Article 6 of the Paris Agreement highlights the role of markets to mitigate greenhouse gas emissions and support sustainable development. China, the world’s largest emitter of greenhouse gases, is attracting particular attention after US President Donald Trump rejected the Paris climate accord.
By the end of this year, Beijing is to officially launch a national carbon trading market, as confirmed by a Chinese government announcement earlier this month.
The market is initially expected to be in the range of 3 billion tonnes to 5 billion tonnes of carbon allowances per year, which will be much larger than the EU Emission Trading System, and will truly have an impact on multinational enterprises and their business operations in China.
Taiwan is the third-largest foreign direct investor in China, with more than 70,000 Taiwanese companies operating on the other side of the Taiwan Strait. The investments mainly focus on the manufacturing, petrochemical, cement, retailing and financial industries. Thus, Taiwanese investors in China should be well-prepared for this round of policy changes.
China has launched seven regional pilot carbon markets in Beijing, Tianjin, Shanghai, Shenzhen and Chongqing, as well as Guangdong and Hubei provinces, since October 2011, and a number of voluntary carbon trades have already been completed between Taiwanese and Chinese companies in some pilot markets, such as the Hubei Emission Exchange.
The rules applicable to the carbon deals are China’s Tentative Measures for the Administration of Carbon Trading Markets from 2014.
However, the new Regulations for Management of National Carbon Trading, which are being drafted by China’s State Council, will be more enforceable and have three features worth noting.
First, initially only companies — key emissions entities — that consumed a total energy resource equivalent to 10,000 tonnes of coal or more per year from 2013 to 2015 will be subject to China’s carbon market regulations.
So far, about 7,000 such entities are targeted in eight major industries, including Taiwan’s Formosa Plastics Corp, Far Eastern Group and Taiwan Cement Corp.
Second, if a key emissions entity exceeds its free-emissions quota, it will be required to offset them with the Chinese Certified Emissions Reduction credits and/or purchase new emission quotas from the national carbon market.
All key emissions entities will need to submit annual reports of their emissions plans to local governments and to the carbon verification institutions licensed by the central government.
Third, the legal liabilities for violations of the new regulations can be harsh. According to the regulations, penalties include fines ranging from US$15,000 to US$150,000, or up to three to five times the market carbon price of the deficient emission quota that the corporation would have been required to purchase (articles 31 to 35).
Managing a carbon market of such unprecedented scale is not easy. Pundits believe that it will take years of growth before it can significantly reduce greenhouse gas emissions. The transition provides business opportunities for Taiwan, especially in emissions reduction technologies, and might become a key driver for accelerating the implementation of Taiwan’s own carbon-trading market.
Yang Chung-han is a doctoral candidate at the University of Cambridge and a member of the Taipei Bar Association. James Wei is a visiting academic at the University of Cambridge and is the managing partner of Dentons LLP’s Taipei office.
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