A national carbon trading mechanism that has been put into operation in China could help promote the country’s climate progress with market-based, cost-friendly solutions. The Ministry of Ecology and Environment published an interim regulation on the management of carbon trading last week. Earlier, on December 30, it published a document laying out the 2019-2020 allocation of carbon emission allowances for the power generation sector and a list of 2,225 companies that would be given emission allowances. These documents were unveiled as China is making increasingly intensified efforts to reduce carbon emissions. While addressing the 75^th session of the United Nations General Assembly via video link in September 2020, President Xi Jinping announced that China aims to see carbon dioxide emissions peak before 2030 and achieve carbon neutrality before 2060. These documents underscore the fact that China’s national carbon market has opened for business, according to the Environmental Defense Fund’s China program. 

Carbon trading is the process of buying and selling permits to emit carbon dioxide or other greenhouse gases. If a company curbs its emissions significantly, it can sell surplus permits in the market, but if it fails to limit its emissions, it has to buy unused allowances from other companies. The two documents published late last year indicate that the 2,225 power generation companies that saw their carbon emissions exceed their total free emission allocation limit between January 1, 2019 and the end of last year may have to buy permits in the market, said Zhang Jianyu, Founder and Chief Representative of the Program. The regulation published last week stipulates that companies could use China Certified Emission Reductions, which are generated within the China Greenhouse Gas Voluntary Emission Reduction Program, as offset credits. But companies are only allowed to use such reductions to offset 5% of the permits they need to buy. 

The carbon trading program will be the first national environmental credit trading mechanism in China. It has replaced the European Union’s carbon trading market, launched in 2005, as the largest such market in the world, Zhang said. Besides the EU, California in the United States and Quebec in Canada also inaugurated carbon trading markets in 2013 and combined them the following year. Zhang said the Chinese market will be the only one to be established before the nation sees its carbon emissions peak.

China started its pilot market in 2013. “It has accumulated the richest experiences in exploring how to establish a carbon trading market, especially in a developing country,” Zhang said. As China forges ahead in promoting the Belt and Road Initiative (BRI), some countries may turn to China for help in building their carbon trading markets. Not only can the country share its rules and experiences, it can also help with capacity building in these nations, he added. 

Scott Vaughan, Chief Adviser to the China Council for International Cooperation on Environment and Development, an international think tank for the Chinese government, said he is optimistic that China’s national carbon trading market will play a role in driving down  the growth of carbon dioxide emissions in China by having the most efficient players in the market sell their excess credits to those companies that are not as efficient, he said. “The aggregate impact would actually change the trajectory of the  peak and move it downwards in order to get at that 2030 goal. I’m very optimistic,” Vaughan said. 

Li Gao, Director Climate Change at the Ministry of Ecology and Environment, said it will make efforts to tighten the allocation of emission allowances as the country forges ahead to establish a carbon emission management mechanism with a national emission cap. Setting a cap on carbon intensity – or carbon dioxide emissions per unit of GDP – as it previously did, will be a major step in promoting carbon reduction in the country during the 14^th  Five Year Plan period (2021-25), he said. “But we are also considering introducing caps on carbon emissions in some key regions to align air pollution control with carbon reduction,” Li said. He added that efforts will also be made to enlarge the national carbon trading market. The Ministry has collected and worked on the verification of carbon dioxide emission data from over 7,000 companies in various sectors from 2013 to 2019. “That work has laid a good foundation to expand the national market from the power generation sector to other sectors in the next step,” Li said, as reported by the China Daily. 

China’s new target for solar power has global implications for a world struggling with climate change. In May, the central government set a target of 70 gigawatt (GW) of solar photovoltaic power plants by 2017. Solar hit 20 GW in China last year, when the world set a new solar power record, adding 39 GW. Solar’s global growth averaged 48% annually between 2009 and last year, more than double that of wind power. Surging orders will fill excess capacity and restore balance sheets. More factories and research into better solar cells by Chinese manufacturers is the likely result. In the medium term solar prices will continue falling, performance will rise, and profits may pick up. But the revenues of grid companies could face pressure as rooftop solar installations reduce the demand for power from far-off generators. More solar and wind power will also require the laying of new power lines, such as the ultra-high-voltage network being built in China. China’s rooftop, or distributed, solar target of for this year is 8 GW out of a total of 14 GW. Distributed solar can be more efficient than far-flung large power plants because power is produced near where people need it. All else being equal, more distributed solar points to a smaller grid, plus lower carbon emissions and cleaner air, the South China Morning Post reports.

The National Development and Reform Commission (NDRC) released a pricing scheme for offshore wind power projects with no-bid contracts that will be in operation before 2017. The on-grid price (tax-included) for intertidal wind power projects is CNY0.75 per kilowatt-hour, while that for coastal schemes is CNY0.85 per kWh. For projects to be put into operation after 2017, the pricing scheme will be formulated separately. The new prices would give offshore projects an annual return of at least 12%. China should have 5,000 MW of offshore wind farms by the end of next year, rising to 30,000 MW by the end of 2020. The China Wind Energy Association said China installed 39 MW of new offshore wind farms last year, down 69% from 2012. The cumulative installed total was 428.8 MW at the end of last year, of which 300.5 MW were on inter-tidal shores and 128.1 MW in near-shore waters. China has the world’s fifth-largest bank of installed offshore wind farms, after Britain, Denmark, Germany and Belgium. Offshore projects cost twice as much to build as onshore ones and are more challenging technically, which means they require higher power prices to achieve the same rate of return. Offshore wind power projects set to launch this year are expected to add 1,566 megawatt (MW) of capacity, or more than three times the national total as of the end of 2013, according to the Chinese Renewable Energy Industries Association. The country’s offshore wind capacity was 428.6 MW at the end of 2013, less than a tenth of the government’s 5,000 MW target for 2015.

China plans to increase the subsidy on power sales by rooftop solar farm developers to state-owned power distributors by up to 55%, and compel the latter to act as an agent for collecting power bills if the developers directly sell to local customers. The consensus plan was reached after a meeting between state-backed financial institutions, bank regulators and the National Energy Administration (NEA). It is aimed at relieving financing difficulties that have hindered installations, and is pending final approval by Beijing. Currently, rooftop projects are entitled to a state subsidy of CNY0.42 per kilo-watt-hour (kWh) of output, on top of whatever prices developers manage to get from end-users. If the developers fail to sell all of their output to local users, local power grid operators are obliged to buy the remainder at prices that typically vary from CNY0.35 to CNY0.45 per kWh. The new policy will allow the rooftop projects developers to receive a total revenue of CNY0.95 to CNY1 per kWh, matching that of ground-mounted projects. This means the rooftop subsidy could rise by 31% to 55% from the current CNY0.42, sharply boosting viability. The NEA has set a 14 GW target for installations of solar farms this year, up from 12.9 GW last year. Some 8 GW of the target is for rooftop projects, and 6 GW for ground-mounted ones, mostly in remote areas. However, less than 2 GW of rooftop projects were installed in the first five months of this year as banks were reluctant to lend, the South China Morning Post reports.

The Chinese government has agreed to raise investment in biomass technology. It plans to finish 120 biomass-fired boiler demonstration projects by 2015. Biomass is defined as biological material－generally farm or forestry byproducts－that can be used directly via combustion to produce heat or indirectly after conversion to various forms of biofuel. The pilot projects, valued at CNY5 billion, will be built across the country but with a focus on the Beijing-Tianjin-Hebei region, Yangtze River Delta and Pearl River Delta, which are noted for concentrations of heavy smog and haze. The projects’ completion will provide energy equivalent to 1.2 million metric tons of coal and will reduce carbon dioxide emissions by more than 5 million tons. The program aims to build an entire industrial chain from fuel collection to biomass furnace construction. Simon Parker, CEO of DP CleanTech, an international biomass solutions provider and a newcomer in China’s biomass market, said biomass will play a bigger role in the renewable agenda in China. He said the natural resource that comes from an estimated 800 million tons of agricultural and forestry waste is the biggest available fuel source in the world today. “The potential in China is massive, and the only place with similar potential is Brazil,” he said, forecasting a continued growth rate of 40% to 50% in China’s biomass market in the next five years, the China Daily reports.