(MENAFN - The Peninsula)
China’s emmissions trading scheme (ETS) is poised to surpass Europe to become the largest carbon market in the world, with carbon allowances of nearly four billion tonnes, Sandy Singh (pictured), Research Assistant at the Gas Market Analysis Department of the Doha-based Gas Exporting Countries Forum (GECF) has said in a report on ''EU carbon price and its impact on natural gas demand”.
China has launched its national ETS in January 2021, and is one of the key instruments needed to meet its enhanced climate change goals to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060
The China ETS will start trading later in June 2021 and its implementation will begin in the power sector, with 2,225 power plants whose historical annual emissions exceed 26,000 tonnes of CO2 equivalent, said Singh.
''The China ETS will differ from the EU ETS in that there is no emissions cap, but rather a rate-based allocation mechanism, which will vary according to plants production levels. In the first instance, entities will receive free allowances in proportion to their production levels. If they are able to reduce emissions beyond the applicable benchmark, then they can have surplus allowances. There are four distinct benchmarks: conventional coal plants below 300MW, conventional coal plants above 300MW, unconventional coal, and natural gas. Based on this design, China’s ETS would encourage coal power plants to improve efficiency and implement carbon capture, utilisation and storage (CCUS) technologies. However, the impact on coal-to-gas switching would be limited, as fuel-switching may not necessarily be economically feasible due to the multiple benchmarks,” Singh added.
Globally, there are existing emissions trading schemes and carbon taxes in over 60 countries. Government policies and regulations in this area are expected to continue to evolve and become more widespread as the world makes strides towards the energy transition.
''Such policies will incentivise the development of low carbon technologies and support the overall decarbonisation of the gas industry. In this regard, the GECF Member Countries will continue to support research and development of such technologies that will make gas more competitive and cement its role as a destination fuel. The Forum will also continue to facilitate dialogue amongst all industry players to share knowledge and experiences as it moves together towards a low carbon future,” said Singh.
To date, the European Union ETS, which was initiated in 2005, is the world’s oldest international emissions trading system aimed at achieving the EU’s climate change goals. It covers about 40 percent of EU’s greenhouse gas (GHG) emissions from the power, manufacturing, and aviation sectors and functions in all 27 EU member states plus Iceland, Liechtenstein, and Norway. In 2020, the EU ETS was resilient in the face of the COVID-19 pandemic and several important developments related to EU climate change took place. As of January, the EU ETS entered into its fourth trading phase (2021-2030).
The number of emissions allowances is expected to have an annual decline rate of 2.2 percent from 2021, an increase from 1.74 percent over the period 2013-2020, said Singh.
She added: ''EU carbon prices reached record daily highs above €50/tCO2 in early May, soaring above €56/tCO2 on May 14. In addition to climate change policies, colder than usual temperatures during the 2020/21 winter season also increased demand for electricity and heating, which in turn increased the demand for allowances and thus drove prices up. In 2021, record-high EU carbon prices have been recorded, and as gas demand continues to recover, there is great potential for coal-to-gas switching. But the market has also seen a very strong recovery in gas prices, which can potentially limit the magnitude and pace of coal-to-gas switching and thus reduce gas demand”.
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