Perhaps the most significant part of the announcement in December was that it scaled back the sectors the ETS would cover.

Early plans for the scheme, circulated in January 2016, had included firms consuming more than 10,000 tonnes of “coal equivalent” in eight sectors: petrochemicals, chemicals, building materials (including cement), iron and steel, non-ferrous metals (such as aluminium and copper), paper and civil aviation. This would have covered around 6,000 companies.

However, the December launch confirmed that only the power sector will be included at first. Plants emitting more than 26,000 tonnes of CO2 per year or more – covering almost all coal and gas-fired plants – will be included, the government plan says. This will still almost double the amount of emissions worldwide covered by emissions trading schemes.

Launch of #China ETS in 2017 to almost double #GHG emissions covered by emissions trading — ICAP Secretariat (@ICAPSecretariat) April 8, 2016
The scheme will, therefore, only involve around 1,700 power companies at first. This will be gradually expanded “when conditions allow…to other industries with high energy consumption, high pollution and high resource intensity”, the plan says. It is expected to eventually include the other seven sectors previously proposed.

Swartz argues this vastly diminished ETS, compared to the original plan, is the big story of the release in December, arguing it “won’t have any bite in it” with the power sector alone. He tells Carbon Brief:

“After studying the market for years and conducting pilots, how much delay do you need when you know what needs to be done?”

Emissions have already levelled off in China’s power sector, while even with the other seven sectors included the ETS would by no means cover all of China’s emissions. Swartz estimates it would reach perhaps half of China’s CO2 emissions because key emitting sectors are excluded, including land transport and agriculture.

Others have argued it is important for China to move cautiously and take the time to get the emissions trading scheme right, with the power sector a reasonable place to start.

For example, policymakers need reliable data on historic baseline emissions from different plants, to set the right target levels and allocate allowances. Some observers have noted that the large state-owned enterprises that dominate electricity generation in the country have relatively complete emissions data, at least compared to other parts of the economy.

Chinese officials have similarly expressed concern that including other sectors at the outset would require constant testing and adjustments, given they are still in the process of establishing their emissions datasets.

The typically large size of power plants, which might emit tens of millions of tonnes of CO2 each year, also means relatively few points of emissions compared with other industries.

In an article for Vox, David Roberts argues the key thing to remember is that China’s government thinks long term. He writes:

“The most important thing is getting the baselines, rules and procedures right, creating a functioning system that can be used as a ratchet for decades to come.”

The plan itself says China wants to avoid “affecting…stable and healthy economic development” by including too many industries at the outset.


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