Navigating China's carbon landscape

Clarifying the scope of carbon neutrality in due course, publishing GHG inventories continuously and improving the design of national carbon market rules gradually are some important measures

China's carbon market reached a historic milestone in April as the carbon price topped 100 yuan ($13.84) for the first time since the market was launched in mid-2021. At that time, the price averaged about 50 yuan. China's emissions trading system is the largest carbon trading market globally, covering more than 2,000 key emitters from the power sector. Future plans include adding other heavy emitters such as iron and steel factories.

While the carbon market serves as a pivotal platform for emissions reduction efforts that promotes low-carbon development, carbon accounting emerges as a vital tool for assessing and tracking emissions, providing the necessary scientific basis for devising effective reduction strategies.

Carbon accounting refers to the quantification of the greenhouse gases or carbon dioxide within a certain boundary. The quantification of changes in their quantities is often referred to as inventories. Carbon accounting is not just a "cross-section "data, but emissions and removals over a continuous period of time. The series of technical guidelines published by the Intergovernmental Panel on Climate Change is currently the most widely applicable accounting guide. The principles that need to be followed in carbon accounting include transparency, continuity, comparability, completeness and accuracy.

Different countries carry out localized transformation when applying the IPCC methodology. For example, in Europe, the European Union Emissions Trading System is the earliest and largest regional carbon trading market, and the carbon emissions monitoring-reporting-verification mechanism is the most important part.

The EU Monitoring and Reporting Regulation and the EU Certification and Verification Regulation provide detailed requirements for monitoring-reporting-verification of emitting companies. The participants of the monitoring-reporting-verification system include facility operators, competent authorities, verifiers and certification entities and the operation process includes submission of monitoring plan, submission of annual emissions report, and verification of annual report.

China is building its carbon accounting system. At the sub-national level, the seven provincial and municipal carbon trading pilots launched in 2013 have all established monitoring-reporting-verification systems, and each local pilot has developed its own carbon accounting and reporting guidelines or local standards respectively and gained certain experience. At the national level, the Ministry of Ecology and Environment has initially established a GHG emissions reporting system for key enterprises, issued guidelines for GHG emissions accounting and reporting for 24 industries such as power generation, power grid, iron and steel, chemical industry, and electrolytic aluminum, and reference guidelines for verification. In 2019, the Ministry of Ecology and Environment upgraded the carbon accounting and reporting requirements for power enterprises to a recommended national standard. With the launch of the national carbon trading market, the monitoring-reporting-verification system at the national level, which is mainly based on the power generation industry, has begun to be established.

However, China still faces several challenges in the establishment of the carbon accounting system. For example, there still exists a gap between the relevant norms in terms of legal effect, relevance, operability and uniformity. It lacks policies and regulations specifically targeting the monitoring-reporting-verification system, making it insufficient to mandate local governments and enterprises. Resource inputs and capacity, including the establishment of a comprehensive and effective carbon accounting methodology, are still limited.

The existing parameters of the calculation methodology cannot fully support carbon accounting. In addition, China also lacks unified specifications and sufficient supervision and assessment of local governments on the verification process and reports.

To improve the construction of the carbon accounting system in China, the country can prioritize the following. First, there is a need to clarify the scope of carbon neutrality in due course to promote domestic climate action in an integrated manner. The global goal of addressing climate change calls for achieving net-zero GHG emissions on all scales, and the Sunnylands Statement on Enhancing Cooperation to Address the Climate Crisis reaffirmed that both the Nationally Determined Contributions 2035 of the United States and China include all GHG.

Second, standardizing the carbon accounting of raw material energy consumption is an important part of ensuring the integrity of domestic carbon accounting. Carbon emissions from raw material energy are complex with long production chains and times. Most of the carbon in raw material energy is not emitted during the production process, but rather during its further use and waste of downstream products.

Special attention needs to be paid to ensure the dual carbon goals of peaking carbon dioxide emissions before 2030 and achieving carbon neutrality before 2060 can truly play a role in promoting the complete energy transition.

Third, compiling and publishing GHG inventories continuously is a key measure to improve the authority of carbon accounting. The accuracy of carbon accounting is premised on continuity. China has currently formed a working mechanism for the continuous compilation of national GHG inventories. China needs to gradually form a stable and continuous publishing mechanism, so as to evaluate the effectiveness of policy progress in a timely and effective manner.

Last but not the least, gradually improving the design of the national carbon market rules is an important support for the accuracy of enterprise accounting. Under the domestic carbon accounting standard, both indirect carbon emissions and direct emissions from the power and heating sectors are calculated, resulting in a dual accounting problem. As such, it is difficult to ensure the accuracy. It is necessary to improve the national carbon market gradually and limit the direct emissions of emitters by the allocation of allowances. There is also a need to improve the price transmission mechanism in the carbon and power markets and incentivize the reduction of power demand in order to reduce indirect emissions from power.

Li Cangshu is an associate research fellow at the Center for International Knowledge on Development. Zhou Taidong is vice-president of the Center for International Knowledge on Development. The authors contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.