Key takeaway: According to a comprehensive report by China Modified Asphalt Network, a representative from the Climate Department of the National Development and Reform Commission recently revealed at a hearing on administrative licensing issues that the NDRC has already drafted the "Regulations on the Administration of National Carbon Emission Trading (Draft)."

A representative from the Climate Department of the National Development and Reform Commission recently revealed at a hearing on administrative licensing issues that the NDRC has already drafted the “Regulations on the Administration of National Carbon Emission Trading (Draft)” and will submit it to the State Council for review in the near future. During an interview yesterday, reporters learned that China will launch a nationwide carbon emission trading market in 2016, with the first batch of pilot industries including petrochemicals, steel, power, and four other major sectors. This signifies that China’s top-level design for carbon emission trading is nearing completion, and a carbon market with an annual scale reaching hundreds of billions of yuan is poised to take shape.

According to sources from the Beijing Environment Exchange, in line with the China-U.S. Climate Change Joint Statement, China plans to reach peak carbon dioxide emissions around 2030 and aims to increase the share of non-fossil fuels in primary energy consumption to approximately 20% by 2030. Since 2011, China has launched pilot programs for carbon emission trading in seven provinces and cities. The total number of enterprises and institutions included in these seven pilot carbon trading platforms exceeds 1,900 (among them, 146 are petrochemical enterprises), and the total volume of carbon emission allowances allocated amounts to roughly 1.2 billion tons. As of June 26 of this year, the cumulative transactions in these pilot carbon markets have reached about 25.09 million tons of carbon dioxide, with a total value of approximately 830 million yuan. The petrochemical industry and key petrochemical enterprises have consistently been major participants in carbon emission trading, with refining, coking, and fluorine chemical enterprises playing a leading role.

Although China has been engaged in carbon emission trading for many years, it has yet to establish a set of legally binding regulations and systems. Previously, the management and operation of carbon emission trading were governed by the "Interim Measures for the Administration of Carbon Emission Trading." This time, based on extensive research and thorough deliberations, the State has drafted the "Regulations (Draft) on the Administration of National Carbon Emission Trading." After being reviewed and approved by the State Council, these regulations will constitute the top-level institutional framework for national carbon emission trading and will carry legally binding force. This will facilitate the implementation of carbon emission trading systems by all relevant parties, the allocation of carbon emission allowances, the accreditation of carbon trading verification agencies, and other related aspects, thereby ensuring the smooth operation of the carbon emission trading market.

According to the work plan of the National Development and Reform Commission, the next step will be to summarize experiences based on the seven pilot provinces and cities, accelerate the establishment of a nationwide carbon emissions trading market, and strive to begin operations in 2016.

Xiong Xiaoping, deputy director of the Center for Sustainable Energy Development at the Energy Research Institute of the National Development and Reform Commission, stated that in the future, as the country establishes a nationwide carbon emissions trading market, the petrochemical industry—being a major emitter of carbon—is highly likely to be included in the national carbon trading system. Moreover, the methodology for calculating carbon emissions in the petrochemical sector has already been released. According to available information, although the petrochemical industry is a significant emitter of carbon, relatively few companies are currently actively participating in carbon trading. Many industries with substantial carbon emissions, such as synthetic ammonia and modern coal-to-chemicals, are still taking a wait-and-see approach and have not yet given sufficient attention to the upcoming mandatory carbon reduction and carbon trading requirements.

In response, Xiong Xiaoping believes that petrochemical enterprises should proactively prepare for the upcoming carbon trading market. Once they are included in the market, they must diligently fulfill their obligations and actively participate in market transactions. First, they need to take stock of their current situation and gain a comprehensive understanding of their carbon emissions over the past few years. Second, they should actively engage in trading to accumulate experience and learn how to manage risks. For example, at the beginning of the year, if they’re uncertain whether the allocated quotas will be sufficient, they should purchase additional quotas as a precautionary measure. If they have new investment projects, they should carefully consider the future carbon trading volumes required to meet their compliance obligations—carbon emissions could become part of the investment costs. Finally, enterprises should establish dedicated carbon management departments.

It is also reported that recently, several regions across China have been making frequent moves in the carbon emissions trading market, seemingly eager to seize the initiative and gain a competitive edge. According to sources from the Beijing Environment Exchange, six cement enterprises in Chengde City, Hebei Province, have recently been fully integrated into Beijing’s carbon emissions trading system. This marks the first time that China’s carbon trading market has achieved cross-regional transactions, representing a major step toward regional integration of the Beijing-Tianjin-Hebei carbon trading market and providing valuable experience for promoting the establishment of a nationwide unified market. In addition to the Beijing-Tianjin-Hebei region, Shanghai, Shenzhen, and other cities are also accelerating the development of carbon finance markets and have launched a variety of carbon financial products, which have been well-received by the market.