Thread by @TennantReed

At #COP25 side event in China Pavilion on “Sharing Experience on China’s National ETS Construction”

Chair welcomes Vice Minister Zhao
ETS development is beneficial for China. ETS is progressing steadily; a challenging task, but have had strong support from EU and int’l orgs.

Chair: have learned a lot from others, many thanks for strong support.
3 parts today:
Opening remarks
Keynote
Panel

Opening: MEE Vice Minister Zhao Yingmin
Climate change is a dire challenge GE for all mankind.
At COP25 we’ll finish negotiation on the Paris Rulebook, laying foundation for post 2020 action. China is committed to success.

Zhao: We are building an ecological civilization. Circular green economy, energy efficiency, forestry, and ETS are key tools.
Carbon markets are one of the major tools to deliver NDCs and global goals. We value markets’ role in climate action and ETS development is key in China.

Zhao: regional ETS pilots launched in 2011. By Oct 2019 trading volume reached 347mt CO2. Have significantly reduced CO2 intensity and provided valuable experience for national scheme.
In 2017 we launched plan for power sector as first step of Nat ETS.

Zhao: verification, allowance allocation, capacity building are all being put in place and work is well underway.
We’ve built the building; next step is to furnish it.
ETS will support China’s action.
National ETS is a major focus of China’s low carbon development.

Zhao: we’ll keep working with stakeholders and continuously improve the system.

Mauro Petriccione, DG CLIMA, EC
Won’t dwell on the threat of climate. Focus at the negotiations this week is international carbon markets. But creating efficient domestic carbon markets is even more important. Then they can be linked.
EU has happily shared good and bad experience

Mauro: our ETS is the biggest in the world - a title we will be happy to lose once China’s begins soon.
Our ETS covers 40% of EU emissions. Latest reform will be fully in force from July 2021; we are already looking at next phase.
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Mauro: Today EU will adopt Green Deal including ETS review. But we’re here to talk about China’s system.
ETS is an efficient market based approach that lowers compliance cost and enables greater ambition.
We’ve been following China’s efforts closely.

Mauro: in Europe we’ve finally found a better balance between supply and demand, as you can see in the carbon price (gone from €5 to €25).
We can be confident that with lessons from EU and beyond China’s system will be effective.

Mauro: our responsibility is higher than last COP. Our young people are clamoring for faster reductions, for net zero within their lifetime. Of course not all countries will get there at the same pace. Easier for some, but not easy for anybody. Cooperation helps!

Mauro: climate is the only truly global challenge of our generation. What we do domestically doesn’t matter if others don’t do the same, and Vice versa.
We want to signal that two of the biggest economies have a plan and are cooperating.

Mauro: Will work with China towards taking more to COP of Ambition in 2026.

Li Gao, DG of Climate Change Department, MEE
National ETS officially got started in Dec 2017. More work in 2018.
In 2019 we’ve constructed the system for the ETS;
issues temporary guidelines as basic legal management framework;
Collected views from regions, sectors, enterprises

Li: also constructed regulatory system - reporting management system improvement.
We’ll keep advancing the legal system. We’ve analyzed 2028 data and reporting, improved approach to electricity sector reporting, and engaged with regional Govts.

Li: we’ve done improved evaluation work to improve the registration and trade systems.
Later we’ll publish our plan to better guide the China ETS.
Compiling implementation plan for two important systems.

Li: We’re also capacity building. Hosted 17 training programs attended by 60k ppl.
We did allowance accounting exercises in power enterprises.
We will take gradual measures and extend our ETS work in different phases, starting with power.

Li: ETS is very challenging to build, but we can learn from EU and California.
We need a process of system innovation to manage and improve the ETS.
Next step is to comprehensively improve plan for power sector:

Li: 1. will speed up framework of ETS, issuing multiple guidelines and allocation plan
Promote ETS opportunities to industry
Include China CERs in our system soon.

Li: 2. Build more ETS infrastructure - soft and hard.
Improve our management systems / more results to present best year.

Li: 3: we will improve reporting and accounting. Will publish a list of enterprises to enter ETS initially.
Will organize work for smooth and successful rationing / allocation.

Li: 4: more capacity building. Despite all our training so far, much more needed. Will host workshops for state owned enterprises in the power sector to inspire and encourage leadership and technical capability.

Li: ETS will be an important tool to curb greenhouse emissions and reduce the cost of delivering China’s green and low carbon development goals.

Bea Yordi, EC Director for European and Int’l Carbon Markets.
EUETS is cap and trade - don’t forget the cap! It comes down every year and sale of allowance raises money: €42b since start, €14b last year.
ETS is a pillar of EU policy, but more to come (EC Pres speech at 1pm)

Bea: EUETS covers 40% plus, requires a linear reduction of 2.2% in cap each year. Initial caps too lax due to poor accounting and access to international credits. Now fixed. We are internalizing the externality.

Dirk Forrister, IETA: China’s ETS might be the most important undertaking in the world. A massive project, enormous promise, and a model for other developing countries to consider.

Dirk: IETA study finds that a working Article 6 could allow us to achieve much more together than separately. The models are illustrative and exploratory; we know we won’t have perfection in the real world.

Dirk: looking worldwide, China’s effort is largest but not solo. Much can be done within China - forestry, CCERs - but int’l cooperation can help too.

Dirk: We’ve heard from Indonesia and Thailand on their development ofETS proposals. West and Southern African countries are also looking at shares power sector trading and will need international cooperation.
South America - multiple countries developing options

Dirk: Colombia exploring forest-based trading; Chile looking at converting its carbon tax to an ETS. Mexico, others also working. Chinese experience and linkage will be influential.

Dirk: Business believes in this approach because it gives certainty. Caps have to decline towards net zero. You can’t get to zero, but you can do NET zero with nature based solutions, sequestration and trading.

Dirk: We’re excited about prospects for Art 6 to help, but action is rooted in national policies. China’s policy will be very significant

Panel:
Moderator Zhang Xiliang, Tsinghua U
Wang Zhixuan, VP China Electricity Council:

Wang: CEC one of largest power associations worldwide, nearly whole sector is a member. Active on decisions around ETS. Work w EDF and China research institute.

Wang: new thoughts: must raise awareness. Carbon market is a vital tool. Not only for power sector but all sectors. But awareness of role is low. Need to raise sectoral awareness.

Wang: ETS good way to reduce cost of emissions cuts.
ETS should be the basic mechanism and not contradictory to other systems. Pay attention to linkage / fitz.

Wang: We need to speed up our work. We can only find problems during speed-up. Impractical to find all problems. We have lessons from elsewhere and good foundation to start ETS.

Wang: reliability: China is a big generator. If we don’t pay attention to quality, we can derail the system. Must keep reliability.

Pilot ETSs have achieved results in many sectors because supported by many tools. We must find best combo of ETS and supporting policies.

Wang: adjustment: ETS is not a fully free market, but must be guided by government. Anticipate problems and find solutions.

Growth: while we start in power, we want to expand to more sectors. Must demonstrate the framework in the 14th Five Year Plan and show role in low C dev

David Turk, IEA: we collaborate a lot with MEE and other China stakeholders.
IEA can help. And our partners want to learn from China too.
Our work is to understand China’s ETS and how it interacts with other nerdy and climate policies.

David: four observations on ETS so far:
1. Huge undertaking. Not easy, won’t be solved without much iteration. Size makes it complex, but ETS are inherently complex. Partnerships help.

David: 2. Much work remains. 2020 critical; benchmarking needs much thought and expertise.
3. For price signals to work, need broader market principles in system. Browse China power market reform is underway and critical. IEA glad to be helping.

David: 4. Learn by doing. Get started and improve along the way.
Closing: all eyes are on China for many reasons. We wait eagerly for China’s numbers on clean energy, transition etc - huge part of global effort.

LV Xuedu, Lead Climate Soecialist at Asia Development Bank
ADB has worked with China on ETS since 2006 (CDM, Shanghai ETS, more)
National ETS is important to us.
From outside China, my observations are fourfold.

Xuedu: 1. We want formal legal status for allowances and credits. Crucial to have a fixed credit period, helps investors maximise value.
2. Quality of ETS: data collection, whole process requires hi-qual dev. China is taking steps to address tech development but more to be done.

Xuedu: 3. starting in power sector is good, and I hope more sectors can be involved. Even sectors not in ETS can do work, such as providing suggestions on development.

Xuedu: 4. We are constructing a domestic market, but must consider how to connect to international market/s. Design this in to systems.

Duan Maosheng, Prof Tsinghua U
China is big, with multiple policies and schemes in parallel. Must coordinate or could harm private sector and hinder ETS role.

Duan: challenges to ETS are bigger than other countries. After pilots, we are seeking a unique system tailored to Chinese conditions. Needs more flex than EU (10 year plans) - China’s plans may change, need to respond.

Duan: will have to improve the scheme while it is in operation. The devil is in the detail.
Re: Art 6: our views on CDM/markets have changed since Kyoto period.
Can’t wait for perfection, must work and find solutions.

Paul Jefferiss, director of global policy at BP.
BP has 20yrs+ experience of emissions trading, initially within company itself in 1990s, then EUETS, Cali.

Paul: Participated in China pilots. Excellent, valuable learning. We learned rules, built partnerships and capacity. Well placed for National version.
Expect continuous improvement in Nat ETS.

Paul: For a trader, clarity, transparency and good comms are crucial. Pleased with greater communication from MEE in recent months.
Compliance deadlines need to be clear. Early announce of later date for first compliance would be ideal.

Paul: signaling the baseline methodology as early as possible, then updating, would be better than late announcement.
MEE and other ministries need to collaborate, esp Finance, on tax and accounting treatment. Subject to VAT? What asset class are allowances in?

Paul: helpful to develop new and additional trading products. Currently no futures except in Shanghai. More products will help deliver a forward price curve.

Q: can you roll out the ETS next year?
Lin Hui, Shanghai Enviro and Energy Exchange:
SEEE has led with piloting China ETS since 2011. Leading national system setup since 2017. Had much partner support.

Lin: MEE has set eco-civilisation as our priority. China’s ETS has a big challenge: if we look at EU and Cali, their trading actors are very different from China and the environment is different.

Lin: We should innovate the Chinese system to safeguard national goals with Chinese features.
Before I came here, we tested the third version of the trading platform. I am confident we will begin trading in 2020.

Zhang Guo, China Hubei Emissions Exchange: we are very confident of commencing trading in 2020.
Important to be confident in security and reliability of data.
Policy will adjust in response to problems encountered. With advance planning we can avoid instability.

Zhang: our work is core to the whole ETS and we’re developing a management/monitoring platform for data across the ETS. We can monitor developments and send timely signals to government to keep market orderly and safe.

Zhang: we are definitely going to catch up to the National Plan. Very confident about 2020 plan.

Moderator: most important thing is that we can’t wait more, must act, must solve problems by doing things. Hope that next COP we can finally see the realization of the national ETS.