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Six years after the establishment of the scheme was pledged at the end of 2015, China has begun operating the national carbon Emissions Trading Scheme (ETS). This started on 16th July 2021, with the opening price of the Carbon Emission Allowances (CEAs) reported at CNY 48 (AUD 10.01) per ton. The first trading day concluded with the closing price of CNY 51.23 (AUD 10.68) per ton, up 6.7%. The total trading volume reached 4.1 million tons at CNY 210 million (AUD 43.79 million).

Shanghai Environment and Energy Exchange (SEEE) will handle account openings for traders and the operations of the new trading platform until a formal national carbon emissions quota trading operator is set up at a later stage. Trading in carbon emissions takes place from 9.30am to 11.30am, and from 1.00pm to 3.00pm Monday to Friday, much like the markets in Shanghai and Shenzhen. The national ETS initially set daily trading limits at 10% of prices and limits for block deals will be set at 30% of price moves.

According to ICAP, the ETS regulates more than 2,200 companies from the power sector, which emit more than 26,000 tCO2 per year. Its scope is expected to be expanded in the future. Currently, the ETS is intensity-based, with the cap being adjusted ex post, based on actual production levels. The compliance obligations are also limited.

While the new ETS is a part of China’s plans to make use of “market mechanisms” to help bring its carbon emissions – now the world’s highest – to a peak before 2030 and to achieve carbon neutrality by 2060. Critics have questioned its effectiveness due to its benchmark-based design, limited coverage, and the lack for a firm cap on emissions.