Earth Chat

What Is Hong Kong's Role in the National Market of Carbon Trading?




China has seen the earliest transactions and prices of the national carbon market (also known as "China ETS") in the past two months. It means the trading system developed since 2017 has for the first time completed the process from registry, book-keeping, actual trading to delivery. At this infant stage, all trading parties come from the electric power sector, and are yet to involve petrochemicals, aviation or cement. For the world's largest CO2 emitter and carbon market, this step forward is precious and remarkable, because it uses economic leverage to help with effective mitigation rather than relying on the command-and-control model as is often adopted in China. Having gained attention from global and domestic players, can the China carbon market fulfill its ambition and shift its growth paradigm? What can Hong Kong do in this process?


1. Why carbon trading can help with mitigation and save our planet?

  • Efficient or less polluting power plants can gain by selling its extra carbon credits to the market, while inefficient power plants have to pay and purchase these credits to satisfy the government-set industry cap.
  • It is no longer "free-of-charge" to pollute our planet. Traded price will become an economic incentive for environment-friendly and mitigation efforts, and for industrial players to upgrade their abatement facilities.
  • The rule maker can gradually cut the total credits (allowances) available in the market, so that the country moves towards the carbon neutrality target by 2060.
  • Traded price is also a proper measure of loss for some environment-related disputes.

2. Why power companies are the first to join?

  • China's electric power sector is the largest size of all, with 2,200 gigawatt (GW) installed by 2020. It is nearly doubling the size of the United States. The neighboring province of Guangdong is about four times larger than Hong Kong's power market.
  • Coal accounts for slightly under 50% of all power installations, and contributes to the greatest portion of China's CO2 emissions each year. It is desperately needed to phase down these coal-fired power plants, and encourage them to lower emissions as soon as possible.
  • Data quality in power sector is usually much better than in other sectors, because its generation and emission quantities are easier to measure/monitor (i.e. still an uneasy job).
  • We also have a somewhat similar problem in Hong Kong, because the HKSAR government has also promised to reach carbon-neutral by 2050 and lower emissions per capita to 3.3-3.8 tons in 2030. The largest contributor to these existing emissions in Hong Kong is also electric power.

3. Accuracy and strictness in China's carbon accounting

  • Both allowances and certified emission reductions (CCER) in the current market of China require accurate accounting and services of verification. They are used for daily trading, so it becomes a must to keep a highly professional standard.
  • Accounting for over 2,200 power companies across China is itself a challenge. Whether they meet or fail the preset cap depends on the accounting result.
  • Data quality issue will become the key to the success or failure of China ETS, which hopes to learn from the European Union ETS.

4. Hong Kong's role and conclusion

  • Hong Kong has a good track record of professionalism and accuracy. Our consulting services are top-standard, while serving global and regional clients properly. It is expected that China will need some well-credited experts and third-party institutions in this field.
  • Hong Kong also needs to develop our own renewable energy projects, to partially replace the existing coal and gas-fired power. For example, the offshore wind farm planned by CLP in Sai Kung's waters has been procrastinated for multiple years, and would need immediate efforts and public calls for timely implementation.
  • System-wise sustainability is important for both societies in mainland China and Hong Kong. Policies so far are not yet enough, and decision-makers need to step further.


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