https://orcid.org/0000-0002-9498-3647
![Sample our Law journals, sign in here to start your FREE access for 14 days]({"type":"image" , "src" : "/sda/5942/TOC-Subject-Sample-2021-Law.jpg"})
Abstract
China has restated its goal to achieve carbon neutrality before 2060, and the newly launched national emissions trading system (ETS) of 2021 is expected to play a leading role in achieving it. By examining the core design elements of the ETS, this study analyses the legal impediments that may prevent the ETS from achieving China's climate goal. These challenges largely result from a regulatory framework that lacks concrete provisions and effective mechanisms to reduce emissions. By doing so, this study aims to shed some light on potential improvements in ETS regulation, and the role judicial procedure could play in justifying the behaviours of the ETS participants.
Acknowledgements
I acknowledge with thanks the helpful comments of Don C Smith, as well as the anonymous reviewers for their valuable comments and contributions.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1 ‘Xi's Remarks on Global Solidarity In Fighting Climate Change’ (China Daily, 1 November 2021) <www.chinatoday.com.cn/ctenglish/2018/zdtj/202111/t20211101_800262100.html> accessed 30 September 2022
2 State Council Information Office of the People's Republic of China, China's Achievements, New Goals and New Measures for Nationally Determined Contributions [中国落实国家自主贡献成效和新目标新举措] (28 October 2021) <www4.unfccc.int/sites/ndcstaging/PublishedDocuments/China%20First/China%E2%80%99s%20Achievements,%20New%20Goals%20and%20New%20Measures%20for%20Nationally%20Determined%20Contributions.pdf> accessed 30 September 2022
3 Bloomberg, ‘China Is Planning Record Wind and Solar Power Additions’ (EnergyWire, 18 April 2022)
4 Xu Nan, ‘Rebooting China’s Carbon Credits: What Will 2022 Bring?’ (China Dialogue, 9 June 2022) <www.chinadialogue.net/en/climate/rebooting-chinas-carbon-credits-what-will-2022-bring/> accessed 30 September 2022
5 Since 2013, seven pilot carbon markets – Beijing, Chongqing, Guangdong, Hubei, Shanghai, Shenzhen and Tianjin – have been launched, covering nearly 3,000 key emissions companies in more than 20 industries, including power, steel and cement. As of 30 September 2021, the total trading volume of the seven pilot carbon markets had reached 495 million tons of carbon dioxide equivalent, representing a value of approximately RMB12 billion. See ‘Responding to Climate Change: China’s Policies and Actions 2021’ [中国应对气候变化的政策与行动2021], The State Council Information Office of the People’s Republic of China, 27 October 2021 <www.english.scio.gov.cn/whitepapers/2021-10/27/content_77836502.htm> accessed 30 September 2022
6 Environmental Defense Fund, China Carbon Pricing Newsletter (Issue No. 11, 2022) <www.edf.org/sites/default/files/documents/ETS_Newsletter_Issue_No.11_2022.pdf> accessed 30 September 2022; Lucy Greenwood, ‘The Canary Is Dead: Arbitration and Climate Change’ (June 2021) 38(3) Journal of International Arbitration 309
7 Valerie J Karplus, China's CO2 Emissions Trading System: History, Status, and Outlook (June 2021) <www.belfercenter.org/sites/default/files/files/publication/karplus-china-national-ets-june-2021-english.pdf> accessed 30 September 2022
8 In 1997, the Kyoto Protocol established the first three international carbon-trading mechanisms: joint implementation (JI) projects, emissions trading (ET) and the Clean Development Mechanism (CDM). See United Nations Climate Change, Mechanisms under the Kyoto Protocol <www.unfccc.int/process/the-kyoto-protocol/mechanisms> accessed 30 September 2022
9 International Carbon Action Partnership (ICAP), Emissions Trading Worldwide: Status Report 2022 <www.icapcarbonaction.com/system/files/document/220408_icap_report_rz_web.pdf> accessed 30 September 2022
10 Tan Luyue, ‘The First Year of China’s National Carbon Market, Reviewed’ (China Dialogue, 17 February 2022) <www.chinadialogue.net/en/climate/the-first-year-of-chinas-national-carbon-market-reviewed/> accessed 30 September 2022
11 ‘Atmospheric Pollution Prevention and Control Law of the PRC (2018 Revision)’ [中华人民共和国大气污染防治法], Standing Committee of the National People's Congress Order No. (2018) 16, 26 October 2018, art 2
12 Climate Action, EU ETS Handbook (March 2017), <www.ec.europa.eu/clima/system/files/2017-03/ets_handbook_en.pdf> accessed 30 September 2022
13 ‘National Measures for the Administration of Carbon Emission Trading (Trial)’ [碳排放权交易管理办法 (试行)] Ministry of Ecology and Environment (MEE) Order No. (2020) 19, 25 December 2020
14 ‘Notice of Ministry of Ecology and Environment on Issuing Allocation Plan for the Power Sector (2019–2020)’ [碳排放权交易配额总量设定与分配实施方案 (发电行业) 》并做好发电行业配额预分配工作的通知] Order No. (2020) 3, 30 December 2020 [henceforth ‘Allocation Plan’] <www.chinaenergyportal.org/en/implementation-plan-for-the-2019-2020-national-carbon-emission-trading-quota-setting-and-allocation-power-generation-industry> accessed 30 September 2022
15 ‘Administrative License Law of the People's Republic of China (2019 Amendment)’[中华人民共和国行政许可法]Standing Committee of the National People's Congress Order No. (2019) 29, 23 April 2019, art 10, 12, 14
16 ‘Interim Regulations for the Management of Carbon Emissions Trading (Draft) (2021)’ [碳排放权交易管理暂行条例 (草案修改稿) (2021)] Ministry of Ecology and Environment (MEE), 30 March 2021 <www.mee.gov.cn/xxgk2018/xxgk/xxgk06/202103/t20210330_826642.html> accessed 30 September 2022
17 See ICAP, Emissions Trading Worldwide: Status Report 2022 (n 9)
18 In comparison, the EU ETS has introduced an absolute cap fixed at 1,571,583,007 allowances in phase 4 (2021–2030) with an annual linear reduction factor of 2.2%. See European Commission, Emissions Cap and Allowances <www.ec.europa.eu/clima/eu-action/eu-emissions-trading-system-eu-ets/emissions-cap-and-allowances_en> accessed 30 September 2022
19 International Carbon Action Partnership (ICAP), Emissions Trading Worldwide: Status Report 2021 <www.icapcarbonaction.com/system/files/document/230323_icap_report_web_final_2.pdf> accessed 30 September 2022
20 See Allocation Plan (n 14) section 3
21 See Interim Regulations for the Management of Carbon Emissions Trading (draft) (n 16) art 8
22 Tao Pang and Maosheng Duan, ‘Cap Setting and Allowance Allocation in China’s Emissions Trading Pilot Programmes: Special Issues and Innovative Solutions’ (June 2015) 16(7) Climate Policy 815
23 Jeff Swartz, China: An Emissions Trading Case Study (September 2016) <www.ieta.org/resources/Resources/Case_Studies_Worlds_Carbon_Markets/china-emissions-trading-case%20study_cdc_climat_ieta%20march_2015.pdf?msclkid=5d2acd9db09f11ec9bfb5c2a9b21face> accessed 30 September 2022
24 European Commission, Development of EU ETS (2005–2020) <www.ec.europa.eu/clima/eu-action/eu-emissions-trading-system-eu-ets/development-eu-ets-2005-2020_en> accessed 30 September 2022
25 Liwei Liu, Chuxiang Chen, Yufei Zhao and Erdong Zhao, ‘China’s Carbon-Emissions Trading: Overview, Challenges and Future’ (September 2015) 49 Renewable and Sustainable Energy Reviews 254; Yongwei Cheng and Dong Mu, ‘Study on the Operation Efficiency Evaluation of Pilot Carbon Trading Markets in China’ [我国试点碳市场运行效率评价研究] (February 2017) 37(4) Science and Technology Management Research [科技管理研究] 96
26 The 14th FYP introduces an official appraisal to assess the implementation for controlling GHG emissions and consider the evaluation results in leadership appointment, reward, punishment, and dismissal of the cadres. See State Council, ‘Responding to Climate Change: China’s Policies and Actions 2021’ (n 5)
27 Haiyan Liu and Shuang Zheng, ‘Analysis on Beijing's Emissions Trading Pilot Programme’ [北京市碳排放权交易试点分析] (December 2016) 38(12) Energy of China [中国能源] 32
28 See Karplus (n 7) 5
29 See National Measures (n 13) art 21
30 World Bank, State and Trends of Carbon Pricing 2021 (2021) <www.openknowledge.worldbank.org/handle/10986/35620> accessed 30 September 2022
31 See State Council, ‘Responding to Climate Change: China’s Policies and Actions 2021’ (n 5)
32 See National Measures (n 13) art 13
33 See Karplus (n 7) 7–8
34 See ICAP, Emissions Trading Worldwide: Status Report 2022 (n 9) 16
35 See Allocation Plan (n 14) section 2
36 See Karplus (n 7) 4
37 See Allocation Plan (n 14) section 2; section V
38 See Karplus (n 7) 4
39 Dongya Li, Maosheng Duan, Zhe Deng and Haijun Zhang, ‘Assessment of the Performance of Pilot Carbon Emissions Trading Systems in China’ (July 2020) 23 Environmental Economics and Policy Studies 593
40 The turnover rate is the annual transaction volume divided by the total amount of allowances issued in the year. For example, in China’s national ETS, the cumulative trading volume of allowances is 179 million tons, while the total emission allowances issued for the first compliance cycle is 9 billion tons. See ICAP, Emissions Trading Worldwide: Status Report 2022 (n 9) 15
41 Stefano F Verde, Giulio Galdi, Isabella Alloisio and Simone Borghesi, ‘The EU ETS and Its Companion Policies: Any Insight for China's ETS?’ (March 2021) 23(3) Environment and Development Economics 302
42 YP Sun and KY Wang, Annual Report of China Carbon Emissions Trading Scheme (2017) [中国碳排放权交易报告(2017)]. (China Social Sciences Academic Press 2017) at 22–30
43 Art 16 of the National Measures is deleted in the Interim Regulations for the Management of Carbon Emissions Trading (draft) (n 16), meaning that emitting entities might have no access to a legal remedy for allocation dissent if the draft came in to force
44 See Allocation Plan (n 14) section 7
45 See National Measures (n 13) art 39–40
46 ‘In the … EU ETS, participants who fail to comply with their obligation to surrender allowances under the EU ETS are fined €100 per tCO2, adjusted with the EU inflation rate from 2013 onwards … the shortfall in compliance is then added to the compliance target of the following year’. See Climate Action (n 13) 134
47 See Karplus (n 7) 9
48 see Article 16(2) of the consolidated EU ETS Directive <www.eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02003L0087-20140430> accessed 30 September 2022
49 See Interim Regulations for the Management of Carbon Emissions Trading (draft) (n 16) art 26
50 See National Measures (n 13) art 29; ‘The Procedure of Using CCER Offsets in the First Compliance Circle’ [全国碳市场第一个履约周期使用 CCER 抵销配额清缴程序] Ministry of Ecology and Environment (MEE) (10 October 2021) <www.mee.gov.cn/xxgk2018/xxgk/xxgk06/202110/W020211026635445691967.pdf> accessed 30 September 2022; ‘Notice on the First Compliance Cycle of Emission Allowance Surrendering for the National ETS’ [关于做好全国碳排放权交易市场第一个履约周期碳排放配额清缴工作的通知] Ministry of Ecology and Environment (MEE) (26 October 2021) <www.mee.gov.cn/xxgk2018/xxgk/xxgk06/202110/t20211026_957871.html> accessed 30 September 2022
51 ‘Notice of the National Development and Reform Commission No. 2 in 2017’ [国家发展和改革委员会公告] National Development and Reform Commission (13 March 2017) <www.ndrc.gov.cn/xxgk/zcfb/gg/201703/t20170317_961176.html?code=&state=123> accessed 30 September 2022
52 See ICAP, Emissions Trading Worldwide: Status Report 2022 (n 9) 16
53 See State Council, ‘Responding to Climate Change: China’s Policies and Actions 2021’ (n 5) part IV
54 ‘Guidelines on Enterprise Greenhouse Gas Emissions Reporting and Verification (Trial)’ [企业温室气体排放报告核查指南 (试行)] Ministry of Ecology and Environment (MEE) (20 August 2021) <www.tjjh.gov.cn/zyjkq/zwgk/yqgg/202107/P020210709617516696212.pdf> accessed 30 September 2022
55 ‘All Organizations of Environmental Impact Assessment Have Been Unhooked’ [全国环保系统环评机构按期全部完成脱钩] Ministry of Ecology and Environment (MEE) (8 January 2017) <www.gov.cn/xinwen/2017-01/08/content_5157638.htm> accessed 30 September 2022
56 Ying Shen, Crossing the River by Groping for Stones: China's Pilot Emissions Trading Schemes and the Challenges for National Scheme (January 2016) 18 Asia Pacific Journal of Environmental Law 1
57 The typical behaviours of MRV falsification include sending counterfeit samples for inspection, using mistaken emission factors, falsifying original monitor records, the conclusion being inconsistent with the facts, etc. See ‘The Disclosure of Typical Cases on Falsified Carbon Emission Reporting of Zhong Tan Neng Tou etc. (the First Batch of Outstanding Environmental Issues in 2022)’ [生态环境部公开中碳能投等机构碳排放报告数据弄虚作假等典型问题案例) 2022年第一批突出环境问题]. Ministry of Ecology and Environment (MEE) (14 March 2022) <www.mee.gov.cn/ywgz/ydqhbh/wsqtkz/202203/t20220314_971398.shtml> accessed 30 September 2022
58 See National Measures (n13) art 27
59 Chris W Backes and others, ‘The Underestimated Possibility of Ex-Post Adjustments: Some Lessons from the Initial Greenhouse Gas Emissions Trading Scheme’ in Michael G Faure and Marjan Peeters (eds), Climate Change and European Emissions Trading: Lessons for Theory and Practice (Edward Elgar 2008) at 205
60 Ibid
61 See ICAP, Emissions Trading Worldwide: Status Report 2022 (n 9) 16
62 ‘Notice on Implementing Data Supervision on National Carbon Trading Market’ [关于做好全国碳排放权交易市场数据质量监督管理相关工作的通知], Ministry of Ecology and Environment (25 October 2021)
63 Double random means both inspectors and entities being inspected are chosen randomly. One public means the inspection result should be made public in time
64 United Nations, International Recommendations for Energy Statistics (September 2018) <www.unstats.un.org/unsd/energy/ires/IRES-web.pdf> accessed 30 September 2022
65 Yaxue Yan, Xiaoling Zhang, Jihong Zhang and Kai Li, Emissions Trading System (ETS) Implementation and Its Collaborative Governance Effects on Air Pollution: The China Story (March 2020)138 Energy Policy 1; Xiujie Tan, Yishuang Liu, Hanmin Dong and Zhan Zhang, The Effect of Carbon Emission Trading Scheme on Energy Efficiency: Evidence from China (September 2022) 75 Economic Analysis and Policy 506
66 See Karplus (n 7) 5
67 Ibid
68 International Energy Agency (IEA), The Role of China’s ETS in Power Sector Decarbonization (April 2021) <www.iea.blob.core.windows.net/assets/61d5f58d-4702-42bd-a6b6-59be3008ecc9/The_Role_of_China_ETS_in_Power_Sector_Decarbonisation.pdf> accessed 30 September 2022
69 International Energy Agency (IEA), China’s Emissions Trading Scheme: Designing Efficient Allowance Allocation (July 2020) <www.iea.blob.core.windows.net/assets/d21bfabc-ac8a-4c41-bba7-e792cf29945c/China_Emissions_Trading_Scheme.pdf> accessed 30 September 2022
70 International Carbon Action Partnership (ICAP), Emission Trading Systems and Net Zero: Trading Removals (May 2021) <www.icapcarbonaction.com/system/files/document/icap-netzeropaper_final-draft.pdf> accessed 30 September 2022
71 Notice of the National Development and Reform Commission No. 2 in 2017 [国家发展和改革委员会公告], National Development and Reform Commission, 13 March 2017 <www.ndrc.gov.cn/xxgk/zcfb/gg/201703/t20170317_961176.html?code=&state=123> accessed 30 September 2022
72 See ICAP, Emissions Trading Worldwide: Status Report 2021 (n 19) 66
73 See State Council, ‘Responding to Climate Change: China’s Policies and Actions 2021’ (n 5) part IV
74 Swiss Federal Office for the Environment, Summary of the Foreseen Cooperation under Article 6 (Paris Agreement) between Peru and Switzerland (November 2019) <www.bafu.admin.ch/dam/bafu/de/dokumente/klima/fachinfo-daten/Summary%20of%20Article%206%20Cooperation%20%28Paris%20Agreement%29%20Peru%20Switzerland.pdf.download.pdf/Summary%20of%20Article%206%20Cooperation%20%28Paris%20Agreement%29%20Peru%20Switzerland.pdf> accessed 30 September 2022
75 ‘Where the people’s procuratorate finds in the performance of functions that any administrative authority assuming supervision and administration functions in such fields as the protection of the ecological environment and resources in violation of any law or conducts nonfeasance, which infringes upon national interest or the public interest, it shall offer procuratorial recommendations to the administrative authority, and urge it to perform functions by the law. If the administrative authority fails to perform functions following the law, the people’s procuratorate shall file a lawsuit with the people’s court under the law’. See Administrative Litigation Law of the People’s Republic of China (2017 Revision) [中华人民共和国行政诉讼法], Standing Committee of the National People’s Congress Order No. (2017) 71, 7 January 2017, art 53 <www.industry.gov.au/sites/default/files/adc/public-record/466-011.05_-_qatt_-_att_6_-_administrative_procedure_law_of_the_prc_-_non-conf.pdf> accessed 30 September 2022
76 For activities that cause environmental pollution, ecological damage and public interest harm, social organisations eligible for the following conditions may file litigation as formal plaintiff: (1) Have their registration at the civil affairs departments of people's governments at or above municipal level with sub-districts by the law; (2) specialise in environmental protection public interest activities for five consecutive years or more, and have no law violation records. See Environmental Protection Law of the People’s Republic of China (2014 Revision) [中华人民共和国环境保护法], Standing Committee of the National People's Congress Order No. (2014) 9, 24 April 2017, art 58
77 Otto Spijkers, ‘Pursuing Climate Justice through Public Interest Litigation: The Urgenda Case’ (Völkerrechtsblog, 29 April 2020) <www.voelkerrechtsblog.org/pursuing-climate-justice-through-public-interest-litigation-the-urgenda-case/> accessed 30 September 2022
78 See Zheng Shaohua and Zhang Hanlin, ‘The Legal Path to Achieve Carbon Peaking and Carbon Neutrality Goals – From the Perspective of Climate Change Perspective’ [论双碳目标的法治进 – 以气候变化诉讼为视角] (July 2022) 24(4) Journal of Jiangsu University(Social Science Edition) [江苏大学学报 (社会科学版)] 66; Zhang Zhongmin, ‘The Chinese Paradigm of Climate Change Litigation – Also on the Relationship between It and the System on Compensation for Eco-environmental Damage’ [气候变化诉讼的中国范式 – 兼谈与生态环境损害赔偿制度的关系] (July 2022) 7 Political Science and Law [政治与法律] 34
79 See Yue Zhao, Shuang Lyu and Zhu Wang, Prospects for Climate Change Litigation in China (May 2019) 8(2) Transnational Environmental Law, 349
80 See Climate Change Litigation Databases, maintained by the Sabin Center for Climate Change Law <www.climatecasechart.com/non-us-case-category/eu-ets/> accessed 30 September 2022
81 ‘In fact, climate cases have already been brought in China. The first climate change case brought by China’s prosecutors was resolved in March 2021. The Zhejiang People’s Procuratorate brought a climate change public interest litigation against a company illegally releasing ozone-depleting substances in the production of insulation materials and requested compensation for environmental damage’. See Dimitri De Boer and Fan Danting, ‘Is China Ready for Climate Litigation?’ (June 2021) <www.cciced.eco/climate-governance/is-china-ready-for-climate-litigation/> accessed 30 September 2022
82 ‘If a citizen, a legal person or any other organization considers that the regulatory documents on which a specific administrative act has been based are illegal despite the fact that these documents are formulated by the departments under the State Council or local people's governments and their departments, he or it may, at the time of initiating an action against the administrative act, request a review of these regulatory documents.’ See Administrative Litigation Law (n 75) art 53
83 The hierarchy of China’s legal system can be divided into three categories: (1) acts passed by the National People’s Congress or its subsidiaries; (2) administrative laws passed by the State Council or its departments (eg MEE) as a form of an administrative order; (3) normative documents enacted by the departments of the State Council or local governments without the form of an administrative order. According to art 53 of Administrative Litigation Law (2017 Revision), only a normative document is subject to judicial review and the administration action based upon it; that is to say, an administrative action was taken under normative documents enacted by the departments of the State Council (eg MEE), local governments, and their affiliations without a form of an administrative order, and an attached judicial review on the legitimacy of the normative document is also allowed
84 Ibid
85 Wang Chenguang, ‘From the Rule of Man to the Rule of Law in Cai Dingjian and Wang Chenguang (eds), China's Journey Toward the Rule of Law: Legal Reform 1978–2008 (Brill 2010), at 6–8; see also Randall Peerenboom, China's Long March towards the Rule of Law (Cambridge University Press 2002)
86 Ni Shoubin, ‘On the Right Attribute of Carbon Emission Right – Also on the Improvement of Carbon Market Trading Rules of China’ [碳排放权权利属性论 – 兼谈中国碳市场交易规则的完善](February 2022) 2 Political Science and Law [政治与法律] 2; Wang Hui, ‘The Franchise Status of Carbon Emission Right’ [论碳排放权的特许权本质] (December 2017) 23(6) Law and Social Development [法制与社会发展] 171
87 ‘Legal Nature of Emission Allowances as a Property Rights’ (14 June 2017) <www.emissions-euets.com/emissions-trading?catid=1&id=149:the-legal-nature-of-emission-allowances-as-a-property-rights&start=1> accessed 30 September 2022
88 See Administrative License Law (n 15) art 8
89 ‘Interim Regulations on the Accounting Methods of Emissions Trading’ [碳排放权交易有关会计处理暂行规定], Ministry of Finance Order No. (2019) 22 (25 December 2019) <www.gov.cn/xinwen/2019-12/25/5463857/files/5c11c14a22ce419a8e92cdde3ed8509c.pdf> accessed 30 September 2022
90 European Court of Auditors, The Integrity and Implementation of the EU ETS Special Report No 06 (10 November 2015), Publications Office of the European Union, para 92 <www.eca.europa.eu/Lists/ECADocuments/SR15_06/SR15_06_EN.pdf> accessed 23 August 2022
91 Wang Guofei, Jin Haoming, ‘Entities’ Carbon Emission Rights: Status Update and System Construction’ [控排企业碳排放权: 属性新释与保障制度构建] (December 2021) 12 Theory Monthly [理论月刊] 144
92 Ibid
93 European Commission, Development of EU ETS (2005–2020) (n 24)
94 In 2021, the State Council released Regulations for the Management of Pollutant Permits (Administrative Order No. 736). Together with the 13 national standards of self-monitoring direction for emitting entities, China has established the legal basis and fundamental data to run the pollutant trading system, mostly within provincial or municipal jurisdiction. However, pollutant trading is limited to chemical oxygen demand, ammonia nitrogen, nitrous oxide, and oxynitride, as well as dominated by the government, making the secondary market of pollutant trading sluggish. See Guo Minping, ‘China’s Pollutant Trading Market: Developments, Problems and Suggestions’ [我国排污权交易市场的最新进展、现存问题与建议展望] (21 June 2022) <www.iigf.cufe.edu.cn/info/1012/5414.htm> accessed 30 September 2022
95 Energy use rights trading, as one of the national climate policies, is a market-based instrument based on property rights theory. China carries out pilot projects in some provinces, and formulates the ‘Paid Use of Energy Rights and Trading System Pilot Program’. See Yuling Pan and Feng Dong, ‘Design of Energy Use Rights Trading Policy from the Perspective of Energy Vulnerability (January 2022) 160 Energy Policy <www.doi.org/10.1016/j.enpol.2021.112668>
96 See State Council, ‘Responding to Climate Change: China’s Policies and Actions 2021’ (n 5)