China to launch a nationwide market to trade pollutions permits within 3 years

China is going to launch a nationwide market to trade pollution permits within three years, in order to try to reduce its emissions, the Ministry of Finance (MOF) said this week.

The ministries of finance and environmental protection have submitted draft guidelines for a market to the State Council, China’s Cabinet, which will make the final decision, MOF said in a statement on its website. “We will facilitate cross-regional trading, especially among regions covered by the same air and water pollution control regimes,” the statement said.

The market would cap emissions of key pollutants from major facilities and force those that exceed their caps to buy permits in the market, hence providing economic incentives for polluters to invest in cleaner technologies.

Details on how the market would work have not been given, but it is likely to include sulphur dioxide (SO2) and nitrous oxide (NOx), two major pollutants.

The government has picked seven regions to open pilot carbon trading markets, with a mandatory national scheme due to follow sometime between 2017 and 2020.

Hubei

Precisely, China’s central Hubei province will launch its carbon trading market on April 2. The Hubei market will be China’s sixth of the seven planned regional emissions trading schemes. The seventh exchange will be in the southwestern Chinese city of Chongqing, which is also scheduled to go into operation this year.

The province will issue around 300 million permits for the year 2014, making it China’s biggest emissions market after Guangdong. Nine million permits will be auctioned; a further 21 million will be withheld in a government adjustment reserve, while the rest will be handed out to scheme participants for free.

Companies that emit more CO2 than they have permits to cover for must buy allowances in the market or in the government auctions.

Among the companies participating in the scheme will be Wuhan Iron and Steel, China’s fourth-biggest steel producer.

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