Building block


China existing seven pilot ETSs



Covers 28 EU member states and Iceland, Liechtenstein, and Norway―over 11,000 installations. Largest ETS in the world.

GHG: carbon dioxide (CO2), methane, nitrous oxide (N2O), sulphur hexafluoride, hydro fluorocarbon (HFCs), per fluorocarbons, and nitrogen trifluoride.

Sectors: power stations and other combustion plants with ≥20 MW thermal rated input, oil refineries, coke ovens, iron and steel, cement clinker, glass, lime, ceramics, pulp, paper and board, aluminum, bulk organic chemicals, ammonia, nitric/adipic/glyoxylic acid production, hydrogen, soda ash, carbon black, CO2 capture and storage. In aviation, limited to flights within the European Economic Area until 2016.

Chongqing, Shanghai, Tianjin, Guangdong Province: Installations’ annual emissions above 20,000 t CO2 equivalents, in the power, iron, steel, ferrous metals, chemical and petrochemicals, cement sectors where present. Shanghai further includes airlines, harbours, airports, railways, and commercial sector, with Tianjin including residential buildings.

Hubei Province: Installations with annual energy consumption above 60,000 tce, targeting similar sectors as above.

GHG: only CO2.

Targets and caps

Targets relative to 1990 and absolute cap:

i) Phase I (PI) - 2005-2007: Not applicable, 2298.5 Mt CO2eq

ii) Phase II (PII) - 2008-2012: 8%, 2086.5 Mt CO2eq (1st Kyoto Protocol commitment period)

iii) Phase III (PIII) - 2013-2020: 20%, 1777 Mt CO2eq

iv) Phase IV (PIV) - 2021-2028: 40%, Not applicable

Targets: All areas covered have intensity-based targets for economy-wide GHG emission reduction, ranging from 17% - 21% reduction by 2015 from 2010 levels, which are set at the national level.

Cap: Following intensity-based targets and economic or sector growth projections, all ETSs have absolute caps, which in some cases permit growth in emission levels. The first compliance period is timed with the Preparatory stage, 2013-2016, lasting 2 - 3 years, depending on the start date in each province. The volume of the caps in Mt CO2eq for 2013 were: Beijing (50), Chongqing (125), Shanghai (160), Shenzhen (33), Tianjin (160), Guangdong Province (388), and Hubei Province (324).

Allocation of allowances and carbon leakage

PI and PII: decentralized mainly free allocation, minimum auctioning requirements 5% and 10%.

PIII: 43% allowances auctioned. Fully auctioned in power sector. (At least half of auctioning revenues are required to be used for climate and energy-related purposes.) Full auctioning is required by 2027.

Carbon leakage is mitigated by free allocation to certain sectors considered vulnerable, such as manufacturing and aviation, based on harmonized benchmarks. The proportion of allowances auctioned decreases over time.

Plans: Allocation plans are established at a national level and implemented by provincial authorities, which may be more stringent with regards to free allocation.

Free allocation: Allowances are mostly freely allocated, using benchmarking methodologies based on different base years.

Auctioning: Guangdong, Chongqing and Hubei intended to use auctioning for a small percentage, but only Guangdong has done this so far.

Future China national ETS: combination of free allocation and auctioning.

Monitoring, reporting and verification

Installations are required to have an approved monitoring plan and monitor and report their emissions according to the monitoring and reporting regulations. Third-party verification of an annual emissions report is required. Verified annual emissions reports are due 31 March of the subsequent year, and it is required to surrender the equivalent number of allowances by 30 April.

Monitoring, reporting, and verification (MRV) procedures in accordance with respective guidelines for each jurisdiction at the sectoral or installation level. Guidelines for verification of these emissions exist in many ETSs. Most of these guidelines have been improved during this pilot phase. Guidelines and oversight of qualification of verification bodies is done at the national level and implemented at the provincial level.