China to raise penalties in new carbon market rules

China, the world’s biggest source of heat-trapping greenhouse gases, will impose tougher penalties on firms that fail to comply with emission targets.

The draft rules, which have been circulated among market players, will be submitted to lawmakers next year for final approval. If passed, they will raise the cost of noncompliance and give emitters bigger incentives to cut their emissions and improve their reporting standards.

With nearly 200 countries to meet in Paris at the end of November to decide on a new global climate accord, China has pledged to establish a national carbon trading scheme that will force enterprises to buy permits and credits to cover their releases of the primary greenhouse gas.

The new rules provide the legal basis for the regulator, the National Development and Reform Commission (NDRC), to cap company emissions and could put more pressure on struggling sectors like steel or cement.

An NDRC official revealed earlier that six to eight sectors are likely to be included in the cap and trade system, including power generation, iron and steel, nonferrous metals, building materials, chemicals, aviation, paper mills and automakers.

If the law is approved, companies that exceed a stipulated emissions threshold will be compelled to participate. While most of their permits will be allocated for free, the total will be decided according to principles set by the state.

Firms will be fined at a rate of three to five times the average carbon price over the previous trading year for each permit they fail to surrender to authorities, and they will also have their permit allocations for the following year cut by a corresponding volume.