Shenzhen plans to set up a carbon market fund to better manage local government revenue from the sale of carbon credits, as authorities across China respond to the nationwide call to cut emissions.
The move proposed by the southern metropolis, where a pilot carbon market has been operating for several years, comes as plans for a national carbon market are moving towards a more market-driven and regulated path. More broadly, China, the world’s largest carbon emitter, is considering how to meet its ambitions commitment limit greenhouse gas emissions before 2030 and achieve carbon neutrality by 2060.
The Shenzhen fund will manage the money generated from the sale of carbon emission allowances, with investments focused on building the city’s carbon market and projects to reduce greenhouse gas emissions, according to a draft plan (link in Chinese) released by the Shenzhen Bureau of Justice on June 10. The project, based on the city’s carbon emissions trading plan Posted (link in Chinese) in March 2014, is open for public comment until July 11.
By creating such a fund, revenue from the sale of carbon credits can be used solely for environmentally friendly purposes, rather than incorporated into government tax revenue.
The fund will try to raise more private capital to support the carbon market, according to a note accompanying the draft plan.
Carbon trading is seen as a effective tool to fight against climate change, because it makes polluters pay for any emissions of carbon dioxide or other greenhouse gases they produce above a set limit. This creates a strong financial incentive for companies to save energy and reduce their emissions. In this type of system, the government gives or sells companies a limited number of carbon credits, also called emission certificates, which allow them to emit a certain amount of greenhouse gases.
In 2011, China decided to pilot carbon trading in certain regions, including Beijing, Shanghai and Shenzhen, although most carbon credits are issued for free. As part of the pilot project, the chosen regions are currently selling around 5% of the allowances, according to an analyst said Caixin (link in Chinese).
Shenzhen’s new fund could help pave the way for a similar fund linked to the national carbon market, which will be operational by the end of June and will initially only include the state-dominated power generation sector. .
After an initial stage in which most credits will be issued for free under the national carbon market, the proportion of chargeable credits will gradually increase, according to a March 30 report. draft plan (link in Chinese) published by the Ministry of Ecology and Environment.
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To stay in line with the provisions of the March draft, Shenzhen also plans to set an absolute cap on the amount of carbon that can be emitted under the program, according to its draft plan.
The cap, in line with international practice, can help increase the proportion of credits paid and impose greater restrictions on carbon-intensive industries, analysts said.
Contact reporter Luo Meihan (meihanluo@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)
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