dispatch mechanisms that consider carbon costs to encourage generation from renewables and low-carbon fuels, and effectively pass these costs through to electricity end users to reduce demand and hence levels of generation. A further challenge is managing multiple policies – sometimes complementary and sometimes competing – that affect decisions related to the power sector and emissions abatement.  

Summary: Dialogue Meeting on ETS and Power Sector

Paper: China's National ETS and The Power Market: How the ETS Can Achieve Significant Emission Reductions 


Carbon Border Adjustment Mechanisms      

Understand the EU’s proposed Carbon Border Adjustment Mechanism (CBAM) and its implications in Asia on affected organizations and ETS development.  

The EU’s proposed CBAM could have significant implications in Asia in terms of trade, compliance responses and ETS policy development. It will put a carbon price on imports into the EU of a targeted selection of goods from 2026 with the aim of ensuring that ambitious climate action in the EU does not lead to ‘carbon leakage’, that is the transfer of production to jurisdictions with less ambitious climate policies that would lead to an increase in total emissions. The CBAM is a support measure within the EU’s broader ‘Fit for 55’ policy package which aims to achieve at least a 55% reduction in EU’s GHG emissions by 2030 compared to 1990, in line with the pathway to net zero GHG emissions. This package includes a proposed cut in the EU ETS cap of 61% (from 43%) by 2030 compared with 2005 levels, leading to high carbon prices that can drive significant decarbonization.

Summary: Dialogue Meeting on CBAM

Paper: The EU’s Proposed Carbon Border Adjustment Mechanism and Its Implications for Asia

K-ETS
paper

Developing Effective Benchmark-Based Allocation for Industrial Sectors: The Case of the Korean ETS

This paper studies the most recent phase of the Korean Emissions Trading System and demonstrates how BM-based allocation was successfully implemented within some of the country’s largest and most carbon leakage-exposed industrial sectors.
China's ETS
paper

China’s National ETS and the Power Market: How the ETS Can Achieve Significant Emission Reductions

This paper examines how China’s national ETS can fulfill its emissions reduction potential in the power sector by driving fuel switching away from coal and toward renewables and low-carbon fuels through the carbon price.
Aerial view of Shanghai Yangshan deepwater port
paper

The EU’s Proposed Carbon Border Adjustment Mechanism and Its Implications for Asia

This paper discusses the Carbon Border Adjustment Mechanism (CBAM) proposal brought forward by the European Commission and assesses its specific implications for companies and governments in Asia.
Chinese Carbon Market Quote

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National Emissions Trading System is Key to China’s Green Recovery

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The EU ETS: Its Role in Achieving Carbon Neutrality and Lessons for ETSs in Asia

Alistair Ritchie presented at the 13th International Greenhouse Gas Conference on the EU ETS and its role in achieving carbon neutrality in the EU, as well as lessons for ETSs in Asia.
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Industrial Decarbonization in China and Beyond

On the sidelines of COP26, ASPI hosted a panel to discuss industrial decarbonization challenges and policy tools.
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Jackson Ewing, Environmental Defense Fund's Xiaolu Zhao, and SinoCarbon's Zhibin Chen discuss what China's just-launched emissions trading scheme will mean for climate change.
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Prospects for International Carbon Market

Alistair Ritchie delivered a presentation for the 11th International Greenhouse Gas Conference on Prospects for Carbon Markets in 2030.

 

 

TEAM

Kevin Rudd

The Honorable Kevin Rudd

President

Alistair Ritchie Headshot

Alistair Ritchie

Director of Asia-Pacific Sustainability

Yi Chen Headshot

Yi Chen

Senior Program Officer

Betty Wang

Betty Wang

Program Officer

 

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