Everything you need to know about China's national carbon market

China hosts the world’s largest carbon market by emissions. One year ago, almost to the day, trading in carbon allowances began changing hands.

Over 2,100 liable coal and gas power stations participate in the compliance scheme, covering about 4.5 billion tonnes carbon dioxide (CO2e) per year - around 40% of China’s total annual emissions.

China’s allocation of emissions allowances is based on emissions intensity - each allowance represents the right to emit one tonne of CO2e. Allowances are allocated according to actual production levels of coal and gas fired power plants (e.g. kWh of electricity generated) and predetermined emissions intensity benchmarks (e.g. CO2/kWh).¹

This is very different from the approach taken by other emissions trading schemes (ETS) such as the EU’s where there is an absolute emissions cap. The design of the ETS is in line with China’s decarbonisation ambitions under its Nationally Determined Contribution (NDC), which includes a 65% reduction in carbon emission intensity (carbon emitted per yuan of GDP) by 2030, versus 2005 levels.