Flexible measures (banking and borrowing, credit mechanisms or offsets and linking)
Banking was not permitted between phases PI and PII. It was permitted from PII to PIII, and is going on
Borrowing: Not permitted
Linking: Norway, Iceland, and Liechtenstein linked in 2008. Negotiations with Australia launched in 2012 but repealed in 2014, with Switzerland under discussion
Offsets: Quantity restrictions: in PI determined by member states. Subsequently, offsets limited to 50% of compliance 2008-2020. Quality restrictions: credits from Kyoto Protocol mechanisms (CDM and JI) permitted from PII.1
Banking: Permitted between years in pilot period, except in Hubei province.
Offsets: Qualitative restrictions: No international credits accepted. All ETSs accept domestic credits, with Beijing requiring 50% and Guangdong 70%, of credits be sourced locally, and Chongqing requiring credits be sourced through their voluntary or forest schemes. Quantitative restrictions: 5% - 10% of compliance can be met by credits.
Linking: Efforts will be made to explore options for linking with other markets in the Stability Phase (post-2020).
Measures to manage market supply & price
Back-loading of allowances: To deal with structural surplus, auctioning of 900 m allowances was postponed from 2014-2016 until 2019-2020.
Market stability reserve: To manage a structural surplus, from 2019, if surplus allowances are above a maximum threshold, they will be placed in a reserve and only released when surplus drops below minimum threshold. Back-loaded allowances will be placed in the reserve.
Offset restrictions: Due to flooding of the market, JI offsets delivered after 2012 were restricted.
Strategic reserve: Shenzhen, Guangdong, and Hubei have established a strategic reserve for price management. Such a reserve is also intended in Shanghai, Beijing, Chongqing, and Tianjin have not yet declared clear rules for price management.
Auction and buy-back of allowances: Beijing and Tianjin intend to use auctioning and buy-back of allowances to control supply and prices.