Carbon-pricing mechanisms already exist in about 45 countries worldwide. Now, China, the world’s largest greenhouse gases emitter, is following in. On 16th July, China's long-awaited national carbon emission trade scheme (ETS) made its debut, eclipsing the size of the EU's ETS, previously the world’s largest, to be the world’s biggest. With no doubt, China's ETS brings it a step closer to achieving its goal of carbon neutrality by 2060.

Back in 2013, China launched pilot schemes in seven provinces or cities including Shenzhen, Beijing, and Shanghai. However, the fragmented regional carbon markets coupled with falsified emission data by some emitters have forced the Chinese government to set up the national ETS on robust monitoring and reporting.

Currently, China's ETS, based on a cap-and-trade model, covers only coal and gas-fired power plants, and aims to expand to more industries such as oil, chemicals, etc. Unlike its counterparts in developed countries including the EU and Canada, China's ETS focuses on reducing the intensity of emission generation instead of absolute emission. In 2019, China emitted 27% of global carbon emissions, or over 10 billion tons of carbon dioxide. Nevertheless, its per capita emissions, about 6.8 tons of CO2 per person, are less than half those of countries including the United States, Australia and Canada.

Though it’s a positive sign that China's ETS has started, it does face several challenges and shortcomings. For instance, the initial allowances are too generous and the prices for them are too low. However, this in theory means higher future prices for carbon, resulting in opportunities for carbon investors too. Let's watching closely.