OECD-CEFIM-IEA Focus Group Discussion: Approaches to Emission Trading System (ETS) schemes in the power sector, 23 November 2021, Paris

1. China’s National Carbon Market Development
Zhang Xiliang
Institute of Energy, Environment and Economy
Tsinghua University

2. Some unique circumstances for China’s national ETS construction
Emissions
 Approximately 80% of China’s energy-related emissions come from
the power sector and the industry sector;
 Over 70% of China’s electricity is used in manufacture sectors;
 Approximately 50% of China’s coal is used in the power generation
sector.
Energy market conditions
 The price of electricity and heat is heavily regulated;
 The increased mitigation cost in the power sector is difficult to be
passed on the users and consumers.

3. China’s national ETS: an overview
Coverage
 8 sectors covering the power sector and the main manufacturers
 electricity/heat, iron & steel, non-ferrous metal, construction material, petrochemical engineering,
chemical engineering, and civil aviation.
 Emission: direct emissions from the burning of the fossil fuels and indirect
emissions associated with the uses of electricity and heat
Threshold for participation
 26000 tons CO2 emissions per year
 Number of entities covered: approximately 8500
 Total emissions (direct): 6.7 billion tons or 72% of China’s total energy-
related emissions
 Cap-setting approach: A hybrid of the top-down approach and the
bottom-up approach
Allowance allocation methods
 Primary allocation method: Output-based free allocation
 Auction is to be encouraged.

4. Estimation of emissions covered by ETS
Sectors Sub-sectorss Total emissions
Emissions covered
by China ETS
Share
Power generation fossil fuel power generation 3642.64 3642.64 100.00%
Industry
pulp and paper making 31.09 26.43 85.00%
oil refinery 533.70 533.70 100.00%
chemical 1190.98 1071.88 90.00%
mineral product manufacutre 585.31 292.66 50.00%
iron & steel 1486.38 1159.37 78.00%
non-ferrous metal 76.87 7.69 10.00%
Sum of 6 industries 3904.33 3091.73 79.00%
Total China 9410.58 6734.37 72.00%

5. China’s national ETS is essentially a multi-region and
multi-sector tradeable performance standard (TPS)

6. Thank you for your attention.
zhang_xl@tsinghua.edu.cn
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