Thread by @LHongqiao

BREAKING - China is revising the interim regulation on the Emissions Trading System (ETS) published just 3 months ago. t.ly/HC9V

The biggest change:
- introduces a *total emissions cap* for allocations
- introduces *auction*
- specifics pilot integration

THREAD

This comes after the release of another interim guideline on greenhouse gas emission reporting and verification (MRV) yesterday. t.ly/vBhN

@StianReklev has summarised the news in his tweets:

https://twitter.com/StianReklev/status/1376534522209083400?s=20

The new draft for revision reveals a few very important messages:

1. China's 2030 peak emission and 2060 net-zero climate pledge is locked down to *CO2 only*, not overall greenhouse emissions

2. The competent department for the national carbon market remains at MEE (formulating technical norms, allocation distribution, MRV, etc). However, it clarifies that the NDRC, MIIT, and NEA will also involve in supervision and guidance.

About the nuances

https://twitter.com/LHongqiao/status/1375859453573103621?s=20

3. It also aims to coordinate central government organs on market supervision, namely People's Bank of China, State Administration for market regulation, Securities Regulatory Commission, Banking & Insurance Regulatory Commission.

But challenges remain:

https://twitter.com/LHongqiao/status/1372855352866258948?s=20

4. It further clarifies the carry-on of non-used allowance from the previous year, which was outlined briefly before.

5. It gives more details on the trading methods, including agreement transfer, one-way bidding & other transactions deemed to meet relevant national regulations

6. It introduces a *national ETS fund*, which will be the ¥ pool for the revenues generated from paid allocation (indication: current free allocation scheme is only transitional), and the fund will be used to support carbon market construction and emission reduction projects.

7. We see a significant rise in penalties on incompliance, faked, or incomplete records and reporting, from ¥10-30K to ¥50-500k.

It adds a few new ones:
- fraud & market manipulation: ¥1-10m
- illicit related party transactions: ¥500k-5m
- interfering supervision: ¥20-200k

8. It clarifies the integration of existing regional pilots and requires all pilots to follow the regulations at the national level. It specifies, no more new pilot ETS once the regulation comes into force.

9. More articles on information disclosure at various trading phases, and any information that could "trigger major changes that affect the market" are required to be disclosed in a timely manner.

All in all, the new draft gives me an impression that the new regulation will eventually be passed by the *State Council*, despite drafted by the MEE.

Justification: the rise of penality, the coordination across government organs, etc.

Agree? Doubts?

https://twitter.com/LHongqiao/status/1376792966258438145?s=20

CORRECTION: I mistook the Interim Administrative Measures published in 2020.12 (t.ly/zsOz) and the Interim Management Regulations (not issued, only released a draft for consultation in 2019.04, then the new draft now t.ly/WhDe)

https://twitter.com/LHongqiao/status/1376792966258438145?s=20

I'd be a bit cautious on calling it a "law" as it's unlikely to be passed by the National People's Congress (NPC) and be named "Law on ETS". It's very clear that the draft will be passed as administrative legislation by the State Council at most.

https://twitter.com/CarbonPulse/status/1376815272313683971?s=20

Briefly speaking, ETS legislation at the State Council level is already not a bad deal compared to a MEE regulation. Moving forward, many call for formal legislation on climate change at the NPC level, and revisions of existing laws such as Property Law.

https://twitter.com/LHongqiao/status/1376820186410586116?s=20

Interested in knowing more about the China ETS? I am writing a long-form explanatory for @CarbonBrief, which might answer most of your questions. Meanwhile, ICAP has a very good briefing (t.ly/AdvE) & @CarbonPulse writes intensively on market updates (paid access).