China steps up new regulations for carbon trading

China introduced on Sunday new regulations governing carbon emissions trading to combat CO2 data fraud as a part of the world’s largest greenhouse gas emitter’s efforts to broaden its market to new industrial sectors, according to Xinhua.

Chinese Premier Li Qiang signed the decree of the State Council to introduce the new regulations, effective May 1, 2024. The regulations aim to strengthen the legal structure of an emissions trading scheme (ETS), which currently encompasses about 5 billion metric tons of yearly carbon dioxide emissions from over 2,000 power plants.

“Stronger law enforcement by the environment ministry and its local counterparts can be expected after the new regulations enter into force,” Shawn He, a Beijing-based lawyer who specialises in carbon compliance, told Reuters.

China’s national ETS, launched in 2021 after several delays due to data accuracy concerns, enables participants to achieve emission targets by purchasing allowances from other firms.

By the end of 2023, trade had occurred for 442 million tons of emission allowances, totalling nearly 25 billion yuan ($3.5 billion). However, the risk of fraud continues to be a significant issue.

The new regulations will set up a supervisory system and require market participants to create data quality control strategies. They will also empower authorities to probe and penalise companies, including third-party firms overseeing emissions that have manipulated data.

“They could now confiscate illegal gains and impose harsher penalties for market malpractice,” He added.

By the end of 2025, China’s ETS is projected to encompass over 3,500 companies, with the addition of sectors such as cement and aluminium, as per a recent report from the Beijing Institute of Technology.

The report also suggests that other industries, like glass and chemicals, might join by the decade’s end.