China is the largest emitter of greenhouse gases (GHG) and many major Chinese cities had severe air pollution through the 2010s,[3] with the situation improving in the 2020s.
[4] The scheme is run by the Ministry of Ecology and Environment,[1] which eventually plans to limit emissions from six of China's top carbon dioxide emitting industries.
[6] China promised in the Conference of Parties to reduce their carbon intensity per unit of GDP by 60–65% by 2030.
The goal is to create an international market through exchanges where allowances are traded and carbon emissions are monitored and reported.
[8] In the 2010s, China implemented seven pilot carbon markets in various zones that thrive on production of cement, electricity, heat, petroleum and oil extraction.
These zones are: Beijing, Chongqing, Guangdong, Hubei, Shanghai, Shenzhen and Tianjin, which represent 25% of China's total GDP.
[citation needed] Through cap and trade, it is believed that both competitiveness and possibly carbon leakage will be reduced.
Each cap and allowance was assigned to the cities according to their purpose,[clarification needed] production rates, or ability to pass along the costs of carbon along the consumer chain.
These penalties include: a reduction of free allowances, a threat to publicizing said status in order to create social pressure, a two-year restricted access to special funds for energy research and if an excess of emission were to take place, the zone's government or company would have to pay three times the original allowance price.
[8] Chinese leader Xi Jinping publicly announced China's intention to develop a national carbon emissions trading system during a 2015 visit to the United States White House.
[9]: 76 China's Thirteenth Five-Year Plan (covering 2016–2020) required that the government develop regulations for the national system.
[10]: 47 In December 2017, China's National Development and Reform Commission (NDRC) announced the creation of the system.
In order to aid the design of implementation details in China's national carbon trading scheme, each of the pilots was given the freedom to decide values for trading scheme parameters such as allowance allocation, coverage of sectors, and punishment mechanisms.
Funding required for verification was supplied by the local government rather than the enterprise, in order to reduce the compliance burden.
In all pilots, enterprises needed to pay the cost of trading, which was a two-way charging scheme.
[clarification needed] In order to ensure stability in the carbon market, each pilot set a price limit based on the closing price of carbon in the previous compliance period, as well as limits on maximum allowance holdings for enterprises.
[needs update] The carbon price for Shenzhen and Guangdong were the greatest, ranging from 60 to 80 CNY.