Carbon trading regulations released

China’s top administrative body has taken a significant step in the realm of environmental governance by issuing comprehensive regulations to oversee its emissions trading system (ETS). These regulations signal a firm commitment to combating climate change and reducing greenhouse gas emissions. One notable aspect of these regulations is the implementation of much stricter sanctions for companies found to be engaging in fraudulent practices, particularly those that intentionally understate their emissions.

This indicates a strong determination to ensure the integrity and effectiveness of the ETS by deterring dishonest behavior and maintaining transparency in emissions reporting. Such measures not only uphold the credibility of China’s efforts to address climate change but also contribute to global efforts in promoting sustainable and responsible environmental practices.

Published by the State Council on 4 February, they are the first administrative regulations for the national ETS, and will be implemented from 1 May, reports financial media site 36Kr.

Titled “Interim Regulations on the Management of Carbon Emissions Trading”, they specify that the Ministry of Ecology and Environment (MEE) and its local subordinates will supervise and manage carbon trading and related activities.

The document states that the MEE should define “key emissions” companies, set the total volume of carbon emissions for these companies, and create a plan to allocate emissions allowances. Provincial subordinates will list the annual key emissions companies in their area and allocate allowances to them.

Currently, the ETS only covers electricity-generation companies that emit over 26,000 tons of CO2 per year. The plan is for it to gradually start to include companies from other heavily emitting sectors.

The new regulations also increase the penalty for violations. Before the national ETS opened in July 2021, the MEE had established some departmental rules. But as these are lower-level directives, it has been difficult for the MEE to punish entities or individuals that breach them, Chang Jiwen of the State Council’s Development Research Centre, told Yicai.

Emission data fraud has thus been a prominent problem with the ETS. The maximum penalty for breaking the rules is currently only 30,000 yuan (around US$4,200). It has been more expensive to abide by the rules than to flout them, leading many companies to falsify data.

From 1 May, the minimum penalty will be set at 500,000 yuan (around US$70,000). If a company is found to have violated the regulations, or an accounting company produces fraudulent emissions reports, it will forfeit all illegal gains and be fined between 5 and 10 times those gains.

If an electricity company does not make corrections, their quota for the next year will be reduced by between 50% and 100%, and they may be ordered to suspend operations until the situation is rectified. People involved in the fraud will be fined and prohibited from engaging in similar work for five years or life.

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