Electricity takes the lead and the market mechanism promotes emission reduction

Six years after the pilot project, the highly regarded China carbon market finally began nationwide.

The National Development and Reform Commission issued the "National Carbon Emission Trading Market Construction Plan (Power Generation Industry)" (hereinafter referred to as the "Project") on December 19, marking the completion of the overall design of China's carbon trading system and officially launched.

The construction of the carbon market is not only related to China’s green development, but also an important means for China to cope with climate change, reduce carbon emissions, and fulfill international commitments. When the "plan" was published, public opinion at home and abroad praised it as "a major global response to climate change." Former U.S. Vice President Gore praised China for taking the correct action at the “critical point of the climate crisis”.

Annual emissions of 26,000 tons of carbon dioxide equivalent, equivalent to an overall energy consumption of 10,000 tons of standard coal or so - in the future, all companies that reach this threshold will be gradually incorporated into the national unified carbon market.

On December 19th, the National Development and Reform Commission issued the "Program", marking the official launch of China's carbon trading market, and the power industry taking the lead in entering the market. Taking the electric power industry as a breakthrough, China will promote the construction of the carbon market in stages and steps—on the basis of smooth and effective operation in the early stage, “mature one industry and incorporate into one industry”.

As a major institutional innovation and complex system engineering, China's carbon market has attracted much attention since its inception. It has been estimated that the overall size of China's carbon market is about twice that of the European Union and ten times that of California. The total carbon emissions of more than 1,700 power companies included in the “Program” exceed 3 billion tons, far exceeding any carbon market that is currently operating in the world.

Then why should we build a national carbon market? How to fully play the role of the market? After the start of the national carbon market, what impact will it have on business performance?

Why is it built?

Market mechanism promotes emission reduction

The so-called carbon market is the market for the trading of greenhouse gas emission rights. In layman's terms, greenhouse gases represented by carbon dioxide are regarded as “commodities”, and free trade is allowed for carbon dioxide by giving legitimate enterprises the right to discharge emissions. If a company's emissions exceed the limit, it will need to spend money to buy carbon emissions from other companies. Conversely, if companies reduce emissions through technological improvements, they can sell carbon emissions in their hands, which will bring benefits. The "to buy and sell" room will reduce the total cost of corporate emissions reductions.

The use of market mechanisms to control and reduce greenhouse gas emissions is the core of carbon trading, and while achieving emission reduction targets, it can also save the total cost of society's emission reductions. "The carbon market is not aimed at making profits, nor is it used to trade arbitrage or speculation. It is an incentive mechanism to promote low-carbon development and to form energy-saving and consumption-reducing incentives. It is through the government's guidance and allocation of resources to promote structural adjustment and incitement. A way for social resources to participate in energy conservation and emission reduction,” explains Liu Yanhua, director of the National Climate Change Experts Committee and former deputy minister of the Ministry of Science and Technology.

With the issuance of the “Programme”, the national carbon market will take the power generation industry (including cogeneration) as the breakthrough point and follow the principle of “stability for progress”. It will be easier and harder to proceed step by step, creating a “clear ownership, strict protection, and smooth transition”. , effective supervision, openness and transparency, carbon market with international influence."

“Actually, the general requirement is to steadily promote the national unified carbon market and make new contributions to China’s effective control and reduction of carbon emissions and promote green and low-carbon development.” Zhang Yong, deputy director of the National Development and Reform Commission, explained that the “plan” clarified three The core construction of the system, the four major support systems, namely, carbon emission monitoring, reporting, verification system, key emission unit quota management system, market transaction-related systems; key emission unit carbon emission data reporting system, carbon emission rights registration system, transactions System and settlement system. Among them, Hubei and Shanghai will lead the construction of registration and trading systems, respectively.

How to build?

Three stages of steady progress

“Everyone wants to win the place where the national market is located. The final selection of Hubei and Shenzhou has experienced a lot of fierce competition and strict screening.” An industry source disclosed that as early as the first half of this year, the seven major pilots and Sichuan , Jiangsu and other voluntary regions participated in the unified defense organized by the National Development and Reform Commission and accepted the on-site review of nearly 30 experts.

As the contractor of the trading system, Zhou Bo, the deputy mayor of Shanghai, said recently that he will give full play to the advantages of Shanghai's financial center and give full support to the city's efforts in safeguarding funds, space, and technology, and relying on existing carbon trading regulatory agencies. It recruits financial related talents, establishes a professional team, and designs, builds, and runs the trading system.

Zhang Hao, vice president of Hubei Carbon Trading Emissions Trading Center, believes that the registration system is located in Hubei and cannot be separated from the accumulation of many years of experience. At present, the transaction rate and fulfillment rate of Hubei controlled enterprises are 100% for three consecutive years, and the direct benefit of enterprises reaches 300 million yuan. The total carbon emissions of the province are declining year by year. “The registration system is like a 'warehouse' that collects all data such as enterprise quotas, transactions, and performance. It not only manages corporate carbon assets, but also provides big data support for market supervision and regulation. In response to the mission of transportation, our province has begun preparations. A carbon sink building was started in the near future and preliminary plans are made to build three data centers for primary, secondary and disaster recovery."

In addition to the above two locations, Beijing, Tianjin, Guangdong and other 5 pilots will continue to operate for a period of time. The National Development and Reform Commission has also signed cooperation agreements with various regions.

“The focus now is to shift from trials to national market construction. We also recognize that this is a process of gradual improvement. Therefore, we will ensure smooth connection with the pilot market based on the unified operation and unified management of the national carbon market. Smooth transition." Zhang Yong said. According to the plan, the national carbon market will be promoted in three phases: the infrastructure construction period of about one year, the simulation operation period of about one year, and the deepening improvement period. "The three systems and the four supporting systems will be established and improved as soon as possible, then the system will be tested and the real currency trading will begin again on the basis of testing."

What is the effect?

- Reduce the cost of electricity abatement

Equally concerned with the construction of the carbon market, there are the first batch of power companies incorporated. "Although the launch has been announced, relevant details have not yet been disclosed. After the market is completed and operational, how the quotas are divided, how many emission reduction tasks are performed, and how to perform compliance will all have an impact on us." Relevant person in charge of a power plant in the central region Speak to reporters.

"Starting carbon trading has no effect on the company? The answer is yes. If there is no impact, the carbon market will not be necessary." In response, Jiang Zhaoli, deputy director of the Climate Division of the National Development and Reform Commission said.

However, Jiang Zhaoli also pointed out: “According to the quota allocation and distribution plan approved by the State Council, electricity will be initially allocated using the baseline method. Those enterprises with high management levels and low emissions per unit product will receive correspondingly more quotas and competitive advantages. More and more obvious, on the contrary, enterprises with relatively low levels of management, technology and equipment, and relatively high unit emissions may be at a disadvantage in the future, but overall, the burden on the power generation industry is balanced, and market trading quotas are also the industry. As a result, the total cost will not increase."

“In the long run, the role of the market mechanism will further encourage companies to adopt different carbon reduction technologies flexibly, achieve low-cost carbon reduction through structural adjustment and optimization management methods,” said Wang Zhixuan, a full-time deputy director of the China Electricity Council.

According to Wang Zhixuan, from 2006 to 2016, China's power industry has cumulatively reduced carbon dioxide emissions by approximately 9.4 billion tons, and the existing coal-fired electricity has actually had little room for emission reductions. "But we can't say no." He said that for power companies, they must have the most advanced technology and operate under optimal conditions to achieve optimal efficiency. "The actual operating time, the quality of coal used, etc., may affect the status. Because different companies have different abatement costs, the market mechanism can play a role in reducing abatement costs."

Why perfect?

- In line with long-term interests

Only the first step was taken in the launch. Then how should we create and perfect a national market that will attract companies to participate actively and reasonably?

Take the power industry as an example, Wang Zhixuan pointed out that electricity is an energy conversion industry. When the electricity target is fixed, the reduction can be achieved by reducing the use of high-carbon energy once or increasing its utilization efficiency. When the total carbon emission target of the industry is certain, it is bound to improve the power generation structure and improve the efficiency of power generation. From the perspective of the market, the initial allocation will directly affect the later transactions. “To take into account the status and role of the power industry in the energy transition as a whole, according to which the quota should be appropriately adjusted. At the same time, we must also take into account fairness. In addition to considering the advanced nature of the enterprise, the role of different power plants in different regions and periods should also be integrated. ”

According to Wang Ke, an associate professor of the Energy and Environmental Policy Research Center of the Beijing Institute of Technology, due to relatively mature basic data and capacity building, once the market rules are determined, the power industry can quickly enter. "The initial emission reduction tasks will not be too tight, mainly to allow companies to adapt first, but in the long run, only a certain cost pressure can be achieved before real emissions reduction can be achieved."

With regard to market development, Liu Shuang, director of the Energy Foundation's low-carbon transition project in China, frankly stated that similar to other carbon trading systems in the world, China's trading system needs to operate for a period of time before it can play a significant role in incentive reduction. “The trading system needs to be continuously updated and improved, such as establishing a more solid legal basis, formulating more stringent emission targets, improving the distribution or auction system, etc. The next key is that the regulatory authorities establish a tracking mechanism as soon as possible to supervise the transaction. System development, timely collection of data and information, to provide the necessary information for the next stage of adjustment and improvement."

Liu Yanhua said that while China is undergoing a deep structural adjustment period, the pain of high-carbon industry transformation is unavoidable, but total control is imperative. “The national carbon market needs to do a good job in terms of supply and demand and play a role. When the supply is less than necessary, the market price will rise; when the supply is greater than necessary, the market price will decline. The control of the total emission is to control the supply side, carbon The price has become the indicator and sign of the total control effect. The carbon market has the dual role of macro and micro, and it needs to promote it in line with the long-term interests of China's local community."

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