2017 china carbon pricing survey...this report is a summary of results from the 2017 china carbon...

Dimitri de BoerChina Carbon Forum

Renato RoldaoICF

Huw SlaterChina Carbon Forum

Qian GuoqiangSinoCarbon

2017.

November 2017

2017CHINA CARBON PRICING SURVEY

I

Abstract

This report summarises the results of the 2017 China Carbon Pricing Survey. The survey elicitedexpectationsaboutthefutureofChina’scarbonpricefromstakeholdersincarbonmarketsinChinabetweenMayandJuly2017.Theresultsofthesurveygivestrongconfidencethatcarbonpricelevelsin China will rise over time, and that carbon pricing will increasingly affect investment decisions.China has announced that a national emissions trading system will start by 2017. However, onaverage, the survey respondents’ expectation is that it could take until at least 2020 before thenational ETS is fully functional. In the leadup to thenational ETS, significant capacitybuildinghasbeen conducted, butmuchmore is needed. A largemajority of respondents prefer a strong legalbasisfortheETSfromitsinitialphase,withatleastStateCouncilregulationinplace.ETSisexpectedtobecomethemostimportantpolicyinstrumenttomotivatecompaniestoreduceGHGemissionsinthecomingdecade.There isstrongconfidencethatChinawillmeet itstargettopeakemissionsby2030.Manyexpectthatthepeakinemissionswillbereachedsignificantlyearlier.

KeywordsCarbonpricing,emissionstrading,carbonmarket,publicpolicy,stakeholdersurvey,China

SuggestedCitation:

DeBoer,D.,Roldao,R.,Slater,H.,Qian,G.,2017,The2017ChinaCarbonPricingSurvey,November2017,ChinaCarbonForum,Beijing

Addressforcorrespondence:PeterEdwards,ChinaCarbonForumAddress:ZhengjueHutongno.5,Xinjiekou,XichengDistrict,BeijingCHINA100035Phone:+86-13051228667Email:[email protected]

II

Acknowledgements:

ThesurveywasconductedbyChinaCarbonForum,ICF,andSinoCarbon,withinputsfromTsinghuaUniversityChinaCarbonMarketCenter,andtheDutchEmissionsAuthority(NederlandseEmissieautoriteit,NEa).ItreceivedfundingsupportfromtheRoyalNorwegianEmbassyandtheEmbassyoftheKingdomoftheNetherlandsinBeijing.

TheauthorsDimitrideBoer,RenatoRoldao,HuwSlaterandQianGuoqiangwouldliketothankalloftheotherorganisationsandindividualswhohavecontributedtomakethisreportpossible.

Wearegratefultothekeyadvisorsofthesurveyandreport:WangTieoftheNationalandDevelopmentReformCommissionClimateChangeDepartment,Prof.ZouJi,ChiefRepresentativeforEnergyFoundationChina,LiuShuang,EnergyFoundationChina,Prof.WangYiofChinaAcademyofSciences,andProf.DuanMaoshengofTsinghuaUniversity.

Wearegratefulforthecontributionsofexpertpeerreviewers:WangShuofICF,LiuYuofChinaAcademyofSciences,HughKaterofChinaCarbonForum,andErikvanAndelandStevenBankoftheDutchEmissionsAuthority.

ProfessorFrankJotzooftheCentreforClimateEconomicsandPolicyatAustralianNationalUniversitydeservesaspecialmention,ashewastheinitiatorandleadauthoroftheinitialsurveyin2013,whichservedasthestartingpointfortheseriesofsurveys,andheprovidedadvicetotheteam.

PeterEdwardsofChinaCarbonForummanagedtheproject,andLydiaJacksonandVincentGuprovidedsignificantassistanceinthepreparationofthisreport.LuluZhaoofEDFsupportedthedisseminationofthesurvey.

Finally,wewouldliketothankHuangXiaochenandLaiHanfromSinoCarbon,andLiuMengxingfromClientEarthwhohelpedwiththetranslationofthereport.

III

Table of Contents

TableofContents...................................................................................................................................III

Executivesummary.................................................................................................................................V

Surveyintroduction.................................................................................................................................1UpdateoncarbonemissionstradinginChina........................................................................................3

SurveyingChina’scarbonpricingstakeholders.......................................................................................9

Thepilotemissionstradingsystems.....................................................................................................12

Nationalemissionstradingsystem.......................................................................................................15Readinessforemissionstrading............................................................................................................23

Impactsofcarbonpricingoninvestment..............................................................................................27

Carbonpricingincontext......................................................................................................................29

LinkingChina’snationalETSwithothersystems..................................................................................30China’snationalemissionstargetsandpeakemissions........................................................................32

Appendix1:Keypoliciesissuedforthepilotsin2016-17.....................................................................34

Appendix2:CCERtradingto-date.........................................................................................................35

Appendix3:StatusofthenationalETSdesign......................................................................................38Appendix4:Surveyquestionsandaggregatedresponses....................................................................39

Projectpartnersandfunders................................................................................................................50

V

Executive summary

Thisreportisasummaryofresultsfromthe2017ChinaCarbonPricingSurvey,jointlyconductedbyChinaCarbonForum(CCF),ICFandSinoCarbon,withinputsfromtheDutchEmissionsAuthority,theTsinghuaUniversityCenterforChinaCarbonMarketResearch,andotherexperts.

Thesurvey,undertakenfromlateMarchtoearlyJuly2017,obtainedexpectationsaboutthefutureofChina’scarbonpricefrom260stakeholders.Thesurveyisacollective“bestguess”bythesestakeholders.Itdoesnotclaimtoberepresentative,butitdoesprovideaclearindicationofdominantstakeholderviewsaboutthelikelyfutureofcarbonpricinginChina.Theprojectbuildsonsimilarsurveysconductedin2013and2015.

ThissurveyreportcomesatacrucialtimeofglobalinterestinChina’sclimateaction,astheUSAannouncedinmid-2017itsintentiontowithdrawfromtheParisAgreement,andanannouncementofthestartofanationalETSinChinaisexpectedstillinlate2017.

China is about to launch the largest carbon market in the world

During2013and2014,pilotcarbonmarketswerelaunchedinfourmunicipalities(Beijing,Chongqing,ShanghaiandTianjin),twoprovinces(GuangdongandHubei)andthespecialeconomiczoneofShenzhen.Eachofthepilotshavenowcompletedeitherthreeorfourcompliancecycles,providingusefulinformationforfuturepolicydecisions.

The2013and2015ChinaCarbonPricingSurveysaskedrespondentsfortheirexpectedcarbonpricesinthepilotregionsforfutureyears.Predictionscannowbecomparedwithrealpricesupto2016.Theactualaveragepricesin2016werewellbelowexpectations.Respondentstothe2013and2015surveyexpectedthatthepricesinthepilotswouldgraduallyrise,whileinfacttheysteadilydecreasedfrom2014to2016.

SincePresidentXiJinpingannouncedin2015thatChinawouldlaunchanationalETSby2017,preparationsforChina’snationalcarbonmarkethaveintensified.Requirementsforhigh-carbonemittingcompaniestoreporttheirhistoricalemissionsdatawereintroduced,andthatdatahastobesubjecttoanindependentverificationprocess.ThegovernmentisintheprocessofestablishingalegalbasisfortheETS,nowattheStateCouncillevel.Atimelineforaformallawtobeissuedhasnotyetbeenprovided,however.Capacitybuildingforcarbonmarketstakeholdershasbeenunderwayforsometime,andisincreasingthroughtheestablishmentofregionalcapacitybuildingcentresinanumberofprovinces.

ThesectoralcoverageatthebeginningofthenationalETSisnotyetclear.Eightmajorsectorsarerequiredtoreporttheiremissions,andareexpectedtoeventuallybeincludedinanationalsystem.However,recentreportshavesuggestedthatasfewasonetothreeindustriesmaybecoveredinthesystem’sopeningphase.Draftallocationplansforthreesectors(power,cementandaluminium)werereleasedbymediainMay2017.Theplansspecifybenchmarksforeachsectorandthemethodologyforcalculatingallowanceallocation.EvenifonlythepowersectorisincludedatthebeginningofthenationalETS,itwillstillbethelargestintheworldbyalargemargin-theemissionscoveredwouldbeabouttwiceasmuchasarecurrentlycoveredundertheEUETS.

Governmentguidelinesongreenfinancereleasedin2016suggestthatsupportmaybeprovidedforthedevelopmentofamorediverserangeoffinancialproductsinthecarbonmarkethoweverthesearenotexpectedtobeintroducedfromthestartofnationalETS.

VI

Respondents

Thesurveyreceived260responsesfromprofessionalsinarangeofsectors,includingindustry(26%),consultancies(25%),academia(10%),financialindustries(7%),tradingplatforms(7%)andNGOs(6%).Otherrespondentsincludethosefromresearchinstitutes,localandnationallevelsoftheChinesegovernment,andmultilateral/bilateraldevelopmentorganizations.83%ofcoveredindustryrespondentsexpectedtobeincludedintheforthcomingnationalETS,with59%ofthemhavingparticipatedinthepilots.Itislikelythatonaverage,theindustryrespondentswhichrespondedtothesurveyhavemoreexperience,areatamoreadvancedstageofpreparation,andhavemorepositiveviewstowardsthecarbonmarketthanthosewhichdidn’trespond.

Expectations about the national carbon market

TheChinesegovernmenthasrecentlyreaffirmedatCOP23thatthenationalETSisstillexpectedtobeapprovedin2017.However,whenaskedbywhenChina’snationalETSwillbefullyfunctional,only47%ofrespondentsexpectthistohappenby2020orearlier.Afurther44%ofrespondentsexpectafullyfunctionalcarbonmarketbetween2021and2025.

Sofar,thelegalbasisforthecarbonmarketisnotclear.Alargemajorityofrespondents(63%)believethatthelegalbasisforthenationalETSshouldbeanationallawonclimatechangepassedbytheNationalPeople’sCongress.Aboutathirdofrespondents(32%)believethataregulationbytheStateCouncilwouldbesufficient.Theseresultssuggestthatifanactuallawisnotimmediatelypossible,attheveryleastthereshouldberegulationprovidedbytheStateCouncilatthebeginningoftheETS.

AbouthalfoftherespondentsconsiderthattradinginthenationalETSshouldoccuracrossseveralregionalplatforms,while37%thinkthatthereshouldbeonenationalplatform.14%ofrespondentsthinkthatthereshouldbeemissionstradingexchangesineveryprovince.

Themajorityofrespondents(89%)believethatallorpartofunusedallowancesshouldbebankableforcompaniespreviouslycoveredbythepilotsystemsthatwilltransfertothenationalETS.RespondentsexpectthatcompanieswillbeabletotransferassetsfromthepilotsintothenationalETSwithouttotallylosingtheirvalue,howevertheyalsorecognisetheriskoffullbankingcontributingtoover-supplyinthemarket.Morethanhalfofindustryrespondentswerefromcompaniesthathadparticipatedinthepilotmarkets,andarethereforelikelytobemoreinfavourofbankingintothenationalETS.

RespondentsfromcoveredindustrieswereaskedwhethertheythinkthattheirorganisationisadequatelypreparedtotakepartinanETS.Theareasinwhichrespondentswereleastpreparedincludedadministratingallowances(44%)andcarbontrading(41%).

VII

Respondentsexpectcarbonemissionstradingtoincreasinglyaffectinvestmentdecisionsincomingyears.In2017,39%ofthosewhoexpressedaview,expectinvestmentdecisionstobestronglyormoderatelyaffected,andby2025thisfigurerisesto84%.Carbonemissionstradingisexpectedtoincreasinglyaffectinvestmentdecisions

Figure1Q3-1:DoyouexpecttheETSinChinatoaffectinvestmentdecisionsin2017?2020?2025?

(N=252,246,231)

WhenaskediftheyexpectChina’snationalETStobelinkedwithotherexistingtradingsystemsaroundtheworld,61%believethatlinkingwilltakeplaceby2030.Ofthoseexpectinginternationallinkages,thevastmajorityexpectalinkwiththeEUETS,andsomeexpectalinkwiththeRegionalGreenhouseGasInitiative(RGGI),SouthKoreaand/orCalifornia.

11%17%

46%28%

60%

38%43%

20%13%18%

3% 2%

2017 2020 2025

No

Yes,marginally

Yes,moderately

Yes,strongly

VIII

Price expectations

TheaveragepriceexpectationinthenationalETSisCNY38/tonin2017;CNY51/tin2018;CNY74/tin2020;CNY108/tin2025.However,thepricelevelsremainhighlyuncertain,especiallyinthemoredistantfuture.The20thand80thpercentilesfor2025areCNY50/tandCNY200/trespectively.Thefuturepriceexpectationsaremuchhigherthanatthetimeofthe2015survey.Atthattime,averageexpectationwasCNY56/tin2020,andCNY70/tin2025.

China’scarbonpriceisexpectedtosteadilyrise

Figure1Rangeofpricesinthepilotsystemsto-date,andestimatedpricesforthenationalsystemby

surveyrespondents.

Therewereslightpricevariationsbetweenindustryandnon-industryrespondents,withindustryexpectinghigherpricesafter2018.OthersimilarsurveysconductedinEuropeandAustraliatendedtowardslowercarbonpriceexpectationsfromindustry.However,our2015Chinasurveyalsoshowedanindustrytendencytoexpecthigherprices.

Carbon pricing in the mix of policy instruments

RespondentswereaskedwhattheyexpecttobethemostimportantpoliciestoreduceGHGemissionsinfutureyears(Figure3).Theexpectationisthat,overtime,theemphasiswillshifttowardsETS,environmentaltax,informationdisclosure,andenergyallowancestrading.

IX

Market-basedmeasuresareexpectedtobecomethemainpolicyinstruments

Figure3Q3-3:Whichdoyouexpecttobethemostimportantpoliciesinmotivatingcompaniesto

reduceGHGemissionsinChinaatdifferentpointsintime?(N=256,253,257)

China’s emissions targets and peak emissions

While63%ofrespondentsexpectthatChinawillsticktoanemissionsintensitytargetfor2025,amajorityexpectsthatanabsoluteemissionstargetwillbesetfor2030.Theseresultscontinuetosupportthepossibilitythat,inthenearfuture,Chinamayshiftits2030commitmentfromanemissionsintensitytargettoanabsoluteemissionstarget.

90%ofrespondentsexpectChinatoachievethecarbonemissionspeakby2030,and55%expectChina’semissionstopeakby2025orearlier.

China’semissionsareexpectedtopeakaheadof2030

Figure4Q6-1:WhendoyouexpectChina’semissionswillpeak?(N=259)

25% 26% 27%

8%16%

21%10%

13%

14%

6%

10%

13%

13%

12%

8%

17%

11%6%

21%13% 11%

2017 2020 2025

Mandatoryclosureofinefficientfacilities

Energyconservationsubsidies

Renewablefeed-intariffs

Energyallowancestrading

Environmentalinformationdisclosure

Environmentaltax

ETS

8%

17%

31%

35%

10%

Alreadypeaked Before2020 2021-2025 2026– 2030 After2030

1

Survey introduction

Thisreportpresentstheresultsfromthe2017ChinaCarbonPricingSurvey,jointlyconductedby

ChinaCarbonForum(CCF),ICFandSinoCarbon,withinputsfromtheDutchEmissionsAuthority,theTsinghuaUniversityCenterforChinaCarbonMarketResearch,andotherexperts.

Theprojectbuildsonsimilarsurveysconductedin2013and2015.Manyofthequestionsaskedwerethesameineachofthethreesurveys,andresultswerecomparedovertime.Strongeffortswere

madetosurveyrepresentativesfromChina’scarbon-intensiveindustries,whicharealreadysubjectto,oraresoonexpectedtobesubjecttocarbonpricing.

Inadditiontothesurveyitself,theprojectteamconductedtwoindustrystakeholderroundtablesonETSdesign,focusedonallowanceallocationandmonitoring,reporting,verificationandaccreditation

(MRVA).Theroundtablesinvolvedindustryrepresentativesandsectoralassociations,togetherwithgovernmentexpertsoncarbonmarketdevelopment.Theaimoftheroundtableswasto,ontheone

hand,provideachannelforcommunicationofindustryopinionsonETSdesigntopolicymakers,andontheother,toexpandthescopeofpublicdiscourseontheseimportantaspectsofthenational

system.LinkstothepublicreportsfromthetworoundtablescanbefoundontheChinaCarbonForumwebsite.

ThissurveyreportcomesatacrucialtimeofglobalinterestinChina’sclimateaction,asanationalETSisplannedtostartinlate2017.China’sgovernmenthascommittedtospecifiedemission

reductiontargets,toreducethenation’scarbonintensityoftheeconomyby40to45percentfrom2005levelsby2020,andby60to65percentby2030.1

ThissurveygaugesexpectationsbyexpertsandmarketparticipantsaboutthefutureofcarbonpricinginChina,andhowitfitsintoChina’sbroaderclimatechangemitigationefforts.Itquantifies

expectationsaboutmarketdesigndecisions,relevantpolicies,carbonprices,andtheimpactoninvestmentdecisions.Assuch,itcanmakeanimportantcontributiontoimprovingunderstandingfor

themarketsandforpolicymakers,ofhowtheprospectsforcarbonpricingareperceivedintheindustryandexpertcommunities.

Theexpectationselicitedinthisreportarebestinterpretedasanaggregationof“bestguesses”byasubsetofpeoplewhohaveknowledgeandinformedviewsaboutthefactorsthatwillaffectthe

operationofChina’scarbonmarket.Forindustryrespondents,thesurvey’ssamplemaybebiasedtowardsmarketparticipantswithahigherthanaveragelevelofpreparedness,giventhatlesswell-

preparedcompaniesmayhavelesscertaintyregardingthecarbonmarket,andthereforebelesswillingtocompleteasurvey.Thereisnoclaimthatthesurveyisrepresentativeoftheviewsofall

expertsandindustryonthesequestions,bothbecauseitisnotpossibletocreatearepresentativelistofexperts,andbecauseofself-selectionofthosewhochosetorespondtothesurvey.

1CarbonintensityreferstothelevelofcarbonemissionsperunitofGDP(CO2/CNYGDP).

2

Theexpectationsaboutfuturecarbonpricesderivedfromsurveyssuchasthisonedifferconceptuallyfromforwardpricesinmarkets,whichreflectmarketexpectationsbutadjustthemfor

riskandaresubjecttodemandandsupplyofcapital.Theyalsodifferconceptuallyfromforecastsofpricesthatarebasedonquantitativeanalysisofunderlyingmarketfactors,andassumptionsabout

policysettings.

ThisreportbeginswithanupdateonthestatusofcarbonemissionstradinginChinato-date.Itthen

outlinesthekeyresultfromthesurvey,coveringtheexperienceofthepilotsystems,expectationsaboutthenationalsystem,thereadinessofenterprises,theimpactofcarbonpricingoninvestment

decisions,theroleofETSinrelationtootherpolicies,theprospectforlinkingChina’scarbonmarketwithinternationalones,andexpectationsaboutthepeakingofChina’scarbonemissions.

3

Update on carbon emissions trading in China

During2013and2014,pilotcarbonmarketswerelaunchedinfourmunicipalities(Beijing,Chongqing,

ShanghaiandTianjin),twoprovinces(GuangdongandHubei)andthespecialeconomiczoneofShenzhen.Inthelasttwoyears,pilotregionshavefurtherdevelopedtheirmarketsbyexpanding

coverage,refiningtheirallocationmechanisms,andintroducingderivativeproducts.Forasummaryofkeypoliciesissuedforthepilotsin2016-17,seeAppendix1.

SincePresidentXiJinpingannouncedin2015thatChinawouldlaunchanationalETSby2017,preparationsforChina’snationalcarbonmarkethaveintensified.Requirementsforhigh-carbon

emittingcompaniestoreporttheirhistoricalemissionsdatawereintroduced,andthatdatahastobesubjecttoanindependentverificationprocess.Thegovernmenthasalsobeguntheprocessof

establishingalegalbasisfortheETS,withtheStateCouncilhavingpreviouslylistedtheETSregulationinitsworkplanfor2016.Atimelineforaformallawtobeissuedhasnotyetbeen

provided,however.Sinceearly2016,thecentralgovernmenthasissuedseveraldocumentswithinformationrelevanttotheoperationofthenationalsystem,howevermanyaspectsofthenational

ETSareyettobedisclosedatthetimeofpublication.Belowweprovideasummaryupdateofprogressto-dateandtheimportantpolicydecisionstomadeinthenearfuture.

Recent highlights

HistoricaldatareportingandverificationhasstartedThesectoralcoverageofthenationalETSwasdefinedinanoticeissuedbytheNational

DevelopmentandReformCommission(NDRC),inJanuary2016.Inaddition,provincesandmunicipalitiesweremandatedtocommencetheprocessofhistoricaldatareporting,verification,

examinationandsubmission.InFebruary2016andMarch2017,China’smostseniorclimatechangeofficialNDRCDeputyDirectorZhangYonghostedseveralteleconferencesdedicatedtoarrangements

andmobilizingallprovincialDRCsregardingthedevelopmentofthenationalETS,andemphasizingtheneedtofurtheradvancepreparatoryworkforthenationalETSduringthefinalstretch.

UncertaintyaboutlegalframeworkInthe2016LegislativeWorkPlanissuedbytheGeneralOfficeoftheStateCouncilinMarch2016,

regulationonETSwaslistedinreserveforconsiderationasanadministrativeregulation.Theregulationwasnotincludedinthelegislationplanfor2017,however,leavingsomeuncertaintyasto

thelegalbasisoftheETSduringitsinitialstage.

UncertaintyaroundsectoralcoverageofnationalETSInanNDRCnoticeinMay2016,thesectoralcoverageofNationalETSwassettoexpandtoincludeadditionalsubsectorsofthechemicalindustry,aswellasoftheironandsteelindustry2.However,

2The“NoticeonFurtherNormalizationofSubmissionoftheListofEnterprisestoParticipateintheNationalETS”was

issuedonMay13th,2016.Thecoveragewasadjustedtoincludebasicchemicals,fertilizer,pesticidesandsynthetic

4

theNDRChassinceindicatedthatitintendstoshrinktheinitialcoveragefromeightsectorstothreeorless,citingconcernsrelatingtodataqualityforbenchmarkingdevelopmentandthecapacityof

somerelevantindustries.3

NationalETScapacitybuildingcentresestablishedFocusingonstrengtheningcapacitybuildingforthenationalETS,NDRChashelpedtoestablishcapacitybuildingcentresinShenzhen,Hubei,Beijing,Guangdong,Chongqing,Shanghai,Sichuan,and

TianjinsinceMarch2016,whichprovidedanimportantguaranteeforthesmoothstartandoperationofthenationalETSinthefuture.

ExchangeforCCERsfoundedinSichuanSichuanUnitedEnvironmentalExchangeacquirednationalregistrationforaChinaCertifiedEmission

Reductions(CCER)exchangeonApril22nd,2016,makingittheeighthplatformforCCERtradingafterthesevenoriginalpilotregions.TheexchangeisintendedtoallowSichuanprovincetomore

effectivelyparticipateinthenationalETS.4

CarbonfinancereceivedpolicysupportfromsevenministriesThePeople’sBankofChina,MinistryofFinance,NDRC,MinistryofEnvironmentalProtection,theChinaBankingRegulatoryCommission(CBRC),theChinaSecuritiesRegulatoryCommission(CSRC),

andtheChinaInsuranceRegulatoryCommission(CIRC),jointlyissued“GuidelinesforBuildingaGreenFinanceSystem”onAugust31st,2016.Theguidelinesproposedtoexplorecarbonfutures

trading,toencourageanorderlydevelopmentofcarbon-basedfinancialproductsandderivativesincludingcarbonforwards,carbonswaps,carbonoptions,carbonleasing,carbonbonds,carbonasset

securitizationandcarbonfunds.Theguidelinesalsosuggesteddevelopingcarbon-basedfinancingtools,towidenthechannelsforgreenfinancingbyenterprises.

FujianETSlaunchedThePeople’sGovernmentofFujianProvinceissued“InterimProvisionsforFujianETS”onSeptember

22nd,2016,generallyfollowingtheframeworkofthenationalETS,whileexploringinnovativeapproachesconcerningthesectoralcoverageandoffsetmechanisminaccordancewithFujian’s

specificcircumstances.TheFujianETSwasofficiallylaunchedinDecember2016,becomingtheeighthfully-functioningcarbonmarketinChina,afterthesevenoriginalpilotregions.

material,whilepreviouslyonlycarbide,ammoniaandmethanolwereincluded.Ironrollingwasaddedbesidescrude

steelproduction.

3Itislikelythatbenchmarkingwillbethedefaultapproachtoallowancesallocation,thereforerequiringahigher

qualityofdatathananapproachusingonlyhistoricalemissionsintensity.

4ChineseCertifiedEmissionReductions(CCER)isadomesticsystemofoffsetcreditsawardedtoGHGemission

reductionprojectsacrossChina.CompaniescoveredbyETSinChinacanuseuptoamaximumpercentageofthose

offsetsforannualcompliancepurposes.ItsdesignandsomeofthemethodologiesareinspiredbytheUN’sClean

DevelopmentMechanisms(CDM).

5

StateCouncilapprovedallowanceallocationplanTheStateCouncilofficiallyapprovedthe“NationalETSCapSettingandAllowanceAllocationPlan”in

December2016.Thequantityofemissionallowancestobeallocatedistobecalculatedbasedoneitherindustrybenchmarksorhistoricalintensities.NDRCistobedraftingtechnicalguidelinesof

allowanceallocationforeachindustryinaccordancewiththisplan,establishingcriteriafortheimplementationofallowanceallocationinprovincesandmunicipalities.

CCERregistrationwassuspendedOnMarch14th,2017,NDRCsuspendedCCERprojectregistrationandcreditissuanceinorderto

furtherreviseitsInterimMeasuresfortheAdministrationofVoluntaryGHGEmissionsTrading.Existingregisteredandissuedprojectswerenotimpactedbytherevision.

DraftallocationplanforthreesectorsreleasedInMay2017,draftallocationmethodsforpowergeneration,electrolyticaluminiumandcement

werepubliclyreleased.Abenchmarkingapproachwasappliedforallthreesectors,whilethespecificformulaforcalculatingallocationvariesforeach.Themethodologiesmaybeoptimizedand

benchmarksmaybeadjustedbasedonfeedbackreceivedpriortothelaunchofthenationalETS.

Transaction data for China’s carbon market

PilotsAsofSeptember30th,2017,197milliontonsofallowanceshadbeentradedintheprimaryandsecondarymarkets,withavalueofCNY4.5billion.In2016alone,thetradingvolumeandvalue

reached69milliontonsandCNY1.1billion,anincreaseof106%and29%respectively(Figures1&2).

Figure1Tradingvolumeofprimaryandsecondarymarketinpilots(milliontons).

3.5

28.333.3

68.6

58.9

2013 2014 2015 2016 2017(Jan-Sep)

6

Figure2Tradingvalueofprimaryandsecondarymarketinpilots(millionCNY).

Allowancepricesstayedrelativelystableduring2016-17

Beijing ThepriceinBeijingwasaboveCNY50/tonformostoftheyear.

Shenzhen ShenzhenstayedaroundCNY40/tonduringthefirsthalfof2016,thenfluctuatedbetweenCNY20-40/tonfortheremainderoftheyear.

Shanghai In2016,theShanghaipriceincreasedfromCNY10/tontoCNY27/tonaftercompletingthetransitionofallowanceswith2013-2015vintagetocurrentallowances.Thistrendlasteduntil2017,reachingnearlyCNY40/toninQ1.

Fujian Fujian’spricehasstayedaroundCNY35/tonsinceitslaunch,andfellbelowCNY30/tonduringthecomplianceseasonof2017.

Guangdong Guangdongshowedthemoststablepricetrend,fluctuatingbetweenCNY10-20/ton.

Hubei Hubeiencounteredapricedropinmid-July,whichwascurbedtosomeextentafteradjustingthedailyfallinglimitto1%.Bytheendof2016,thepricehadreturnedtoCNY20/ton.

ChongqingandTianjin

ThepricesinChongqingandTianjinstayedmostlybetweenCNY10-25/tonin2016,exceptforseveraltransactionswithanexceptionallyhighprice.However,Chongqing’spricehasdivedsharplysinceMarch2017,eventouchingCNY1/ton.

Table1Pricetrendsinpilotmarketsduring2016/17,rankedinorderofpriceatthecloseoftradingonSeptember11,2017.

205

1,157

863

1,1131,046

2013 2014 2015 2016 2017(Jan-Sep)

7

Figure3Dailyaveragepriceofonlinetrading(CNY/ton),18thJune,2013-30thSeptember,2017.

CCERs AsofSeptember30th,2017,287CertifiedEmissionReduction(CCER)projectshadbeenissued,andacumulative118milliontonsCO2hadbeentraded.BetweenJanuaryandSeptemberof2017,over42

millionweretraded,alreadyexceedingthelevelof2016(Figure7).OnlyBeijingandShanghaireleasedonlinetradingprices.ThepricerangesforBeijingandShanghaiwereCNY10-20/tonand

CNY20-25/tonrespectively.ForfurtherdetailonCCERtradingtodate,seeAppendix2.

Figure4CCERtradingvolume(milliontons).

0

20

40

60

80

100

120

140

AveragePrice�CN

Y/ton�

Shenzhen Shanghai Beijing GuangdongTianjin Hubei Chongqing Fujian

33.7

42.5 42.8

2015 2016 2017(Jan-Sep)

8

Status of the national ETS

China’snationalETSisplannedtobelaunchedin2017,representingthelargestemissionstradingsystemintheworld.Sinceitsannouncement,thepreparatoryworkhasprogressedsteadily.The

detailedstatusofnationalETSdesignto-dateandNDRC’splanfor2017andbeyondareoutlinedinFigure5.AmoredetaileddescriptionofthetasksunderwaycanbefoundinAppendix3.

Figure5Statusofnationalcarbonmarketdevelopmentprocess,asofNovember2017.

9

Surveying China’s carbon pricing stakeholders

Thesurveywasconductedanonymouslythroughasecureonlinesurveyplatform,Diaochapai,fromMarch23toJuly9,2017.ChineselanguageandEnglishlanguageversionsweremadeavailable.

ThoseinvitedtoparticipateinthissurveywereselectedfromCCF’sdatabaseofcontactsandICF’sdatabaseofcontactsinvolvedinChina’scarbonmarkets,aswellasparticipantsinthe2015survey.5Thesurveywasalsomadeavailabletopotentialrespondentsthroughtargetedsocialmediachannels,inparticularWeChat.6260eligibleresponseswereincludedintheanalysis.

The2013surveywasconductedbeforemostofthepilotsystemshadbegunoperationinChina,the2015surveyprovidedasnapshotoftheviewsaftertwoyearsofpilotoperation,andthe2017surveycomesasthecountrypreparestolaunchthenationalmarket.Thenumberofrespondentswascomparabletothe2015survey(304)andmuchhigherthanin2013(86).

ThesurveycoversasignificantnumberofChina’sexpertcommunityoncarbonmarkets,withparticularlystrongrepresentationfromkeydesigners,implementersandparticipantsofChina’sETSpilotsandafuturenationalETS,suchasacademicexperts,industry,carbontradingparticipantsandconsultancies.ItprovidesareasonableindicationofviewsandexpectationsamongChina’scarbonmarketcommunity.

TheAppendixtothisreportshowstheexactwordingofthesurveyquestions,alongwithdetailedsurveystatisticsandsomeexplanatorynotes.Withinthisreport,unlessotherwisestated,percentagesrefertotheproportionofrespondentstoaparticularquestion.PleaserefertotheAppendixtoseethenumberofnon-responsesforeachquestion.

5Noresponseswereincludedfromorganisationsinvolvedinimplementingorfundingthisproject.6ProjectpartnerSinoCarbonsharedthesurveywithitsWeChatchannel,whichatthetimehadover7,600subscribers.ThesurveywasalsosharedinseveralWeChatgroups,includingonemanagedbyICFonEU-ChinaETScapacitybuilding(over200members)andapopulargroupforcarbonindustryprofessionals,“��”(500members).Theprojectteamsoughtresponsesfromthosewithaknownroleworkingoncarbonmarketissuesfortheirorganisations,ortheirknownexpertiseonthesubjectmatter.

10

Survey respondents by groups

Ofthe260respondents,26%ofrespondentsidentifiedasbeingfromindustry(mostofwhicharetobecoveredbytheETS),withthehighestrepresentationfromthepowergeneration,chemicalsandpetrochemicalssectors.83%ofallcoveredindustryrespondentsarefromsectorsintendedtobecoveredbytheforthcomingnationalETS,with59%ofthemhavingparticipatedinthepilots.25%arerepresentativesofconsultancieswhoseworkrelatestocarbonpricing.TheserespondentshavetypicallybeeninvolvedinadvisinglocalandnationalgovernmentsontheestablishmentofETSpilotsaswellaspreparationforanationalETS.10%ofrespondentsworkinacademia;7%workinthefinanceindustry;7%arefromcarbontradingplatforms;6%fromNGOs;5%fromgovernmentresearchinstitutes;3%arefromindustryassociations;3%fromlocalgovernmentand2%fromcentralgovernment.Afurther5%ofresponsescamefromstakeholdersinothersectors,including:multilateraldevelopmentorganisations,foreigngovernments,individualinvestors,educationandthemedia.

Surveyrespondentsbygroup

Figure6Q1-2Howwouldyouclassifyyourorganization?

Note:totalnumberofresponsesN=260.SeeAppendixfordetails.

245(94%)respondentsusedtheChineseversionofthesurvey,and15(6%)respondentsusedtheEnglishversion.TheratioofChineserespondentsishigherthanfortheprevioussurveys(92%in2015and51%in2013),showingthatChina’scarbonmarketisincreasinglyadomesticeffort.

Industry responses

Intotal,67responsesfromindustrywerecollected,41ofwhichwerefromcompaniesthatareeitheralreadycoveredbyanETS,orwillbecoveredbythenationalETS.Oftheresponsesfromcoveredcompanies,63%identifiedthemselvesasbelongingtostate-ownedcompanies(bothcentralandprovincialgovernment-owned).

ResponsesincludedcompaniesoperatingundereachofChina’spilotETSregions,withtencompanieseachoperatingundertheBeijingandGuangdongsystems,andgoodrepresentationfromtheTianjin,ShanghaiandHubeipilots.11ofthe41respondents(27%)arecurrentlyoperatinginanETSoutsideofChina,andalmostoftheseareoperatingundertheEUETS.Forthesecompanies,workingundermorethanoneETSjurisdictionmayfacilitateexperiencesharing,industrypeertopeerlearning,andeventualintegrationacrosssystems.

11

Abouthalfofthecoveredcompaniesreportedemissionsofover1milliontce/year.Veryfewresponses(4),camefromsmallcompanieswithemissionsofunder10,000tce/year,whichisexpectedtobethethresholdforinclusioninthenationalcarbonmarket.Verylargeemittersaredominatedbystate-ownedenterprises,bothcentral(10)andlocal(5).GiventhatcentralgovernmentSOEsareamongthelargestemittersinChina,thishelpstoprovideamoreaccuraterepresentationofparticipantsinthenationalcarbonmarket.

Industryrespondentsbysizeandownershiptype

Figure7Q1-6HowmuchenergydoesyourcompanyannuallyconsumeinChina?(byenterprisetype)

(N=41)

Theindustryresponseratewaslowerthanexpected,despitestrongeffortsbytheauthorstoreachouttoindustrieswhicharecurrentlyorwillsoonbesubjecttoacarbontradingsystem.ThelowresponseratemaybebecauseofthepolicyuncertaintyintheleaduptothenationalETS–someindustryrepresentativesmaynotyetconsiderthemselvestobeinapositiontoprovideexpectationsaboutcarbonpricing.Someindustryrepresentativesmayalsohavebeenreluctantforfearofdisclosingbusinessinformationwithoutapprovals.

Responses by region

37%oftherespondentstothesurveyarefromorganisationslocatedinBeijing.61%werefromprovinceswithpilotcarbonmarkets,30%fromnon-pilotregions,withtheremaining9%fromorganisationsnotbasedinmainlandChina.

ThehighlevelofresponsesfromBeijingreflectstheconcentrationofthepolicy-making,consultancy,NGOandexpertcommunitiesinthecapitalcity,andalsobecausetheprojectpartnershavestrongernetworksinBeijing.AfterBeijing,thehighestnumberofrespondentswerefromGuangdong(9%),Shanghai(8%)andTianjin(5%),whichareregionswithwell-establishedpilots,perhapsalsoreflectingthecurrentcapacityandlevelofreadinessintheseregions.

TheconcentrationofresponsesfromBeijinghasreducedsincethe2015survey(downfrom43%),reflectingagrowingunderstandingandwillingnesstoengagewithcarbonmarketsinnon-pilotregions.

5%

10%12%

10%

5%

12%10%

37%

<10,000 10,000- 100,000 100,000- 1,000,000 Above1,000,000Tonscoalequivalentperyear

Nonstate-owned State-owned

12

Surveyrespondentsbyregion:increasinglywidespread

Figure8Q1-1Whereisyourorganizationlocated?-Numberofresponses.(N=260)

The pilot emissions trading systems

Sincethepilotcarbonmarketswerelaunchedin2013and2014,theyhaveeachnowcompletedeitherthreeorfourcompliancecycles,providingusefulinformationforinformingfuturepolicydecisions.

Prices in the pilot systems

FluctuationsinpricesinthesevenpilotsystemsareoutlinedinFigure3onpage7above.Aroundthetimeofthesurvey,pricesrangedfromCNY2/tinChongqingtoCNY51/tinBeijing(atcloseon31October2017).

The2013and2015ChinaCarbonPricingSurveysbothaskedrespondentsfortheirexpectedcarbonpricesinthepilotregionsforfutureyears.Predictionscannowbecomparedwithrealpricestodate.Respondentstothe2013surveyconsistentlyunderestimatedpricesincalendaryear2014,butoverestimatedpricesbeyondthat.Similarly,respondentstothe2015surveyoverestimatedpricesforeachofthepilotregionsin2016.Tradingdatafromthepilotregionsshowsthataveragepricesfor2016weresignificantlylowerthanthosein2014,helpingtoexplaintheshift.Figure9showsaveragepricesintwoofthelargestpilotmarkets,GuangdongandShanghai,comparedwithexpectationsin2013.

13

In2016,pricesintheETSpilotswerelowerthanexpected

Figure9DifferencebetweenaveragepricesChina'spilotETSsin2014and2016andexpectationsin

the2013and2015ChinaCarbonPricingSurveysrespectively.[Marketpricedata:SinoCarbon]

Figure10AveragepricestheGuangdongandShanghaipilotETSscomparedwithexpectationsinthe2013ChinaCarbonPricingSurvey.[Marketpricedata:SinoCarbon]

0

10

20

30

40

50

60

70

2014 2015 2016 2017 2018

CNY/ton

Guangdong2013survey

0

10

20

30

40

50

60

70

2014 2015 2016 2017 2018

CNY/ton

ShanghaiRealaverage

14

Abouthalfofrespondentstothisyear’ssurveyexpressedaviewthatcarbonpricesinthepilotsatthetimeofthesurvey,duringthesummerof2017,werelowerthanwhattheyexpected.Fewconsideredcurrentpricestobehigherthanexpected:11%overall,including15%ofindustryrespondents.Thiscorrelateswellwiththecomparisonofexpectationsandrealpricesdisplayedabove.Seasonalfactors,suchasthecomplianceperiod,mayaffectmarketprices.However,duringtheperiodthatthesurveywasconducted,pricesinthepilotregionswererelativelystable,exceptforChongqing’swhichdroppedfromaroundCNY16toalmostzeroformuchoftheperiod.

Inmid-2017,pricesintheETSpilotswerelowerthanexpected

Figure11Q4-1HowdothecurrentpricesinETSpilotscomparewithyourexpectations?(N=201)

Factors influencing prices

WhenaskedwhatthemainfactorsareinfluencingpricesintheETSpilots,alargemajorityofrespondents(209outof260)identified‘capsettingandfeeallocation’asthemostimportantfactor,whilstamajority(196outof260)alsoidentified‘governmentregulationandintervention’asafactor.Otherfactorswerealsoconsideredimportant,with124selecting‘informationtransparency’,117selecting‘economicgrowthrate’,and70choosing‘complianceperiod’.Contrarytothe2015survey,governmentrespondentsnowidentify‘governmentregulationandintervention’asthemostimportantfactorininfluencingprices.

Factorsinfluencingpricesbyrespondentgroup

Figure12Q4-2Inyouropinion,whatarethemainfactorsinfluencingpricesintheETSpilots?(N=259)

51%

51%

34%

39%

15%

10%

Industry

Non-industry

PriceslowerthanIexpected PricessimilartowhatIexpected PriceshigherthanIexpected

37%

29%

26%

27%

6%

11%

13%

10%

12%

14%

18%

19%

18%

18%

12%

18%

28%

28%

31%

26%

Industry(coveredandnon-covered)

Consultants&exchanges

Government(nat.,localandresearch)

Others(academia,finance,NGOsetc.)

Capsettingandfreeallocation ComplianceperiodEconomicgrowthrate InformationtransparencyGovernmentregulationandintervention

15

National emissions trading system

SincePresidentXi’sannouncementinSeptember2015,preparationforthelaunchofanationalemissionstradingsystemhasbeenledbytheClimateChangeDepartmentoftheNDRC.ThenationalETScouldbecomeakeycomponentofChina’sambitiontocontrolitsgrowingcarbonemissions.

Start of national ETS

DespitetheChinesegovernment’sannouncementthatanationalETSwouldbeestablishedduring2017,whenaskedbywhenChina’snationalETSwillbefullyfunctional,only47%ofrespondentsexpectthistooccurby2020orearlier.7Afurther44%ofrespondentsexpectafullyfunctionalcarbonmarketbetween2021and2025.Thisuncertaintyregardingshort-termdevelopmentofthemarketappliestobothindustryandnon-industryrespondents.Atthesametime,thefactthatalmosthalfofstakeholderssurveyedexpectafullyfunctionalmarketby2020,indicatesalevelofoptimismaboutthemarket,despitetheperceptionofslowprogressthisyear.

UncertaintyremainsoverwhenthenationalETSisexpectedtobefullyfunctional

Figure13Q5-2BywhendoyouexpecttheChinanationalETStobefullyfunctional?(N=256)

WhenaskedwhattheythoughttheintensityoftradingwouldbeintheETSduringthefirstcompliancecycle,alargepercentageofrespondentswhohadaviewsaid‘moderatelyactive’(84%).Asignificantproportionofrespondents(18%),wereunsureonthispoint.

Inthe2015ChinaCarbonPricingSurvey,83%ofrespondentsindicatedthattheythoughtacarbontaxwouldeventuallybeintroducedinChina.Thisyear’ssurveydidnotaskthisquestion.However,recentdiscussionhassuggestedthatacarbontaxmaybeconsideredforsectorsnotcoveredbytheETS,orforcompaniesfallingundertheentrythreshold.

7Fulltextofquestion:“BywhendoyouexpectChinanationalETStobefullyfunctional?e.g.allkeybuildingblocksinplace,including:legislation/law,capandallocationmanagement,completeMRVAsystem,registry,tradingplatforms,marketoversight,etc.”

0%

10%

20%

30%

40%

50%

2017 2018-2020 2021-2025 Laterthan2025 Never

Industry Non-industry

16

Management of the national ETS

Alargemajorityofrespondents(63%)believethatthelegalbasisforthenationalETSshouldbeaNationalLawpassedbytheNationalPeople’sCongress.Others(32%)believethatregulationbyStateCouncilwouldbesufficient,andveryfewbelieveregulationattheministrylevel(4%)oraministry-issuednotice(1%)wouldsuffice.Theseresultssuggestthatifdedicatedlegislationisnotpossible,attheveryleastthereshouldberegulationprovidedbytheStateCouncilatthebeginningoftheETS.Therewasnosignificantdeviationbetweenindustryandnon-industryrespondentsonthisquestion.

AstronglegalbasisisrequiredforthenationalETS

Figure14Q5-3WhatlegalbasisdoyouthinkisnecessaryforthestartofthenationalETSinorderto

ensurecompliance?(N=255)

1%

4%

32%

63%

MinistryNotice

RegulationatMinistryLevel

RegulationbyStateCouncil

NationalLawbytheNPC

17

Mostrespondents(85%)thinkthatarules-basedflexibilitymechanism,suchasastabilityreserve,isnecessary.8Thiswouldhelptolimitthefluctuationofpricesandtopreventsystemicunderandoversupplyofallowances(hinderingoptimalpriceformation).

Arules-basedflexibilitymechanismisnecessary

Figure15Q5-4Doyouthinkarules-basedflexibilitymechanism,suchasastabilityreservetokeeppricesfromfluctuatingtoomuch,isnecessary?(N=249)

8Arules-basedflexibilitymechanismreferstoamethodformanagingpricesinthecarbontradingsystem.Itcouldtaketheformofamarketstabilityreserve,representingaportionofthetotalpermitsallowedunderthecap,whichcouldbeusedtoinfluencethemarketpriceifpricesexceedcertainpre-definedthresholds.

No12%

Yes88%

Selectedquotes:Doyouthinkarules-basedflexibilitymechanism,suchasastabilityreservetokeeppricesfromfluctuatingtoomuch,isnecessary?Explainyouranswer:

- “Withproperdesign,astabilityreserveisnotnecessary.However,itislikelythatthenationalETSwillfeaturesuchamechanism.Ifoneiscreateditwouldbebestiftheoperatingandtriggermechanismsweretransparentsuchthatparticipantsareneversurprisedbywhenitisimplementednorbytheresultingimpactonthemarket.”–NGO

- “Stateregulationiscrucialintheearlystagesofthecarbonmarket,ascompanieswithamplequotasarenotclearaboutthefuturepolicydirection,andaregenerallyreluctanttosell.Inthefuture,theuncertaintyaroundnationalmacroeconomicchangeswillalsorequireconsiderableadjustmentstobemade.”–Consultancy

18

84%ofrespondentsthinkthatanewentrantsreserveisnecessary.9WhileChina'slevelofeconomicgrowthisslowing,thiswillbeanimportantfeatureinmarketdesigntoaddressnewadditionsincapacity.Atthemicrolevel,newinvestmentandproductionincreaseswillalwaysleadtonewallocationneeds.ThishasbeenwitnessedintheEUforexample,whereSpainrecordedloweconomicgrowth,butSpanishdemandfornewentrants’reserveallocationswashigh.

Initially,anewentrantsreserveisnecessary

Figure16Q5-5DoyouthinkaNewEntrantsReserveisnecessary?(N=243)

9ANewEntrantsReserveconstitutesaspecial-purposepoolofemissionallowancessetasidefornewcompaniesenteringthecarbonmarket,andcompaniesthatincreasecapacity.

No16%

Yes84%

Selectedquotes:DoyouthinkaNewEntrantsReserveisnecessary?Explainyouranswer:

- “Whileitisnotnecessary,itislikelythatanewentrantsreservewillbecreated,allowancesfromwhichwillbeaccessedbynewentrants.”–NGO

- “Enterpriseexpansionandtheestablishmentofnewenterprisesarenecessaryfornormaleconomicdevelopment,andemissionsreductioncannotbeallowedtoinhibiteconomicdevelopment,soitisnecessarytoarrangeareasonableallocationofquotas.”–Academia

- “Besuretocontrolthetotalamount,otherwisesomeonewillseethegreenlight.Redlinesmustnotbeexceeded.”–Sectorassociation

19

AbouthalfoftherespondentsconsiderthattradinginthenationalETSshouldoccuracrossseveralregionalplatforms,while37%thinkthatthereshouldbeonenationalplatform.14%ofrespondentsthinkthatthereshouldbeemissionstradingexchangesineveryprovince.Theseresultssuggestthatforthemajorityofstakeholders,centralisingtradingactivityonacentralplatformisnotasignificantpriority.Theauthorsconsiderthatthismayreflectaprevailingattitudethatsolongassecurityisensured,exchangesareconnectedtotheregistry,andthereisaunifiednationalmarket,companiesarecomfortablechoosingfromarangeoftradingplatforms.

Varyingviewsontradingplatforms

Figure17Q5-6HowmanyemissionstradingexchangesshouldoperateinthenationalETS?(N=253)

Onenationalplatform37%

Severalregionalplatforms

49%

Withinevery

province14%

Selectedquotes:HowmanyemissionstradingexchangesshouldoperateinthenationalETS?Explainyouranswer:

- “InthecontextofthenationalETS,whiletherewillbeoneregistry,theremaybemultipleexchanges.Initially,someofthesewillbeauthorizedtoonlyaccommodatespottransactionswhileotherswillbeallowedtopilotderivativesandriskhedgingproducts.Overtime,theremaybeaconsolidationanditcouldbethatasingleexchangewillemerge.ThoseexchangesthatarenotusedtotransactnationalETSproductswillcontinuetobecentralplayersinthelocalETSprogramsforsolongassuchprogramsexist.”–NGO

- “Itiscertainlybesttointegrateitintoanationalplatform,butinviewofthesignificantdifficultyofhavingoneplatformatthebeginningofthetradingsystem,itisrecommendedtoestablishregionalplatforms,thesameasforthestockmarket.”–Academia

- “Environmentalimpactsarecross-regional,andthedepthofthemarketalsoneedstobecross-regional.Duringtheinitialstage,thereshouldbeafewregionalplatforms,andlatermarketcompetitionshouldbeallowedtoresolvetheissue.”–Non-coveredcompany

20

Themajorityoftherespondents(89%)expectsomelevelofbankingofpermitsfromthepilotsystemstothenationalETSshouldbeallowed.10Respondentsexpectthatcompanieswillbeabletotransferassetsfromthepilotsintothenationalsystemwithouttotallylosingtheirvalue,howeverthereisalsoarecognitionoftheriskoffullbanking,with49%infavourofpartialbanking.Itshouldbenotedthatmorethanhalfofindustryrespondentswerefromcompaniesthathadparticipatedinthepilotmarkets,andthereforelikelytobemoreinfavourofbankingintothenationalsystem.

SomelevelofbankingshouldbeallowedfromthepilotstothenationalETS

Figure18Q5-7HowshouldbankingofpermitsfromthepilotsystemstothenationalETSbemanaged?(N=228)

10Bankingmeanstheholdingofpermitsfromonecomplianceperiodforthepurposeofsaleorsurrenderinafuturecomplianceperiod.

Nobanking11%

Percentageofpermitsmaybebanked49%

Fullbankingofallowances

40%

Selectedquotes:HowshouldbankingofpermitsfromthepilotsystemstothenationalETSbemanaged?Explainyouranswer:

- “Pilotquotasmayhavebeenexcessive,andhavesomelessthanidealaspects.”–Centralgovernment

- “Allpilotregionsareover-allocated.Ifthereisafulltransferitwillbeadisasterforthenationalsystem.”–Carbontradingplatform

- “Howtocarryforwardthesequotaswillbeoneofthebiggestobstaclestotheestablishmentofthenationalcarbonmarket.Sincefullbankingwouldcauseregionalinequity,itisreasonabletocarryoutpartialbankingaccordingtothesituationofeachpilotarea.”–Academia

- “Thepilotscoverdifferentindustriesanddifferentstagesofdevelopment.Bankingshouldbebasedonboththeoverallobjectiveofcarbonemissionsreduction,aswellasinaccordancewiththespecificcircumstances.”–Governmentresearchinstitute

- “Inordertomaintainnationalmarketactivity,itisnecessarytocontrolthebankingofquotas.Butgiventhatenterprisesboresomecostfromcarbontradingduringthepilotstage,partialtransferofthequotasascompensationshouldbeeasytoaccept.”–Powersectormarketparticipant

21

Themajorityofrespondentsbelievethatenterpriselevelreportingwouldbemostefficient(64%).However,asignificantproportionconsiderthatreportingshouldbeconductedatthefacilityorproductlevel(36%).Enterprise-levelreportingwouldprecludebenchmarkingforallocationbyproduct-type.

Ifreportinginvolvesahighlevelofdetail,inprincipleitwillresultindisaggregatedandbetterqualitydatathatcanbeusedforbenchmarking.Benchmarkingisrecognizedasafairincentivetotopperformersbutitisusuallyperceivedasapotentialdisadvantageforthelowestperformers.Lower-levelreportingwouldalsoimplyaheavierreportingburden.Somecompaniesmaybereluctanttotakeonthisburdenwithoutassistancefromgovernment.

Significantlevelofinterestinfacilityandproduct-levelreporting

Figure19Q5-8Whatshouldbethelevelofreporting?(N=247)

Prices in the national ETS

RespondentswereaskedwhattheyexpecttheaveragecarbonpricetobeatdifferentpointsintimeinanationalETSinChina.Theresultsindicateanexpectationofsteadilyrisingprices,butwithsignificantvarianceoverthelevels.

TheaveragepriceexpectationinthenationalETSisCNY38/tin2017;CNY51/tin2018;CNY74/tin2020;CNY108/tin2025.AtthebeginningoftheETS,themajorityofrespondentsexpectthecarbonpricetobebetweenCNY20/tandCNY50/t,similartotheaveragepriceinmostofthepilotmarkets.However,thepricelevelsremainhighlyuncertaininthemoredistantfuture.The20thand80thpercentilesfor2025areCNY50/tandCNY200/trespectively.Thefuturepriceexpectationsaresignificantlyhigherthanatthetimeofthe2015survey.Atthattime,averageexpectationsforthesameyearswereCNY39,CNY45,CNY56andCNY70,respectively;the80thpercentilein2025wasCNY100/t.

37%ofrespondentsprovidednopriceestimates(downfrom43%in2015).Highlevelsofuncertaintymayleadmanyrespondentstobereluctanttoprovideaquantifiedpriceexpectation.

Enterpriselevel64%

Facilitylevel24%

Productlevel12%

22

China’scarbonpriceisexpectedtosteadilyrise

Figure20Q5-9WhatdoyouexpectthepriceinthenationalETStobeinthecomingyears?

(N=161,160,159,157)11

ItisworthnotingthattheexpectedETSpriceisnotanaccurateindicatorofoverallefforttoreducecarbonemissions,becausetheETSiscomplementedbynon-pricingpoliciessuchasmandatoryclosureofinefficientfacilities,incentivesforenergysaving,renewableenergyfeed-intariffs,etc.

Long-termpriceexpectationsvarybetweenindustryandnon-industryrespondents,withindustryexpectinghigherpricesby2020.The2015reportalsodisplayedanindustrytendencytoexpecthigherprices.Thissuggeststhatindustryisconvincedofacertainlevelofcarbonprice,whilesomeexpertsareuncertainifhighpriceswillbeareality.Thismaygivegovernmentextraconfidencethatpolicycertaintyismoreimportantforindustrythanlimitationofcostimpacts.

ForthenationalETS,industryexpectshigherpricesthanotherrespondents

Figure21NationalETSpriceexpectations–industryvs.non-industry.(N=161,160,159,157)

11ForresponsestoQ5-9,theauthorsremovedsomeoutlyingresponses.For2017,fourresponseswereremoved(300,463,500,1000CNY/ton).For2018,threeresponseswereremoved(500,600,2000CNY/ton).For2020,fourresponseswereremoved(529.35,600,1000,2000CNY/ton).For2025,fourresponseswereremoved(595.52,800,2000,20000CNY/ton).Thecriteriaforexclusionwasatleastfivetimestheaveragepriceexpectationforthatyear.

0

50

100

150

200

2017 2018 2019 2020 2021 2022 2023 2024 2025

CNY/TO

NNECO

2

20th- 80thpercentile Average

0

50

100

150

2017 2018 2019 2020 2021 2022 2023 2024 2025

CNY/TO

NNECO

2

Industry Non-industry AllAverage

23

Readiness for emissions trading

RespondentsfromcoveredindustrywereaskedwhethertheythinkthattheirorganisationisadequatelypreparedtotakepartinanETS.Ofthese41respondents,administratingallowances(44%)andcarbontrading(41%)wereoutlinedastheareasinwhichorganisationswereleastprepared,ashighlightedbyrespondentsthatselectedeither‘notpreparedatall’or‘yes,marginallyprepared’.

Amongrespondents,therewasareasonablelevelofpreparednessformonitoringandreporting(88%)andforallocationdatacollection(71%).Asdescribedintheintroduction,itisworthnotingthatthissurvey’ssamplemaybebiasedtowardsindustryparticipantswithahigherthanaveragelevelofpreparedness.

Selectedquotes:WhatdoyouexpectthepriceinthenationalETStobe–Explainyouranswer:

- “Fosteringmarketstrengthandthegovernment’sapproachtoquotaadjustmentiscritical.Oncethereisamarket,thefactorofgovernmentinterferencewillnotbeinsignificant.Justlikeinthestockmarket,thereisnolegalsupportforascientificapproachtogovernmentallocationofquotas.Governmentnotices,andtheviewswithintheleadershipofvariousdepartments,aredecisiveininterferingwiththerapidgrowthandmaturationofthemarket.”–Constructionsectormarketparticipant

- “Initiallythemarketwillbeover-allocated.Bytheendof2017,pricesmaybelowerthanwiththeinitialtrades…Between2020and2025allsectorsmaybeincluded,andeachnewsectormaycomewithgenerousallocation.By2020derivativesmayhelptocontainprices.Asthecapbites,perhaps2022andlater,pricesmayrise.”–NGO

- “Iestimatethatthecarbonmarketwillflourishinthenextthreeyears.WiththepeakofgreenhousegasemissionsinChinaaround2025-2030,thedemandforcarbonquotasmaydecline.”–Carbontradingexchange

- “Thefirstfewsectorsarebasicallyindustrialenterprises,withhighcostofemissionreduction”(estimatesinitiallyhighanddecliningprice)–Shandongmarketparticipant

- “Earlyinthemarket,youcannotruleoutalotofinvestorstakingagamblingmentality,andthepricecouldeasilyrisetoofast.Later,withmarketregulationinplaceandinvestorstendingtobecomemorerational,thepricewillstabiliseandthenfall.”–Carbontradingexchange

24

Moreworkisneededtopreparecompaniesforcarbontrading

Figure22Q2-1DoyouthinkthatyourorganizationispreparedtoperformtasksunderanETS?(N=41)

Followingonfromthis,respondentswereaskedtoidentifyinwhichareastheyneededtoreceivefurthertrainingbeforethenationalETSstarts.Needsforfurthercapacitybuildingarebroadanddiverse.Themostfrequentlychosenpriorityareasinclude:‘corporatecompliancestrategy’and‘carbonfinance’.Thiscorrelateswellwiththelowerlevelofpreparednessidentifiedaboveforcarbontradingandadministratingallowances.

While88%ofindustryrespondentsfeltpreparedformonitoringandreportingand71%forallocationdatacollection,32%and27%ofrespondentsalsoclaimedaneedfortrainingintheseareas.Thissuggeststhateveninareaswherecompaniesarebestprepared,thereissignificantneedforadditionaltraining.

Capacitybuildingisneededinmanyaspects

Figure23Q2-2InwhichareasdoyouneedtoreceivefurthertrainingbeforethenationalETSstarts?(Selectupto3)(N=41)

39%

39%

30%

24%

49%

32%

25%

34%

10%

20%

35%

29%

2%

10%

10%

12%

Monitoring&reportingemissions

Allocationdatacollection

Administratingallowances

Carbontrading

Yes,strongly Yes,moderately Yes,marginally Notpreparedatall

49%44%

37%32%

29%27% 27%

7% 7%

Corporatecompliancestrategy

CarbonFinance

Keyfeaturesofcarbonmarkets

Monitoringandreporting

GHGs

Legalframework/regulations

Devt.anduseofCCERs

Allocationdata

collection

Verificationand

accreditation

UseofETSregistry

25

The41industryrespondentswereaskedwhethertheyhadformulatedadedicatedteamtohandleETSobligations.76%ofrespondentshaddedicatedeitheranindividualorateam.Teamsrangedinsizeofupto30persons,withtheaverageteamconsistingof8people.15companieshadsmallteams(1-4people),9hadmoderatelysizedteams(5-10people),while6hadlargeteams(>10people).

MostcompanieshaveformedateamtohandleETSobligations

Figure24Q2-3Hasyourcompanyassignedadedicatedperson(internalorexternal)orformedadedicatedteamtohandleyourETSobligations?(N=41)

Oftheseteams,mostwerecomprisedofeitherdecision-makingteamsfromdifferentdepartments(45%)orhadadedicateddepartment(42%).Only13%ofrespondentshadoutsourcedtoanindependentcompany.

CompanieshavedifferentapproachestoensuringcompliancewithETSobligations

Figure25Q2-3Whatisyourteam’sorganizationalform?(N=41)

No,24%

Yes,76%

Teamfromdifferent

departments45%

Department42%

Independentcompany13%

26

Ofthe41industryrespondents,33(80%)ofthemhavealreadybegunparticipationintraining.ThissuggestsextremelyhighlevelsofconfidencethatthenationalETSwillbeimplementedintheverynearfuture.

AlargemajorityofindustryorganisationshavealreadyparticipatedinETStraining

Figure26Q2-4Hasyourcompanyparticipatedintraining(s)onETS?(N=41)

Ofthe33respondentsthathavealreadyparticipatedinETStraining,amajority(52%)ofthemproducedover1,000,000TCE/year.

Figure27Companiesthathaveparticipatedintraining(s)onETS,bylevelofemissions(unit:tonsofcoalequivalentperyear)(N=41)

No20%

Yes80%

Below5,0006%

10,000-100,00015%

100,000-1,000,000

27%

Above1million52%

27

Ofthe41ETS-coveredcompanies,80%ofrespondents(33respondents)statethattheyhavesetanemissionreductiontarget.Thisissimilartotheresponseratein2015,howeverwithahighernumberofresponses.Thisisanextremelypromisingfigure,andsuggeststhatformanycompanies,ETSisusedasadriverforchange,and/ortheywanttobefullypreparedforitsimplementation.

Itisnotablethat39%ofrespondents’companieshaveundertakeninternaldistributionofallowancesbetweensubsidiarycompanies,whetheritbeanintra-companyexchangeofallowancesviaatradingdesk(17%),oranallocationofallowancesbyheadquarters(22%).

31%ofrespondentshaveimplementedaninternal/shadowcarbonprice.Thispercentageisexpectedtoincreaseovertime.PricesrangedfromCNY20toCNY670,withthelowerpricesseemingtomirrorcurrentspotprices,andthehigherpricesseenashavingthepotentialtodrivefurtherlowcarboninvestmentdecisions.

Impacts of carbon pricing on investment Respondentswereaskediftheyexpectedthepriceofcarbontoaffectinvestmentdecisionsin2017,2020,and2025.Respondentsexpectcarbonpricingtoincreasinglyaffectinvestmentdecisionsinthecomingyears.In2017,39%ofthosewhoexpressedaview,expectinvestmentdecisionstobestronglyormoderatelyaffected.By2025,thisnumberrisesto84%ofrespondents.Only2%ofrespondentswhoansweredthisquestionexpectinvestmentdecisionstobeunaffectedby2025.Theresponsesalsodemonstratealevelofuncertaintyforthemedium-term,withsignificantlylessrespondentsexpectingastrongimpactin2020thanforthe2015survey(17%downfrom30%).

Carbonemissionstradingisexpectedtoincreasinglyaffectinvestmentdecisions

Figure28Q3-1DoyouexpecttheETSinChinatoaffectinvestmentdecisionsin2017?2020?2025?(N=252,246,231)

11%17%

46%28%

60%

38%43%

20%13%18%

3% 2%

2017 2020 2025

No

Yes,marginally

Yes,moderately

Yes,strongly

28

Selectedquotes:Doyouexpectthepriceofcarbontoaffectinvestmentdecisions?Why?

Estimateincreasing/strongtrendinimpact:

- “Becauseclimatewarmingwillbecomemoreandmoreserious,thecontrolofCO2emissionswillbecomemoreandmoreimportant.”–Non-coveredcompany

- “Onlywhenbusinesscostsincreasewillithaveanimpactoncorporateinvestmentdecisions.Myforecastisbasedonafutureincreaseintheproportionofallowancesthatwillbeauctioned[asopposedtofreeallocationtoday].”–Consultancy

- “Environmentalproblemsneedacombinedeffort.Themarket-orientedwayofsocialgrowthwillnotchangesoon,andclimatechangeisimminent.Inaddition,thecarbonmarketindustryismatureenough,soitwillinevitablygenerateastrongconstraintinthenext3to5years.”–Non-coveredcompany

- “In2017,awarenessofcarbontradingwillstillbespreadinggraduallytostakeholdersacrossthecountry.By2020,theETSknowledgeandinfrastructurewillbeinplace,andcompanieswillbeawareoftheimpactofcarbonemissionsattheenterpriselevel.By2025,withthenationalpoliciesonenvironmentalprotectionandenergyconservationforenterprisesfurthertightening,carbonemissionswillhaveagreaterimpactoncompanies.”–Consultancy

- “Thecarbonemissionstradingsystemisnotyetperfected,andtheimpactoninvestmentdecisionsisrelativelysmall.Withimprovementovertime,theimpactofthesystemoninvestmentdecisionswillincrease.”–Academia

- “Therewillbeatransitionperiodbecausetherewillbefewenterprisesincludedattheearlystageofthemarket,thepolicyframeworkisstillbeingperfected,andthereislessexperience.Thiswillbefollowedbymorestringentrequirementsonenterprises,sotheimpactoninvestmentwillbecomelarger.”–Consultancy

- “Ihaveanoptimisticoutlookforthecarbontradingsystem.Theestablishmentofthenationalmarketin2017isboundtoimpactoninvestmentdecisionsthisyear,whileexperiencefromthepilotssuggeststheyhavehadamoderateinfluenceonenterprises’investmentdecisions.Whenthecarbonmarketgraduallydevelops,isrefinedandmatures,investmentdecisionswillbecloselyrelatedtothecarbontradingsystem.Ibelievethatinvestmentin2020willbesignificantlyaffected.”–Academia

Estimateminimal/uncertainimpact:

- “Policyandtechnicalindicatorsarenotclearandarenotdirectlylinkedtothescopeofmarketactivity.Theapplicationofcleanerproductionandtheimpactofzero-carbonenergymaynotbetransferredtotherelevantbusinessareas.”–Non-coveredcompany

- “Investmentinstitutionsaretakingawait-and-seeattitudetoChina’scarbonmarket,andwillgraduallyhaveanincreasingeffectoninvestmentdecisionsoverthenextthreeyears.ButitisdifficulttopredictthedevelopmentofChina'scarbonmarketin2025.”–Carbontradingexchange

- “Firstly,thecoverageisnarrow;secondly,theinternationalsituationwillmakecarbonmarkethaveinsufficientprofitability.”–Chinalocalgovernment

- “Thegovernmentisnotstrongenough,theeconomicsituationisnotgoodenough,thepolicyisnotclearenough.”–Consultancy

29

Carbon pricing in context

RespondentswereaskedwhattheyexpectwillbethemostimportantpoliciestoreduceGHGemissionsinChinaatdifferentpointsintime(Figure3).Fromnowuntil2025,thecombinedexpectationofrespondentsisthattheemphasiswillclearlyshifttowardscarbonemissionstrading,environmentaltax,environmentalinformationdisclosureandenergyallowancestrading.12Thisreflectsashiftawayfromapproachessuchasthemandatoryclosureofinefficientfacilities,tobereplacedbyasuiteofmoremarket-orientedpolicies.Atthesametime,respondentsstillpredictasituationwherethereisamixofpoliciesinthelongrun.

Interestingly,ETSisalreadyseenasamotivatorforGHGreductionin2017,suggestingthatthepolicycanhaveapositiveimpactevenifthecarbonpricesignalisnotyetatahighlevel.

Market-orientedpolicyinstrumentsareexpectedtobecomemoreimportantovertime

Figure29Q3-3Whichdoyouexpecttobethemostimportantpoliciesinmotivatingcompaniesto

reduceGHGemissionsinChinaatdifferentpointsintime?(Selectupto3foreachyear)(N=256,253,257)

12EnergyallowancestradingisanewpolicyintroducedbytheChinesegovernment,firstinfourpilotregionstobeexpandednationallyifsuccessful.Itwillallocateenergy-consumptionquotastocompanies,whowillhavetoeliminateoutdatedcapacityorbuyextraquotasiftheyexceedthelimit.

25% 26% 27%

8%16%

21%10%

13%

14%

6%

10%

13%

13%

12%

8%

17%

11%6%

21%13% 11%

2017 2020 2025

Mandatoryclosureofinefficientfacilities

Energyconservationsubsidies

Renewablefeed-intariffs

Energyallowancestrading

Environmentalinformationdisclosure

Environmentaltax

ETS

30

Linking China’s national ETS with other systems

Inprinciple,ETSsindifferentjurisdictionscanbelinkedwitheachother,bymakingpermitsfromonesystemeligibleinanother.Barringanyrestrictionsonpermittrade,thiswouldresultinthesamepriceapplyinginthelinkedETS’s,andincross-borderfinancialflowsforpermits.Advantagesaregreateroverallcosteffectiveness,becauseofharmonisationofmarginalmitigationcosts;beingabletodifferentiatetargetsbetweenjurisdictionswithoutsacrificingcosteffectiveness;andgreatermarketdepth.Butlinkingrequiresharmonisationofrules,mutualacceptanceofthesystemcaps,permitsissuance,andreliableemissionsaccountingandenforcementinallparticipatingjurisdictions.

RespondentswereaskediftheyexpectChina’snationalETStobelinkedwithexistingETS’saroundtheworldby2025,by2030,orafter2030.Someexpectinternationallinkingby2025(31%),andamajority(61%)expectlinkingwilloccurby2030.Whilethisreflectsthefactthataboutonethirdofstakeholdersremainoptimisticofinternationallinkingintheshort-to-mediumterm,twothirdsseeitasalonger-termproposition,ifatall.Theexpectationsforlinkingby2025areslightlymoreoptimisticthaninthe2015survey(upfrom27%),butnotasoptimisticasthe2013survey(downfrom69%).Expectationsfor2030arealsohigherthantheywerein2015(60%upfrom52%).Thissuggeststhattherewasadipinconfidencearound2015,thatmayhaveinpartbeencounteractedbythemomentumoftheParisAgreementandongoingworktolinkcarbonmarketsinNorthAmerica.

Selectedquotes:WhichdoyouexpecttobethemostimportantpoliciesinmotivatingcompaniestoreduceGHGemissionsinChinain2017/2020/2025?Others–pleasespecify:

- “Thedevelopmentofrenewableenergycompaniesshouldbesupportedbypoliciesandsubsidies,ifnecessary.Firstly,somepollutingenterprisesshouldbeclosedandthenascientificapproachtocontrollingpollutionandprotectingtheenvironmentshouldbeestablished.Forexample,ourcompanyisastart-upandfacesdifficultiesdevelopinginthecurrentsystem.Weparticularlyneedpolicysupporttodevelopthecompanyandpreventforgedandfaketechnology.”–Non-coveredcompany

- “Subsidiescanreducecarbonemissionintheshortterm,whileinformationdisclosurecanhavealong-terminfluence.Thisinfluencewillbestrong,butnotnecessarilyseenintheshortterm.”–Multilateralorganisation

- “Offeringsubsidiesisashort-termapproach,whileinthelongtermthereisaneedtoestablishmarketnorms.”–Consultancy

- “Institutionaldevelopmentisthefoundation.Intheshort-termstrongcontrolsshouldbeimplemented.”–Financialsector

31

AmajorityexpectsthatChinawillbelinkedwithothersystemsby2030

Figure30Q6-3DoyouexpectthatChina’snationalETSwillbelinkedwithanyothersystemsbytheyear2025or2030?(N=260)

Ofthoseexpectinginternationallinkages,84%expectalinkwiththeEUETS(65%overall),whilesignificantminoritiesforeseelinkageswiththeRegionalGreenhouseGasInitiative(RGGI)intheUnitedStates,SouthKoreaandCalifornia.

TheEUETSisseenasthemostlikelycarbonmarketforlinkingwithChina

Figure31Q6-3IfYes,whichones?(N=201)

0%

20%

40%

60%

80%

100%

Yes,by2025 Yes,by2030 After2030 Never

%ateachmilestoneyear Cumulative%ofLinking

0% 10% 20% 30% 40% 50% 60% 70%

EU

RGGI

SouthKorea

California

NewZealand

Québec

Kazakhstan

Alberta

Other

32

China’s national emissions targets and peak emissions

In2009Chinasetanationaltargetfor2020foremissionsintensity(CO2emissionsperunitofGDP).Thegoalistoreduceemissionsintensityby40to45%over2005.Anintensitytargetmeansthattheabsoluteamountof“allowable”emissionsincreasesifGDPishigher,anddecreasesifGDPislower.InJune2015,Chinaannouncedafurthertargettoreduceemissionsintensityby60to65%by2030(againcomparedto2005levels).

Respondentswereaskedwhatformoftargettheyexpecttoapplyin2025and2030,ifany.WhilethemajoritythinksthatChinawillsticktoanemissionsintensitytargetfor2025(63%),theshareofrespondentsthatexpectanabsolutetargetbythatyearhasdoubledsince2015(34%upfrom17%).Expectationsfora2030absolutetargetremainat65%,thesameasin2015.ItseemsthatthereisagrowingconsensusthatChinamayupgradeitscurrentemissionsintensitycommitmenttoanabsolutetargetincomingyears.

Absolutetargetexpectedfor2030

Figure32Q6-2DoyouexpectthatChinawilltakeonanemissionstargetfor2025/2030;ifsowhat

type?(N=248,242)

34%

65%

63%

34%

2% 1%

2025 2030

Notarget

Intensitytarget

Absolutetarget

Selectedquotes:DoyouexpectthatChinawilltakeonaGHGemissionstargetfor2025[2030]and,ifso,whattype?Explainyouranswer:

- “Chinaisadevelopingcountrywithhighenergyconsumption,andcarbonemissionaredifficulttoreducesignificantlyinashortperiod.SothebestwayistosetagoalthatcanmeetChina’sspecificnationalconditionsregardingemissionsreduction.”–Centralgovernment

- “Pre-2025,theremaybeabottom-up,intensity-derivedcapwhichistheresultofthesummationofemissions,thenallocation,thatareassociatedwitheachenterpriseand,byextension,eachprovince.Post2025,theremaybeanabsolutecap.Again,thismaybebottomupbutmayalsoreflectmandatedreductions.”-NGO

33

Chinacommittedtopeakitsabsolutegreenhousegasemissionsby2030orearlieraspartofitscommitmentstotheParisAgreement.90%ofrespondentsexpectChinatoachievethecarbonemissionspeakby2030(upfrom82%in2015),and55%expectChina’semissionstopeakby2025orearlier(upfrom39%).8%ofrespondentsarenowoftheviewthatChina’sCO2emissionshaveinfactalreadypeaked.

China’semissionsareexpectedtopeakaheadof2030

Figure33Q6-1WhendoyouexpectChina’semissionswillpeak?(N=259)

8%

17%

31%

35%

10%

Alreadypeaked Before2020 2021-2025 2026– 2030 After2030

Selectedquotes:HowdoyouexpecttheParisAgreementwillaffectprogressoncarbonpricing?

- “IftheUSPresidentinsistsonfailingtofulfiltheParisAgreement,thenitwillbedifficulttohavearisingcarbonprice.”–Chinanationalgovernment

- “TheParisAgreementisaloose,bottom-upagreement.TheexpectedeffectwilldependonthedeterminationoftheTrumpgovernment.Otherwiseitwouldhavelittleimpactontheinternationalcarbonprice.”–Academia

- “Itwillonlyincreasethenumberofpeoplewhoareconcerned.Andthenthepricewillcontinuetogodown.”–Carbontradingexchange

- “AccordingtotheParisagreement,China'scommitmenttothetaskofreducingemissionswillbecomeincreasinglyheavy.So,thecarbonpricewillbecomehigherandhigher.”–Academia

- “Withtheinternationalpoliticalandeconomicsituationchanging,therecognitionofenvironmentalfactorswillbeweakened.”–Steelsectormarketparticipant

- “Itwillservetoencouragecountriestotakeontargetsandimplementprogramsthatencouragecarbonreductions.”–NGO

- “Itwillprovideamorecredible(butalsomoretedious)regulatoryframeworkforcountriesthatwouldbegoingformarketswithorwithoutParis.”–Media

34

Appendix 1: Key policies issued for the pilots in 2016-17

ShenzhenOnSep18th,2016,Shenzhenreleasedanoticeonemissiontradinginthe2016compliancecycle.824entitieswerecovered,246morethanin2015.

Beijing

OnApr28th,2016,Beijingreleasedthethirdbatchofcarbonemissionintensitybenchmarks,intendedtofacilitateallowancecalculation.

OnSep18th,2016,Beijingdisclosedthelistofcoveredentitiesfortheyear2016,including947companies.

Shanghai

OnFeb4th,2016,Shanghaireleasedthelistofcoveredentitiesfortheyear2016.Thetotalnumbercoveredreached310.Thewatertransportsectorwascoveredforthefirsttime.

ShanghaisuspendedtradingfromJun30toNov17of2016totransitionallowanceswith2013-2015vintagetocurrentallowances.

OnNov11thof2016,Shanghaiissuedtheallocationplanfor2016,withacapof155milliontons.

Guangdong

OnJul8th,2016,Guangdongpublishedtheallocationplansforpreviouslycoveredsectorsincludingpower,ironandsteel,petrochemicals,andnormalcement.OnJun6th,2017,allocationplansforaviation,papermaking,andwhitecementwerealsoissued.Thus,thecapforGuangdongin2016reached422milliontons,covering280entities.

TianjinOnMar21stof2016,TianjinissuedtheInterimAdministrationMeasuresonEmissionsTradingforTianjin,whichtookeffectonJun1stof2016.

Hubei

OnJul12th,2016,HubeireleasedanoticetoexertmorerestrictionsontheuseofCCERs,aimingtomitigatetheimpactofCCERsontheallowanceprice.

OnJan4th,2017,Hubeiissuedanallocationplanforthe2016complianceyear,withacapof253milliontonsand236coveredentities.

ChongqingOnNov11th,2016,Chongqingurgedcoveredentitiestoreportemissionsandapplyforallowancesfor201613.Basedonthereport,100milliontonsofallowanceswereissuedtocoveredentitiesonJan18,2017.

TableA-1Keypoliciesissuedforthecarbontradingpilotsin2016-17.

13Unlikeotherpilots,allowancesinChongqingwereallocatedbasedonemissionreportandapplicationsbyentities,insteadofbycalculation.

35

Appendix 2: CCER trading to-date AsofSeptember30th,2017,2,871CertifiedEmissionReduction(CCER)projectshadbeenpublicizedforreviewand1,047hadbeenregistered(287ofwhichhadbeenissued).Amongthoseissued,thecertificationreportsfor254(representing52.94milliontonsofCCERs)arepublicallyavailable.In2016alone,1,505projectswerepublicizedforcomment,611wereregistered,and196wereissued(FigureA-1).

FigureA-1NumberofCCERprojects.

AsofSeptember30th,2017,287CertifiedEmissionReduction(CCER)projectshadbeenissued.Amongthoseissued,thecertificationreportsfor254(representing52.94milliontonsofCCERs)arepublicallyavailable.Ofthese,139areTypeI(18.9milliontonsofCCERsissued),17areTypeII(3.7milliontCO2e),and98areTypeIII(30.3milliontCO2e).14Inaddition,wind,small-scalehydro,solarPVandhouseholdbiogasprojectsaremostpopular,dueinparttotheoffsetrulesforCCERsinthepilotcarbonmarkets.ThedetailsaredisplayedinFiguresA-2andA-3.

Wind Hydro SolarPV

Householdbiogas

Total

Totalprojects

90 32 48 41 254

MillionsoftCO2e

12.5 13.4 2.7 6.3 52.9

TableA-2PubliclydetailedCCERprojects,asofSeptember30th2017.

14AccordingtoregulationonthemanagementandoperationofCCERprojectsissuedbytheNDRC,therearefourcategoriesofCCERprojects.Category1referstonewlydevelopedCCERprojects.Category2referstothoseprojectswhichgetaLetterofApprovalfromtheDesignatedNationalAuthoritybutarenotyetregisteredwiththeCDMExecutiveBoard.Category3referstothoseregisteredCDMprojectsapplyingforissuanceofemissionsreductionsgeneratedbeforethedateofregistration,knownasPre-CDMprojects.Category4referstothoseregisteredCDMprojectsforwhichtheCDMExecutiveBoardhasnotissuedanyemissionsreductions.

1234

43691

1505

611

196

ProjectReview Registered Issued

Before2016 2016

36

FigureA-2CCERprojectsbytype(numberofprojectsissued)

FigureA-3CCERprojectsbytype(milliontonsofcreditsissued)

123.7milliontonshadbeentradedbySeptember2017.In2016alone,thetradingvolumewas42.5milliontons,increasingby27.3%comparedwith2015.BetweenJanuaryandSeptemberof2017,42.77millionweretraded,approachingthelevelof2016(FigureA-4).

OnlyBeijingandShanghaireleasedonlinetradingprices.ThepricerangesforBeijingandShanghaiwereCNY10-20/tonandCNY20-25/tonrespectively.

Wind,90

SolarPV,48

Householdbiogas,41 Hydro,32

Biomassgeneration,15

CMMpower,5

Naturalgaspower,4

Wasteheatpower,4

Cogeneration,1

Forests,1

Other,13Other,43

Wind,12

SolarPV,3

Householdbiogas,6

Hydro,13

Biomassgeneration,3

CMMpower,2

Naturalgaspower,6

Wasteheatpower,4

Other,3

Other,1803

37

FigureA-4CCERtradingvolume(milliontons)

33.7

42.5

39.2

2015 2016 2017(Jan-Sep)

38

Appendix 3: Status of the national ETS design

Tasks Currentstatus Keytasksfor2ndhalfof2017andbeyond

LegislationThedraftETSregulationhasbeensubmittedtotheStateCouncil,andtheLegislativeAffairsOfficeundertheStateCouncilisworkingonitaccordingtoitsworkingprocedures.

• WorkcloselywithLegislativeAffairsOfficetopasstheRegulationbeforelaunchofnationalETS

• Releaseadministrativemeasuresfor:Third-partyVerificationAgencies;GHGEmissionReporting;andforCarbonTrading

Monitoring,reporting&verification

GuidelinesforGHGaccountingandreportingfor24sectorshavebeenreleased.ProvincialDRCshaveselectedaround100third-partyverifierstoconductverificationofhistoricalemissions.

• Unifystepbystepqualificationmanagementandsupervisionofthird-partyverifiersthroughassessmentandclearlydefinedrequirements

• Upgradeandoptimizeguidelinesforcertainsectors

• Conductthird-partyverificationfor2016emissions

Capsetting&allocation

TheStateCouncilapprovedthenationalallocationplaninlate2016.Inaddition,NDRChasconductedtrialallowancecalculationfor3sectors(power,cementandaluminium)inSichuanandJiangsu.

• Issuemethodologiesandoperationmanualsforallowanceallocationinrelevantsectors

• Releasenationalallocationplanandrelatedoperationmanuals

• Organizecapacitybuildingonallocation

Tradingplatform

EstablishtradingplatformforthenationalETSbasedonplatformsofthesevenpilots,plusSichuanandFujian.

• Assesscurrenttradingplatforms

• Developadministrationrulesforthetradingplatforms

• Designandbuildacommontradingsystemforthetradingplatforms

Registrysystem

Softwareofthenationalregistrydeveloped.

Feasibilitystudyofthenationalregistrysystemhasbeenconducted.

• Constructandconsolidateaunifiedprimaryandback-upsystems

• Decideandselecttheoperationalentityoftheregistrysystem

Offsetmechanism

CCERprojectregistrationandcreditissuancehasbeensuspended.AdministrationrulesforoffsetmechanisminthenationalETShavebeenresearched.

• ReviseCCERmanagementmeasures

• Formulateoffsettingrulesforcompliancepurposes

Transitionofpilots

NDRCandthepilotshaveresearchedtheplannedtransition. • Designareasonableplanfortransitionofallowances

39

Appendix 4: Survey questions and aggregated responses Section1:Respondents’background

Q1-1:Whereisyourorganizationlocated?

Responses Percentage

InmainlandChina 239 92%

OutsideofmainlandChina 21 8%

Q1-2:Howwouldyouclassifyyourorganization?


Companycovered,ortobecovered,byETS 41 16%

CompanynotcoveredbyETS 26 10%

Industrysectoralassociation 7 3%

Chinanationalgovernment 6 2%

Chinalocalgovernment 7 3%

Academia 25 10%

Governmentresearchinstitute 13 5%

Emissionstradingexchange 17 7%

Financialsector 18 7%

Consultancy 65 25%

Legalservices 0 -

NGO 15 6%

Multilateralorbilateraldevelopmentorg. 2 1%

Foreigngovernmentorembassy 1 <1%

Other 17 7%

Q1-3:WillyourcompanyoperateunderthenationalETS?[onlyforindustryrespondents]


Yes 34 83%

No 2 5%

Don’tknow 5 12%

IfYESorDon’tknow,pleasespecifythesector:


Petrochemicals

(incl.crudeoilprocessing,ethylene)

6 15%

Chemicals

(incl.calciumcarbide,ammoniasynthesis,methanol)

8 21%

Buildingmaterials

(incl.cement,ceramics,clinker,plateglass)

1 3%

Iron&Steel 5 13%

Non-ferrousmetals 1 3%

Pulpandpaper 3 8%

Electricitygeneration 10 26%

Aviation 5 13%

Thisfirstpartofthesurveyaimstoidentifyrespondents’profile.

40

Q1-4:IsyourcompanycurrentlyoperatingunderanemissionstradingsysteminChina?[onlyforindustry

respondents]


Yes 24 59%

No 17 41%

IfYES,whichofthefollowing(chooseoneormore)?

Responses Percentage*

Beijing 10 42%

Shanghai 7 29%

Tianjin 8 33%

Hubei 7 29%

Guangdong 10 42%

Chongqing 4 17%

Shenzhen 4 17%

*shareofcompaniescoveredbypilots,notoftotalresponses,assomerespondentschosemultiple

systems.

IfYES,pleasespecifythesector:


Petrochemicals(incl.Crudeoil

processing,ethylene)

5 21%

Chemicals(incl.Calciumcarbide,

ammoniasynthesis,methanol)

5 21%

Buildingmaterials(incl.cement,

ceramics,clinker,plateglass)

1 4%

Iron&Steel 2 8%

Non-ferrousmetals 0 -

Pulpandpaper 1 4%

Electricitygeneration 9 38%

Aviation 2 8%

Automotive 0 -

Oil&gasextraction 0 -

Textile 0 -

Transportation 0 -

Buildings(e.g.,residential,gov.

buildings)

0 -

Other 1 4%

“Other”included:Carbondevelopment

*shareofcompaniescovered,notoftotalresponses,assomerespondentschosemultipleoptions.

Q1-5:Pleasespecifytheenterprisetype[onlyforindustryrespondents]


CentralGovernment-ledStateOwned 13 34%

LocalGovernment-ledStateOwned 12 17%

Private 3 29%

Foreigninvestment 7 5%

Jointventure 3 7%

Other 2 7%

“Other”included:“Intheprocessoftransferringequity”;Unspecified

41

Q1-6:HowmuchenergydoesyourcompanyannuallyconsumeinChina?(Note:underonelegalentity)

[onlyforindustryrespondents]


Lessthan5,000tce/year 2 5%

5,000~10,000tce/year 2 5%

10,000~100,000tce/year 9 22%

100,000~1,000,000tce/year 9 22%

Morethan1,000,000tce/year 19 46%

Q1-7:IsyourorganizationcurrentlyoperatingunderanemissionstradingsystemoutsideofChina?

[onlyforindustryrespondents]


Yes 11 27%

No 30 73%

IfYES,where?


EUETS 9 82%

CaliforniaETS 1 9%

QuébecETS 0 -

AlbertaETS 0 -

SouthKoreaETS 0 -

NewZealandETS 0 -

KazakhstanETS 0 -

RegionalGreenhouseGasInitiative 0 -

Other 0 -

Noresponse 1 9%

Q1-8:Inthemanagementstructureofyourcompany,whatpositiondoyouhold?[onlyforindustry

respondents]


Juniorstaff 18 44%

Mid-levelmanager 20 49%

Seniorexecutive 2 2%

Other 1 5%

“Other”included:EnvironmentalCommissioner

Section2:Currentcapacityandlevelofreadiness[onlyforindustryrespondents]

Q2-1:DoyouthinkthatyourcompanyispreparedtoperformtasksunderanETSinthefollowingareas?

Monitoringand

reporting

Allocationdata

collection

Administrating

allowances Carbontrading

Notpreparedatall 1 4 4 5

Yes,marginally 20 13 10 14

Yes,moderately 4 8 14 12

Yes,strongly 16 16 12 10

Don’tknow 0 0 1 0

Thissectionaimstounderstandthecurrentcapacityandthelevelofreadinessofcompaniestotake

partinanemissionstradingsystem.

42

Q2-2:Inwhichareasdoyouneedtoreceivefurthertraining?(Chooseupto3areasyouwouldliketo

receivetrainingsbeforethenationalETSstarts)


Keyfeaturesofemissiontradingandcarbonmarkets 15 37%

Monitoringandreportinggreenhousegasemissions 13 32%

Verificationandaccreditation 3 7%

Corporatelevelorganizationandcompliancestrategy 20 49%

UseofETSregistry 3 7%

Datacollectionforallocation 11 27%

Legalframework/regulations 12 29%

Carbonfinance 18 44%

DevelopmentanduseofCCERs 11 27%

*shareofcompaniescovered,notoftotalresponses,assomerespondentschosemultipleoptions.

Q2-3:Hasyourcompanyassignedadedicatedperson(internalorexternal)orformedadedicatedteamto

handleyourETSobligations?


Yes 31 76%

No 10 24%

IfYES:Howmanypeopleareintheteam?

Responses Responses

1 1 9 1

2 2 10 2

3 8 12 1

4 4 15 1

5 3 16 1

6 2 20 1

8 1 30 2

Noresponse 1

IfYES:Whatisyourteam’sorganizationalform?


Independentcompany 4 13%

Department 13 42%

Decisionmakingteamfrom

differentdepartments

14 45%

*shareofcompanieswithdedicatedperson/team.

IfYES:Whatarethecompetenciesoftheperson(s)youhaveassignedtohandletheETSobligations?


Financial 5 16%

Processengineer 14 45%

Management 24 77%

Other 4 13%

*shareofcompanieswithdedicatedperson/team,notoftotalresponses,assomerespondentschose

multipleoptions.

43

Q2-4:Hasyourcompanyparticipatedintraining(s)onETS?


Yes 33 80%

No 8 20%

IfYES:Whichdepartment/levelrepresentedyourcompanyinthetraining(s)?

Answersincluded:ProductionTechnologyDepartment(4);CarbonAssetDepartment;Factoryorenergy

department;EnergyandEnvironment;Business;DepartmentManager;ParentGroup;Safetyand

EnvironmentalProtection;Finance;Highandmiddlelevelsbothparticipated;VicePresident;Employee;

Multipledepartments;Department-level;Self-training;EnergyandAuthorities;MiddleManagement;

ProductionManagementDepartment;Strategy;AdministrationDepartment.

IfYES:Fromwhichagencydidyourcompanyreceivetraining?

Answersincluded:SinoCarbon(5);ICF;ICIS(2);DevelopmentandReformCommission–Unspecified(3);

NationalDevelopmentandReformCommission;BeijingMunicipalDRC;TianjinDRC;GuangdongProvincial

DRC;ProvincialDRC;Localgovernment;Citygovernment;BeijingEnvironmentalExchange;Hubei

Exchange;GuangdongCarbonExchange(2);Tradingexchanges–Unspecified(2);CarbonCast;Steel

Association(2);NitrogenFertilizerIndustryAssociation;Sectoralassociation;StateCouncilPolicyResearch

PhaseII;InternationalCooperationProject;GIZ;GuangdongCapacityBuildingCenter;StraitTrading

Center;CivilAviationUniversityofChina;PreparatoryGroupofCarbonEmissionsTradingManagement

Center;Groupinternalcarbonmanagementcompany;EnvironmentalProtectionScienceResearch

Institute;Self-training;.

Q2-5:HasyourcompanyformulatedacompliancestrategyforETSinChina?


Yes 25 61%

No 16 39%

IfYES:Summarisethestrategyhere(optional)

Answersincluded:

Ensurecomplianceandthesecurityoftrading;

Duringthepilotphase,conductinternaltransactions;duringthenationalmarketstage,gradually

participateinthemarket;

ThroughthedeploymentofCCERs,carryouttrusteeshipbusinesstoreduceperformancecosts;

Accordingtothemarketprice,aswellasthecompany’sproductionandoperations,activelycomply,and

strivetoachieveefficiency.

Q2-6:DoesthetransitionfrompilottonationalETSrequiresomeadjustmenttoyourstrategyand/or

organizationalstructure?


Yes 21 51%

No 20 49%

IfYES:Ifso,how?(optional)

Answersincluded:

Mayestablishanindependentdepartment.

Setupaprofessionalcompany.

Establishprofessionalinstitutions,fosterandorganizeknowledgetransfertohelppersonnelworkingon

trading,informationcollection,development,andfinancialaspectsofthecarbonmarket.Currently,we

arecloselywatchingthedevelopmentofthemarket.

44

Developatradingmechanism,participateinthemarketasappropriate,andestablishacomprehensive

operationalmanagementmodelforthegroup’scarbonassets.

Establishsystemsandresponsibleorganizations.

Establishacarbontradingdecision-makingteam;setupmanagementproceduresthatarelegally

compliant,convenientandefficient.

Needtoorganizeaspecialisedgrouptostudythetradingsituation;increaseR&Dandinvestmentin

technology,inordertoreducethelevelofemissions.

Q2-7:Doesyourcompanyhaveanemissionsreductiontarget?


Yes 33 80%

No 8 20%

Q2-8:Hasyourcompanyundertakeninternaldistributionofallowancesbetweensubsidiarycompanies?


Yes,intra-companyexchangeof

allowancesviaatradingdesk

7 17%

Yes,re-allocationofallowances

byheadquarters

9 22%

No 21 51%

Don’tknow 4 10%

Q2-9:Doyouhaveaninternal/shadowcarbonprice?

Note:ashadowpriceisanassumedfuturepriceofcarbonemissions,whichisfactoredintoinvestment

andoperationaldecisions.


Yes 12 31%

No 27 69%

IfYES:Whatvalueisit?

15-20;20;40;50;60;50-100;Theproductionprocessofeachsubsidiaryisdifferent.Thecarbonprice

rangesfrom300-670.

Q2-10:Haveyouconductedinternalmonitoringandreportingofyourcompany’sGHGemissionsaheadof

thestartofChinaETSpilots?


Yes 23 42.5%

No 17 57.5%

IfYES:Whattypeofproblemswereencountered?(optional)

Answersincluded:

Notime.

Policyinstabilityandlackofsecurity,resultinginnotbeingabletomeettheobjectives.Thereisconfusion

betweenthevariousgovernmentdepartmentsinvolved.Inourunderstanding,exceptfortheprofessional

institutions,manydepartmentsinvolvedhavegapsandtakeanold-fashionedapproachtonationalpolicy.

Thishasaveryharmfulimpactontheapprovalofeachlinkinthedevelopmentofcarbontrading.

Problemwithstatisticalrequirements.

Internaltrainingonnewaspectsshouldbestrengthened.

Wejuststartedlastyear.Wearenotfamiliarwiththepolicyandneedfurtherunderstandingofthe

principlesofquotaallocation.

45

Q2-11:WhatotherpreparationsareneededinordertobereadyforparticipationintheETS?(optional)

Answersincluded:

Focusonpolicy.

Policy,organisationadjustment.

Manythings:Allaspectsofpolicy,administration,understandinganddealingwiththeofficialunified

system,needsbeprepared.

Systemdevelopment,trainingetc.

Internalportfoliomanagement;strengtheneducationonmarketrisk.

Learningaboutemissionsaccountingrules;standardsandrulesforquotaallocation;evaluationofcarbon

tradingcompliance;and,howtoformacarbonassetmanagementteamasanemittingentity.

Thegovernmentshouldincreaseitssupportforindustrytoachievecarbonemissionreductions.

1)Systemconstruction,organizationanddivisionofresponsibilities;2)laws,regulations,andtrading

methodsrelatedtocarbonemissionstrading;3)supportforcompanies’seniormanagement.

Understandthereasonsforthelevelofemissionsinthisindustry.

Implementingindustryenergyconsumptionstandardswell,andstrengthenenergymanagement.

Section3:Impactsoftheemissionstradingsystemsoninvestmentdecisions

Q3-1:DoyouexpecttheETSinChinatoaffect[yourcompany’s]investmentdecisionsin2017?In2020?In

2025?

2017 2020 2025

No 46 8 5

Yes,marginally 108 49 31

Yes,moderately 70 147 88

Yes,strongly 28 42 107

Don’tknow 7 13 28

Explainyouranswer(optional):Selectionofanswersprovidedonpage26above.

Q3-2:Whattypeofactionsareyouplanningtobecompliant?


Tradeallowancesinthemarket 28 68%

UseOffsets(CCERs) 26 63%

Energy-efficiencymeasures 30 73%

Other 6 15%

Answersfor“Other”included:

NotclearonhowindustrycanmakeuseofCCERs

Adjustthetechnologysectionoftheproductionchain

Quotatrusteeship

Onewehavecarboncreditswecantalkaboutthetrading

AccordingtotheThirteenthFYP,usingthelasttwo(offsetsandenergyefficiency)canmeetthe

requirements

Energy-savingreforms,adjustthecompositionofourpowersupply

Thissectionseekstounderstandtheimpactsoftheemissionstradingsystemsoninvestment

decisions.

46

Q3-3:WhichdoyouexpecttobethemostimportantpoliciesinmotivatingcompaniestoreduceGHG

emissionsinChinaatdifferentpointsintime?

(Pleaseselectupto3optionsforyears2017,2020,and2025)

2017 2020 2025

ETS 165 171 178

Subsidiesforenergyconservation 113 69 39

Feed-intariffsforrenewableenergy 87 75 50

Mandatoryclosureofinefficientfacilities 135 85 73

Environmentaltax 50 103 138

Environmentalinformationdisclosure 62 83 89

Energyallowancestrading 40 66 86

Selectionofanswersfor“Other”providedonpage28above.

Section4:Pricesinthepilotsystems

Q4-1:HowdothecurrentpricesinETSpilotscomparewithyourexpectations?


Actualpricesarehigher

thanwhatIexpected

23 9%

Actualpricesaresimilar

towhatIexpected

76 29%

Actualpricesarelower

thanwhatIexpected

102 39%

Don’tknow 58 22%

*shareoftotalrespondents,notofoptionschosen,assomerespondentschosemultipleoptions.

Q4-2:Inyouropinion,whatarethemainfactorsinfluencingpricesintheETSpilots?

(Selectoneormore)


Capsettingandfreeallocation 209 80%

Complianceperiod 70 27%

Economicgrowthrate 111 43%

Informationtransparency 124 75%

Governmentregulationandintervention 196 48%

Other 5 1%

Don’tknow 7 3%

*shareoftotalrespondents,notofoptionschosen,assomerespondentschosemultipleoptions.

Thissectioncoversquestionsaboutcurrentcarbonpricelevelsandpriceexpectationsinthe

pilots.

47

Section5:ThenationalETS

Q5-1:RegardingthenationalETS,whatdoyouexpecttheintensityoftradingwillbeduringthefirst

compliancecycle?

Tradingwillbe:


Active 20 9%

Moderatelyactive 177 84%

Inactive 14 7%

Don’tknow 46 notincluded

Q5-2:BywhendoyouexpectChinanationalETStobefullyfunctional?

e.g.allkeybuildingblocksinplace,including:legislation/law,capandallocationmanagement,complete

MRVAsystem,registry,tradingplatforms,marketoversight,etc.


2017 8 3%

2018-2020 114 45%

2021-2025 113 44%

Laterthan2025 19 7%

Never 2 1%


Q5-3:WhatlegalbasisdoyouthinkisnecessaryforthestartofthenationalETSinordertoensure

compliance?


NationalLawbyNationalPeople’sCongress 160 63%

NationalRegulationbyStateCouncil 82 32%

NationalRegulationatMinistrylevel 10 4%

MinistryNotice 3 1%


Q5-4:Doyouthinkarules-basedflexibilitymechanism,suchasastabilityreservetokeeppricesfrom

fluctuatingtoomuch,isnecessary?


Yes 220 88%

No 29 12%


Explainyouranswers(optional):Selectionofanswersprovidedonpage15above.

Q5-5:DoyouthinkaNewEntrantsReserveisnecessary?

Note:ANewEntrantsReserveconstitutesaspecial-purposepoolofemissionallowancessetaside

fornewcompaniesenteringthecarbonmarket,andcompaniesthatincreasecapacity.


Yes 203 84%

No 40 16%



Thissectioncoversquestionsaboutexpectationsondesignandpriceinthefuturenational

ETS.

48

Q5-6:HowmanyemissionstradingexchangesshouldoperateinthenationalETS?


Withineveryprovince 36 14%

Severalregionalplatforms 124 49%

Onenationalplatform 93 37%

Don'tknow 6 notincluded


Q5-7:HowshouldbankingofpermitsfromthepilotsystemstothenationalETSbemanaged?


Fullbankingofallowances 92 40%

%ofpermitsmaybebanked 112 49%

Nobankingallowed 24 11%

Other 7 3%



Q5-8:Whatshouldbethelevelofreporting?


Enterpriselevel 157 64%

Facilitylevel 60 24%

Productlevel 30 12%


Q5-9:WhatdoyouexpectthepriceinthenationalETStobeinthecomingyears?(inYuan/tonCO2)

2017 2018 2020 2025

Average 38 51 74 108

Median 30 43 60 100

Standarddeviation 21 32 54 84

10thpercentile 20 22 27 30




Nr.ofresponses 161 160 159 157

Explainyouranswers(optional):Selectionofanswersprovidedonpage21above.

49

Section6:China’semissions,internationalcarbonmarketsandinternationalclimatepolicy

Q6-1:WhendoyouexpectChina’scarbonemissionswillpeak?


Alreadypeaked 20 8%

Before2020 43 17%

2021-2025 80 31%

2026–2030 91 35%

After2030 25 10%

Noanswer 1 notincluded

Q6-2:DoyouexpectthatChinawilltakeonaGHGemissionstargetfor2025[2030]and,ifso,whattype?

2025 2030

NoTarget 6 3

IntensityTarget 157 82

AbsoluteTarget 85 157

Don’tknow 11 16


Q6-3:DoyouexpectthatChina’snationalETSwillbelinkedwithanyothersystemsbytheyear2025or

2030?


Yes,by2025 81 31%

Yes,by2030 78 30%

After2030 42 16%

Never 35 13%


IfYES:Whichones?(Selectoneormore)


EUETS 169 84%

CaliforniaETS 54 27%

QuébecETS 38 19%

AlbertaETS 16 8%

SouthKoreaETS 65 32%

NewZealandETS 38 19%

KazakhstanETS 28 14%

RegionalGreenhouseGasInitiative 76 38%

Other 7 3%

*%oftotalrespondentsanswering“Yes”,notoptionschosen,somerespondentschosemultipleoptions.

Q6-4:HowdoyouexpecttheParisAgreementwillaffectprogressoncarbonpricing?(optional)

Selectionofanswersprovidedonpage31above.

Q6-5:Arethereareanyotherinsightsoropinionsthatyouwouldliketoshare?(optional)

Selectionofanswersprovidedonpage32above.

Q6-6:DoyouhaveanysuggestionsforfutureChinaCarbonPricingSurveys?(optional)

Answersavailableonrequest.

ThissectionaimstoputChinanationalETSinthecontextofinternationalcarbonmarketsand

internationalclimatepolicy.

50

Project partners ChinaCarbonForum(CCF)isanindependentandneutralplatformtoengagestakeholdersin

China’sclimatechangesector.CCFpreparesresearchandorganisesfocusedeventstodiscuss

climatechangeissuesinspecificsectors,includingnetworkingevents,research,andpolicy

consultationstodiscussremovalofbarrierstoemissionsreductions,andtodevelopamore

climateresilientsociety.

ICFisrecognisedasaleadingglobalproviderofclimatechangepolicyexpertise.Thefirmhas

officesandenergy/climateexpertsinU.K.,China,Belgium,India,SingaporeandNorthAmerica.

ICFhasover1,500professionalemployeesdedicatedtothestudyofenergy,environmental,and

climatechangeissues.ICF’sBeijingoffice,bringsin-depthknowledgeofthekeyenergy,

environment,economic,andpolicyissuesinChinawitha20-yeartrackrecordofcontinuous

climatepolicycapacitybuildinginChinaandanextensivenetworkofpartnersandrelevant

stakeholders.

SinoCarbonInnovation&InvestmentCo.,Ltd.(SinoCarbon)wasfoundedin2010andis

committedtobecomingaleadingintegratedlow-carbonserviceproviderinChinawithafocus

onpushinglowcarbondevelopmentthroughvariousinnovativepractices.Withaprofound

backgroundinenergy,environmentandfinanceindustries,SinoCarbonpossessesalow-carbon

innovationteamofnearly200professionalsinthefieldsofenergy,information,environment,

finance,business,andlegalandpublicpolicy,skilledandexperiencedinlowcarbonconsultancy

andresearch.Throughconstantinnovation,SinoCarbonhasgainedanoutstandingreputationin

theindustry.

TheDutchEmissionsAuthority(NederlandseEmissieautoriteit,NEa)isacompetentauthority

whichensuresthatcompaniestakingpartintheEuropeanEmissionsTradingSystem(EUETS)

andthelawsandregulationsgoverningrenewableenergyfortransportandairpollutionfrom

fuelsfulfiltheirobligations.TheNEadoessobyprovidinginformationandadviceandby

monitoringthecompaniesinvolved(amongotheractivities).

TsinghuaUniversityChinaCarbonMarketCenter(CCMC)focusesonbothinternationaland

China’sdomesticcarbonmarketresearchanddevelopment.TheDepartmentofClimateChange

ofChina’sNationalDevelopmentandReformCommission(NDRC),China’semissionstrading

authority,providedstrongsupportfortheestablishmentofCCMC,withtheexpectationthat

CMCCwillplayacriticalroleintheestablishmentofChina’snationalemissionstradingsystem

throughprovidingtechnicalandpolicyadvice.

51

Project funders

TheRoyalNorwegianEmbassyNorwayandChinahaveworkedtogetheronenvironmentandclimateissuesfornearlytwodecades.

Thecooperationhasfocusedonenvironmentalmanagementandcapacitybuilding.Norwaysupports

projectsthatcontributetoChina’simplementationofglobalenvironmentalconventions,drawingon

highlyskilledChineseandNorwegianpartnerswithcorecompetenceintheareassingledoutfor

collaboration.Priorityareasforthecooperationhavebeenbiodiversity,climatechangeand

managementofhazardoussubstances,suchasPOPsandMercury.Norwayalsogivesgreat

importancetoourparticipationinandsupporttoChinaCouncilforInternationalCooperationon

EnvironmentandDevelopment(CCICED),ahigh-leveladvisorybodytotheGovernmentofChina.

KingdomoftheNetherlands/MinistryofInfrastructureandEnvironment

TheMinistryofInfrastructureandEnvironmentworkswithChinainthedifferentfieldsofitsportfolio:

infrastructure,spatialplanning,waterresourcemanagement,transportandenvironmentand

climate.TheMinistryhassupportedChinainitsworkonenvironmentanddevelopmentformore

than25years.

ForthisspecificprojecttheDutchEmissionAuthority(NEa)wasassignedbytheMinistrytoshareits

experienceandgiveinput.TheNEaisthecompetentauthorityoftheNetherlandswhichensuresthat

companiestakingpartintheEuropeanEmissionsTradingSystem(EUETS)fulfiltheirobligationsand

hasthereforampleexperiencetosupportChinainitseffortstosetupaETS.

Funded by

Conducted by

2017 china carbon pricing survey...this report is a summary of results from the 2017 china carbon...

Documents