Shanghai launches carbon trading market
September 12, 2012 | BY
clpstaff &clp articles &Shanghai was the first city to release details of its pilot carbon trading market as part of a national policy to encourage a low carbon economy, but questions remain over how the NDRC will regulate the trading platforms
The China Securities Journal stated on July 28 that Shanghai would launch a pilot carbon emissions trading platform in 2013.
The scheme follows a decision by the National Reform and Development Commission (NDRC) earlier in the year requesting seven cities and provinces to establish carbon trading markets. It is also in line with the 12th five-year plan to cut carbon emissions.
“Shanghai is in a unique position as they already have an established platform and an Energy Exchange,” said Gang Yuan, China head of energy and natural resources at Freshfields Bruckhaus Deringer.
The Shanghai Environment and Energy Exchange will oversee the pilot trading platform made up of 200 firms covering 16 different industries from steel and power to airlines and ports.
It is unclear what criteria were used to select the trial firms. “It was probably based on recommendations by the local office of the NDRC in Shanghai,” said Yuan.
Trading is based on credits that can be bought or sold. The trial companies will be given initial quotas for free by Shanghai's NDRC, based on previous emissions data. Additional credits or shortages can be corrected through transactions in the carbon credit market.
Companies that are not engaged in high-level energy consumption are likely to benefit from the scheme, as they will have additional credits to sell and profit from. However, steel, petrochemical and other high carbon emitting companies may face pressure as their emissions come under scrutiny.
“The scheme is one of the ways to push big energy companies to adapt to green energy. Many Chinese energy companies like CNPC and SINOPEC are already starting to invest in the renewable energy sector and schemes like this will give them more incentives,” said Yuan.
Shanghai is the first city to release details of the programme and highlights opportunities for consulting outfits. “The scheme is also a good way for local governments to spur the economy,” said Yuan.
However, the NDRC has yet to issue any official measures on the carbon trading markets. To date, they have requested seven cities and provinces to study launching a pilot scheme. Shanghai's approach is also subject to approval from the Commission.
This raises questions over how the market will be regulated and what consequences there will be for companies who surpass their emissions quota. It also unclear if the NDRC will approve pilot schemes individually or implement a circular governing all the pilot cities and provinces.
Beijing, Tianjin, Shenzhen, Chongqing, and Guangdong and Hubei provinces are also included in the NDRC's plan to establish carbon-trading markets by the end of the year. It will be interesting to see if other cities follow Shanghai's model as they submit plans to the NDRC.
By David Tring
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