Dimitri de BoerChina Carbon ForumRenato RoldaoICFHuw SlaterChina Carbon ForumQian GuoqiangSinoCarbon2017.November 20172017CHINA CARBON PRICING SURVEYIAbstract Thisreportsumarisestheresultsofthe2017ChinaCarbonPricingSurvey.ThesurveyelicitedexpectationsaboutthefutureofChina’scarbonpricefromstakeholdersincarbonmarketsinChinabetwenMayandJuly2017.TheresultsofthesurveygivestrongconfidencethatcarbonpricelevelsinChinawillriseovertime,andthatcarbonpricingwillincreasinglyafectinvestmentdecisions.Chinahasannouncedthatanationalemisionstradingsystemwilstartby2017.However,onaverage,thesurveyrespondents’expectationisthatitcouldtakeuntilatleast2020beforethenationalETSisfullyfunctional.IntheleaduptothenationalETS,significantcapacitybuildinghasbeenconducted,butmuchmoreisneeded.AlargemajorityofrespondentspreferastronglegalbasisfortheETSfromitsinitialphase,withatleastStateCouncilregulationinplace.ETSisexpectedtobecomethemostimportantpolicyinstrumenttomotivatecompaniestoreduceGHGemisionsinthecomingdecade.ThereisstrongconfidencethatChinawillmetitstargettopeakemissionsby2030.Manyexpectthatthepeakinemisionswilbereachedsignificantlyearlier.KeywordsCarbonpricing,emisionstrading,carbonmarket,publicpolicy,stakeholdersurvey,ChinaSuggestedCitationDeBoer,D.,Roldao,R.,Slater,H.,Qian,G.,2017,The2017ChinaCarbonPricingSurvey,November2017,ChinaCarbonForum,BeijingAddresforcorespondencePeterEdwards,ChinaCarbonForumAddresZhengjueHutongno.5,Xinjiekou,XichengDistrict,BeijingCHINA10035Phone86-13051228667Emailforumchinacarbon.infoIIAcknowledgementsThesurveywasconductedbyChinaCarbonForum,ICF,andSinoCarbon,withsfromTsinghuaUniversityChinaCarbonMarketCenter,andtheDutchEmisionsAuthorityNederlandseEmisieautoriteit,NEa.ItreceivedfundingsuportfromtheRoyalNorwegianEmbassyandtheEmbassyoftheKingdomoftheNetherlandsinBeijing.TheauthorsDimitrideBoer,RenatoRoldao,HuwSlaterandQianGuoqiangwouldliketothankalloftheotherorganisationsandindividualswhohavecontributedtomakethisreportposible.WearegratefultothekeyadvisorsofthesurveyandreportWangTieoftheNationalandDevelopmentReComisionClimateChangeDepartment,Prof.ZouJi,ChiefRepresentativeforEnergyFoundationChina,LiuShuang,EnergyFoundationChina,Prof.WangYiofChinaAcademyofSciences,andProf.DuanMaoshengofTsinghuaUniversity.WearegratefulforthecontributionsofexpertpeerreviewersWangShuofICF,LiuYuofChinaAcademyofSciences,HughKaterofChinaCarbonForum,andErikvanAndelandStevenBankoftheDutchEmisionsAuthority.ProfessorFrankJotzooftheCentreforClimateEconomicsandPolicyatAustralianNationalUniversitydeservesaspecialmention,ashewastheinitiatorandleadauthoroftheinitialsurveyin2013,whichservedasthestartingpointfortheseriesofsurveys,andheprovidedadvicetotheteam.PeterEdwardsofChinaCarbonForummanagedtheproject,andLydiaJacksonandVincentGuprovidedsignificantasistanceinthepreparationofthisreport.LuluZhaoofEDFsuportedthediseminationofthesurvey.Finally,wewouldliketothankHuangXiaochenandLaiHanfromSinoCarbon,andLiuMengxingfromClientEarthwhohelpedwiththetranslationofthereport.IIITable of Contents TableofContents...................................................................................................................................IIIcutivesumary.................................................................................................................................VSurveyintroduction.................................................................................................................................1UpdateoncarbonemisionstradinginChina........................................................................................3SurveyingChina’scarbonpricingstakeholders.......................................................................................9Thepilotemisionstradingsystems.....................................................................................................12Nationalemisionstradingsystem.......................................................................................................15Readinesforemisionstrading............................................................................................................23Impactsofcarbonpricingoninvestment..............................................................................................27Carbonpricingincontext......................................................................................................................29LinkingChina’snationalETSwithothersystems..................................................................................30China’snationalemisionstargetsandpeakemisions........................................................................32Appendix1Keypoliciesisuedforthepilotsin2016-17.....................................................................34Appendix2CCERtradingto-date.........................................................................................................35Appendix3StatusofthenationalETSdesign......................................................................................38Appendix4Surveyquestionsandagregatedresponses....................................................................39Projectpartnersandfunders................................................................................................................50IVVcutive sumary Thisreportisasumaryofresultsfromthe2017ChinaCarbonPricingSurvey,jointlyconductedbyChinaCarbonForumCCF,ICFandSinoCarbon,withsfromtheDutchEmisionsAuthority,theTsinghuaUniversityCenterforChinaCarbonMarketResearch,andotherexperts.Thesurvey,undertakenfromlateMarchtoearlyJuly2017,obtainedexpectationsaboutthefutureofChina’scarbonpricefrom260stakeholders.Thesurveyisacolective“bestgues”bythesestakeholders.Itdoesnotclaimtoberepresentative,butitdoesprovideaclearindicationofdominantstakeholderviewsaboutthelikelyfutureofcarbonpricinginChina.Theprojectbuildsonsimilarsurveysconductedin2013and2015.ThissurveyreportcomesatacrucialtimeofglobalinterestinChina’sclimateaction,astheUSAannouncedinmid-2017itsintentiontowithdrawfromtheParisAgrement,andanannouncementofthestartofanationalETSinChinaisexpectedstilinlate2017.China is about to launch the largest carbon market in the world During2013and2014,pilotcarbonmarketswerelaunchedinfourmunicipalitiesBeijing,Chongqing,ShanghaiandTianjin,twoprovincesGuangdongandHubeiandthespecialeconomiczoneofShenzhen.Eachofthepilotshavenowcompletedeitherthreorfourcompliancecycles,providingusefulinationforfuturepolicydecisions.The2013and2015ChinaCarbonPricingSurveysaskedrespondentsfortheirexpectedcarbonpricesinthepilotregionsforfutureyears.Predictionscannowbecomparedwithrealpricesupto2016.Theactualaveragepricesin2016werewelbelowexpectations.Respondentstothe2013and2015surveyexpectedthatthepricesinthepilotswouldgradualyrise,whileinfacttheysteadilydecreasedfrom2014to2016.SincePresidentXiJinpingannouncedin2015thatChinawouldlaunchanationalETSby2017,preparationsforChina’snationalcarbonmarkethaveintensified.Requirementsforhigh-carbonemitingcompaniestoreporttheirhistoricalemisionsdatawereintroduced,andthatdatahastobesubjecttoanindependentverificationprocess.ThegovernmentisintheprocesofestablishingalegalbasisfortheETS,nowattheStateCouncillevel.Atimelineforaallawtobeissuedhasnotyetbenprovided,however.Capacitybuildingforcarbonmarketstakeholdershasbenunderwayforsometime,andisincreasingthroughtheestablishmentofregionalcapacitybuildingcentresinanumberofprovinces.ThesectoralcoverageatthebeginingofthenationalETSisnotyetclear.Eightmajorsectorsarerequiredtoreporttheiremisions,andareexpectedtoeventualybeincludedinanationalsystem.However,recentreportshavesugestedthatasfewasonetothreindustriesmaybecoveredinthesystem’sopeningphase.Draftalocationplansforthreesectorspower,cementandaluminiumwerereleasedbymediainMay2017.Theplansspecifybenchmarksforeachsectorandtheologyforcalculatingallowancealocation.EvenifonlythepowersectorisincludedatthebeginningofthenationalETS,itwillstillbethelargestintheworldbyalargemargin-theemisionscoveredwouldbeabouttwiceasmuchasarecurentlycoveredundertheEUETS.Governmentguidelinesongrenfinancereleasedin2016sugestthatsuportmaybeprovidedforthedevelopmentofamorediverserangeoffinancialproductsinthecarbonmarkethoweverthesearenotexpectedtobeintroducedfromthestartofnationalETS.VIRespondents Thesurveyreceived260responsesfromprofesionalsinarangeofsectors,includingindustry26,consultancies25,academia10,financialindustries7,tradingplats7andNGOs6.Otherrespondentsincludethosefromresearchinstitutes,localandnationallevelsoftheChinesegovernment,andmultilateral/bilateraldevelopmentorganizations.83ofcoveredindustryrespondentsexpectedtobeincludedintheforthcomingnationalETS,with59ofthemhavingparticipatedinthepilots.Itislikelythatonaverage,theindustryrespondentswhichrespondedtothesurveyhavemoreexperience,areatamoreadvancedstageofpreparation,andhavemorepositiveviewstowardsthecarbonmarketthanthosewhichdidn’trespond.Expectations about the national carbon market TheChinesegovernmenthasrecentlyreaffirmedatCOP23thatthenationalETSisstilexpectedtobeapprovedin2017.However,whenaskedbywhenChina’snationalETSwilbefulyfunctional,only47ofrespondentsexpectthistohappenby2020orearlier.Afurther4ofrespondentsexpectafulyfunctionalcarbonmarketbetween2021and2025.Sofar,thelegalbasisforthecarbonmarketisnotclear.Alargemajorityofrespondents63believethatthelegalbasisforthenationalETSshouldbeanationallawonclimatechangepasedbytheNationalPeople’sCongres.Aboutathirdofrespondents32believethataregulationbytheStateCouncilwouldbesuficient.Theseresultssugestthatifanactuallawisnotimmediatelypossible,attheveryleastthereshouldberegulationprovidedbytheStateCouncilatthebeginningoftheETS.AbouthalfoftherespondentsconsiderthattradinginthenationalETSshouldocuracrosseveralregionalplats,while37thinkthatthereshouldbeonenationalplat.14ofrespondentsthinkthatthereshouldbeemisionstradingexchangesineveryprovince.Themajorityofrespondents89believethatallorpartofunusedallowancesshouldbebankableforcompaniespreviouslycoveredbythepilotsystemsthatwiltransfertothenationalETS.RespondentsexpectthatcompanieswilbeabletotransferasetsfromthepilotsintothenationalETSwithouttotalylosingtheirvalue,howevertheyalsorecognisetheriskoffulbankingcontributingtoover-suplyinthemarket.Morethanhalfofindustryrespondentswerefromcompaniesthathadparticipatedinthepilotmarkets,andarethereforelikelytobemoreinfavourofbankingintothenationalETS.RespondentsfromcoveredindustrieswereaskedwhethertheythinkthattheirorganisationisadequatelypreparedtotakepartinanETS.Theareasinwhichrespondentswereleastpreparedincludedadministratingallowances44andcarbontrading41.VIIRespondentsexpectcarbonemisionstradingtoincreasinglyafectinvestmentdecisionsincomingyears.In2017,39ofthosewhoexpresedaview,expectinvestmentdecisionstobestronglyormoderatelyafected,andby2025thisfigurerisesto84.CarbonemissionstradingisexpectedtoincreasinglyafectinvestmentdecisionsFigure1Q3-1DoyouexpecttheETSinChinatoafectinvestmentdecisionsin201720202025N252,246,231WhenaskediftheyexpectChina’snationalETStobelinkedwithotherexistingtradingsystemsaroundtheworld,61believethatlinkingwiltakeplaceby2030.Ofthoseexpectinginternationallinkages,thevastmajorityexpectalinkwiththeEUETS,andsomeexpectalinkwiththeRegionalGrenhouseGasInitiativeRGGI,SouthKoreaand/orCalifornia. 11174628603843201318322017 2020 2025NoYes,marginalyYes,moderatelyYes,stronglyVIIPrice expectations TheaveragepriceexpectationinthenationalETSisCNY38/tonin2017;CNY51/tin2018;CNY74/tin2020;CNY108/tin2025.However,thepricelevelsremainhighlyuncertain,especiallyinthemoredistantfuture.The20thand80thpercentilesfor2025areCNY50/tandCNY200/trespectively.Thefuturepriceexpectationsaremuchhigherthanatthetimeofthe2015survey.Atthattime,averageexpectationwasCNY56/tin2020,andCNY70/tin2025.China’scarbonpriceisexpectedtosteadilyriseFigure1Rangeofpricesinthepilotsystemsto-date,andestimatedpricesforthenationalsystembysurveyrespondents. Therewereslightpricevariationsbetwenindustryandnon-industryrespondents,withindustryexpectinghigherpricesafter2018.OthersimilarsurveysconductedinEuropeandAustraliatendedtowardslowercarbonpriceexpectationsfromindustry.However,our2015Chinasurveyalsoshowedanindustrytendencytoexpecthigherprices.Carbon pricing in the mix of policy instruments RespondentswereaskedwhattheyexpecttobethemostimportantpoliciestoreduceGHGemisionsinfutureyearsFigure3.Theexpectationisthat,overtime,theemphasiswilshifttowardsETS,environmentaltax,inationdisclosure,andenergyallowancestrading.IXMarket-basedmeasuresareexpectedtobecomethemainpolicyinstrumentsFigure3Q3-3WhichdoyouexpecttobethemostimportantpoliciesinmotivatingcompaniestoreduceGHGemisionsinChinaatdifferentpointsintimeN256,253,257China’s emisions targets and peak emisions While63ofrespondentsexpectthatChinawilsticktoanemisionsintensitytargetfor2025,amajorityexpectsthatanabsoluteemisionstargetwilbesetfor2030.The