Main climate regulations, policies and authorities

International agreements

Do any international agreements or regulations on climate matters apply in your country?

China is a party to the United Nations Framework Convention on Climate Change, the Paris Agreement and the Kyoto Protocol. China has formulated the National Climate Change Programme and China’s Special Scientific Action Plan for Climate Change, China issued White Papers on Policies and Actions to Address Climate Change to promote the adoption of the Beijing Declaration on the Development and Transfer of Technology to Address Climate Change, and is actively promoting national legislation to cope with climate change.

International regulations and national regulatory policies

How are the regulatory policies of your country affected by international regulations on climate matters?

Influenced by international climate regulations, China has established a multi-tiered system for energy conservation and resource management at the central, local, industrial and enterprise levels. The state will set up a system of labelling for the resource consumption level (such as energy efficiency) of products and constantly improve it. Specific regulatory measures include the elimination of inefficient power stations and factories; environmental management, energy efficiency labelling and certification for urban and rural areas; and restraining the expansion of energy-intensive industries. China is actively promoting energy conservation and emission reduction and has reduced the use of fossil energy, vigorously developed renewable energy and developed new energy vehicles and so on. It has actively developed low-carbon agriculture and sustainable forest management for creating a carbon sink.

Main national regulatory policies

Outline recent government policy on climate matters.

China has issued the Work Plan for Greenhouse Gas Emission Control during the 13th Five-Year Plan Period, the National Plan on Responding to Climate Change (2014-2020 years), the National Strategy of Climate Adaptation and other major policy documents. Specific policy aspects are setting up financial reward funds for energy-saving technology and special funds for major pollutants emission reduction, reform of fuel consumption tax, tax preferential policy on energy conservation and cleaner production technology, control of carbon emission intensity, establishment and operation of a carbon emission trading market in China, and establishment of the information disclosure system for greenhouse gas (GHG) emission.

Main national legislation

Identify the main national laws and regulations on climate matters.

The main laws and regulations are:

  • the Energy Conservation Law;
  • the Renewable Energy Law;
  • the Agriculture Law;
  • the Forest Law;
  • the Cleaner Production Promotion Law;
  • the Circular Economy Promotion Law;
  • the Desert Prevention and Transformation Law;
  • the Regulations on Restoring Farmland to Forest;
  • the Measures for the Operation and Management of Clean Development Mechanism Projects;
  • the Interim Measures for the Administration of Voluntary Transactions for Greenhouse Gas Emission Reduction Transactions; and
  • the Interim Measures for the Administration of Carbon Emission Permit Trading and so on.
National regulatory authorities

Identify the national regulatory authorities responsible for climate regulation and its implementation and administration. Outline their areas of competence.

Before 2018, the National Development and Reform Commission of the People’s Republic of China set up the Department of Climate Change Response. This is mainly responsible for comprehensively studying the international situation and major national developments of climate change issues, analysing the impact of climate change on China’s economic and social development and proposing general countermeasures. China will take the lead in formulating major strategies, plans and policies to address climate change, organise the implementation of specific measures and actions related to climate change mitigation and adaptation, organise awareness campaigns to combat climate change, and study and propose relevant laws and regulations. China will also organise the development, updating and implementation of national programmes to address climate change and guide and assist in the development and implementation of sectoral and local programmes; take the lead in national implementation of the United Nations Framework Convention on Climate Change; organise the preparation of national implementation communications; and be responsible for the preparation of national GHG emission inventories.

The Climate Change Division will study and put forward the overall policies and programmes for the participation of China in international negotiations on climate change, take the lead in formulating and implementing specific negotiating proposals, and, together with relevant parties, take the lead in participating in international negotiations and relevant international conferences. It is responsible for formulating plans for capacity-building to cope with climate change and coordinating scientific research and systematic observation in the field of climate change. It will formulate management measures for foreign cooperation in response to climate change, organise and coordinate major foreign cooperation activities in response to climate change, carry out relevant multilateral and bilateral cooperation activities in response to climate change, and examine the sensitive data and information involved in foreign cooperation activities. It is responsible for the work of the Clean Development Mechanism (CDM), and it takes the lead in organising the review of CDM projects, supervising the activities of the China Clean Development Mechanism Fund, and organising research on the GHG emission market trading mechanism. It will take on the specific work of the National Leading Group on Climate Change and Energy Conservation and Emission Reduction, manage the response to climate change and guide and liaise with local governments in their efforts to address climate change. In 2018, the Department of Climate Change Response was transferred to the Ministry of Ecology and Environment of the People’s Republic of China.

General national climate matters

National emissions and limits

What are the main sources of emissions of greenhouse gases (GHG) (or other regulated emissions) in your country and the quantities of emissions from those sources? Describe any limitation or reduction obligations. Do they apply to private parties in your country?

The consumption of fossil energy is the main cause of GHG emissions, and the industrial sector is the main source of emissions.

In 2015, China submitted to the Secretariat of the United Nations Framework Convention on Climate Change a national independent contribution document to address climate change. The ‘Enhanced Actions on Climate Change: China’s Intended Nationally Determined Contributions’ promised that by 2030, carbon dioxide emissions per unit of GDP will drop by 60-65 per cent compared with 2005, the share of non-fossil fuels in primary energy consumption will be increased to around 20 per cent, and forest reserves will increase by about 4.5 billion cubic metres.

National GHG emission projects

Describe any major GHG emission reduction projects implemented or to be implemented in your country. Describe any similar projects in other countries involving the participation of government authorities or private parties from your country.

As a developing country, China has implemented a series of emission reduction projects under the CDM, including energy construction projects such as hydro, solid waste treatment, sustainable forests, and a rural biogas CDM project.

Domestic climate sector

Domestic climate sector

Describe the main commercial aspects of the climate sector in your country, including any related government policies.

The Implementation Opinions on Government Procurement of Energy-Saving Products and the Notice on Establishing a Compulsory Government Procurement System for Energy-Saving Products and other policy documents have established a compulsory government procurement system for energy-saving products and implemented green public procurement. The following documents are regularly updated: List of Government Procurement of Energy-Saving Products and List of Government Procurement of Environmental Marking Products. It stipulates that when government agencies at all levels use government funds for government procurement activities, they shall give priority to purchasing energy-saving products and carry out compulsory procurement of some products that meet the requirements for energy conservation, such as energy efficiency and performance, on the premise that technical and service indicators meet procurement needs, reducing energy costs for government agencies. It is also establishing a unified carbon market in the country and promoting carbon emissions trading among companies.

General GHG emissions regulation

Regulation of emissions

Do any obligations for GHG emission limitation, reduction or removal apply to your country and private parties in your country? If so, describe the main obligations.

China has not undertaken the compulsory obligation to reduce emissions under the United Nations Framework Convention on Climate Change, but promises to make voluntary emission reductions. In accordance with domestic law, Chinese private enterprises have a legal obligation to save energy and reduce emissions.

GHG emission permits or approvals

Are there any requirements for obtaining GHG emission permits or approvals? If so, describe the main requirements.

China has not yet established a system of GHG emission permits or approvals.

Oversight of GHG emissions

How are GHG emissions monitored, reported and verified?

The National Development and Reform Commission, in conjunction with the competent departments of relevant industries, formulates measures for the management of enterprise emission reports, and improves the guidelines and technical specifications for the accounting and reporting of corporate GHGs. The competent departments responsible for climate change are provinces and municipalities separately listed on the State Plan under the National Social and Economic Development programme, which organise and carry out data auditing and reporting. Major emission entities must report carbon emission data in a timely manner according to the regulations. Local competent departments must organise third-party verification agencies to verify the annual emission reports and supplementary data tables submitted by enterprises (or other economic organisations; all referred to as enterprises below) and to examine the emission monitoring plans. Major emission entities and verification institutions are responsible for the authenticity, accuracy and completeness of the data. The process is as follows: first, enterprises account for and report GHG emissions and related data on an annual basis in accordance with the requirements of the enterprise’s GHG emission accounting methods and reporting guidelines. In addition, according to the need for quota allocation, enterprises are required to account for and report other relevant basic data not covered by the above-mentioned guidelines, and to develop and submit emission monitoring plans as required. These are used to regulate the monitoring and accounting activities of GHG emissions of relevant enterprises. Second, the local authorities organise third-party verification agencies to verify annual emission reports and supplementary data sheets submitted by enterprises and to review emission monitoring plans. Finally, the competent local authorities organise the review of the emission reports submitted by enterprises and the verification reports and monitoring plans issued by the third-party verification agencies, and ensure the quality of the data by means of random inspection and expert review according to the actual conditions.

GHG emission allowances (or similar emission instruments)

Regime

Is there a GHG emission allowance regime (or similar regime) in your country? How does it operate?

The carbon trading department under the State Council shall, according to the requirements of national GHG emission control objectives, give comprehensive consideration to GHG emissions, economic growth, industrial structures and energy structures. The major emission entities eligible for trading and other factors of the state, as well as the provinces, autonomous regions and municipalities directly under the Central Government, determine the total emission quotas of the state. Emission quotas will be mainly assigned for free during the initial period. Paid use of emission quotas will be introduced in due time and the proportion of paid use will be gradually increased. The carbon trading department under the State Council will reserve a certain amount of quotas from the total emission quotas for paid use, market regulation and major construction projects etc. Earnings obtained from paid use will be spent on promoting carbon reduction by the state and relevant capacity building. The carbon trading department under the State Council will, in light of the specific circumstances of the different industries and with reference to the opinions of the relevant industry authorities, determine uniform methods and standards for free use of quotas. All provinces, autonomous regions and municipalities directly under the Central Government may, in light of their local realities, formulate and implement methods and standards that are more strict than the uniform national methods and standards for the free use of quotas. The carbon trading department under the State Council will be responsible for establishing and managing the carbon emission permit trading registration system (the registration system) which is used for recording the holding, transfer, payment, cancellation and other relevant information of the emission quotas. The information in the registration system shall be the final basis for determining the ownership of the emission quotas. Accounts with different functions will be respectively opened for the carbon trading department under the State Council, the provincial carbon trading departments, major emission entities, trading institutions and other market participants etc in the registration system. After opening accounts according to the corresponding requirements of the carbon trading department under the State Council, participants may conduct relevant business operation of quotas management in the registration system.

Registration

Are there any GHG emission allowance registries in your country? How are they administered?

Pilot provinces and cities for carbon emissions trading have specific provisions. For example, the Measures for the Administration of Beijing’s Carbon Emission Permit Trading (for Trial Implementation) stipulates that the Municipal Development and Reform Commission shall establish a carbon emission permit trading registration system for the issuance of quotas and the management of contract implementation. Major emission entities and voluntary trading units will register and manage their carbon emission rights through the register book, including the possession, transfer, alteration, surrender, offset and cancellation of carbon emission rights.

Obtaining, possessing and using GHG emission allowances

What are the requirements for obtaining GHG emission allowances? How are allowances held, cancelled, surrendered and transferred? Can rights in favour of third parties (eg, a pledge) be created on allowances?

China is drawing up an Interim Regulation of National Administration of Carbon Emission Permit Trading. Carbon emission quotas follow the principles of ‘uniform industry distribution standards’, ‘total emission quotas in different areas’ and ‘flexible adjustment of reserved quotas’. The National Development and Reform Commission determines the regional total quotas according to GHG emissions, economic growth, industrial structure, energy structure and other factors, and reserves some quotas for paid distribution, market regulation and major projects construction. Local governments allocate local quotas to enterprises that control emissions in accordance with the allocation standards set by the Development and Reform Commission. Quota pledge and other programmes are being explored.

Trading of GHG emission allowances (or similar emission instruments)

Emission allowances trading

What GHG emission trading systems or schemes are applied in your country?

China initially focused on voluntary GHG emission reduction transactions. In 2011, seven provinces and cities (including Beijing, Tianjin, Shanghai and Guangdong) carried out pilot projects on carbon trading and tried to implement compulsory emissions reduction trading. Taking the Beijing Environmental Exchange as an example, the types of transactions include carbon emission quotas; approved carbon emission reductions; available and approved carbon emission reductions, including certified voluntary emission reductions; carbon emission reductions for energy conservation projects; and forestry carbon sink projects carbon emission reductions.

Trading agreements

Are any standard agreements on GHG emissions trading used in your country? If so, describe their main features and provisions.

China has regional emission exchanges such as Beijing and Tianjin etc. They all have standard agreements, but they are not exactly the same. Taking Beijing as an example, the main terms are the declaration of the two parties; opening a transaction fund account; the declaration of the transaction; deposit and withdrawal of funds; application for reservation; alteration and termination of the transaction, the authorised representative of the trader; liability and exemption clauses of the two parties; settlement of disputes; and supplementary provisions.

Sectoral regulation

Energy sector

Give details of (non-renewable) energy production and consumption in your country. Describe any regulations on GHG emissions. Describe any obligations on the state and private persons for minimising energy consumption and improving energy efficiency. Describe the main features of any scheme for registration of energy savings and for trade of related accounting units or credits.

For a long time, China’s energy structure has been dominated by coal, and the pressure to reduce emissions is enormous. In June 2015, China pledged to reduce carbon dioxide emissions per unit of GDP by 60-65 per cent compared with 2005. China has enacted regulations on industrial energy conservation, construction energy conservation and transport energy conservation through the Energy Conservation Law and other relevant laws. Fujian, Jiangsu and other regions have tried out industrial projects and construction energy conservation trading systems.

Other sectors

Describe, in general terms, any regulation on GHG emissions in connection with other sectors.

In the industrial sector, the promotion of new low-carbon technologies and technologies strengthening the construction of energy and carbon emission management systems for enterprises and strengthening the carbon emission management of enterprises have resulted in the carbon emissions per unit of product of energy-consuming products reaching the advanced level of the world. Promoting pilot and demonstration projects of carbon capture, utilisation and storage in industrial areas do well in environmental risk appraisal. The state encourages industrial enterprises to adopt efficient and energy-saving motors, boilers, kilns, fans, pumps and other equipment as well as technologies of cogeneration of heat and power, waste heat and pressure generation, clean coal and advanced energy consumption monitoring and control etc. It is prohibited to build any new coal-burning, fuel-burning or coal-burning thermoelectric generation facilities inconsistent with state provisions.

In agriculture, zero growth action in fertiliser usage, popularising soil testing formulas and fertilising technologies, reducing nitrous oxide emissions from farmland, controlling methane emissions from farmland, breeding improved varieties with high yield and low emissions, and improving water and fertiliser management have been implemented. Farmland quality protection and improvement action, promoting straw for returning to the field, increasing the application of organic fertilisers and strengthening the construction of high-standard farmland, have been introduced, implementing the rural biogas CDM project.

In transport, the state encourages the development, production and use of energy-saving and environmentally friendly cars, motorbikes, railway locomotives, ships and other vehicles, and implementation of a system for scrapping and updating old transport vehicles. The relevant department under the State Council sets down fuel consumption quotas for transport vehicles, and any vehicle that does not meet the quota may not be operated. The state encourages the development, expansion and use of clean fuels and petroleum-alternative fuels by transport vehicles.

Renewable energy and carbon capture

Renewable energy consumption, policy and general regulation

Give details of the production and consumption of renewable energy in your country. What is the policy on renewable energy? Describe any obligations on the state and private parties for renewable energy production or use. Describe the main provisions of any scheme for registration of renewable energy production and use and for trade of related accounting units or credits.

The state has set national long- and medium-term total targets for the development and utilisation of renewable energy, subsidising the on-grid electricity of electricity generation by using renewable energy. A voluntary subscription system for renewable energy green power certificates has been established. According to the market subscription situation, renewable energy quota assessment and green power certificate mandatory restraint transactions will be launched in 2018. Green power certificates can be formally listed on the national green power certificate subscription platform for sale. Power generation enterprises that have obtained green power certificates can formally sell green power certificates on the national green power certificate subscription platform. The subscription price will be determined by the buyers and sellers themselves through consultation or through competitive bidding according to the amount of additional capital subsidy for renewable energy pricing that is no higher than the corresponding level of the certificate.

Wind energy

Describe, in general terms, any regulation of wind energy.

China supports the industrialisation of wind power generation equipment. It has implemented a price sharing and compensation mechanism for wind power projects and supports building the capacity for wind power technology development, establishing a National Centre for research and development of wind turbines and their components, with an emphasis on supporting the technical research and development of wind turbines and main components and the construction of test facilities. It has also implemented a value-added tax and income tax reduction and exemption system for renewable energy power technology.

Solar energy

Describe, in general terms, any regulation of solar energy.

In drawing up the annual generation plan, the government gives priority to reserving generating space for clean energy units such as hydro, wind power and photovoltaic power. It encourages the participation of clean energy generation the market, and the amount of electricity that has been determined through marketisation of direct transactions can be deducted from the power generation plan. Enterprises, specialised energy service companies and various types of power users, including individuals, are encouraged to invest in the construction and operation of distributed generation projects. Construction fund subsidies or generating capacity subsidies shall be granted to eligible distributed power generation entities. Subsidies for distributed photovoltaic power stations will be provided and financial services will be provided for the development of distributed photovoltaic power.

Hydropower, geothermal, wave and tidal energy

Describe, in general terms, any regulation of hydropower, geothermal, wave or tidal energy.

China has adopted preferential value-added tax policies for large hydropower enterprises, supports and subsidises rural hydropower expansion and transformation and continues to implement low-interest loans for small hydropower.

There is a focus on supporting geothermal resource exploration and assessment, geothermal heating and refrigeration projects, and power generation and comprehensive utilisation demonstration projects. The price of electricity for geothermal power generation by commercial operation projects is subsidised. Geothermal energy utilisation projects implemented through energy performance contracting can enjoy preferential tax policies, the market guarantee mechanism for geothermal energy utilisation system has been improved and there is vigorous promotion of the development and utilisation of shallow geothermal energy.

Waste-to-energy

Describe, in general terms, any regulation of production of energy based on waste.

The state encourages agricultural producers and the relevant enterprises to take advantage of advanced or applicable technologies to make comprehensive utilisation of crop straws, livestock and poultry excrements, byproducts of the agro-product processing industry and waste agricultural films, and to develop and use biogas and other biomass energies. It promotes harmless disposal of industrial waste, construction waste, sewage treatment plant sludge and other wastes, and recovery of resources from these, and encourages the development of waste incineration and power generation in areas where conditions permit.

Biofuels and biomass

Describe, in general terms, any regulation of biofuel for transport uses and any regulation of biomass for generation of heat and power.

China has formulated a preferential taxation policy on biomass energy in the Catalogue of Value-Added Tax Preferences for Products and Labour Services Involving the Comprehensive Utilisation of Resources.

Carbon capture and storage

Describe, in general terms, any policy on and regulation of carbon capture and storage.

China’s carbon capture and storage policy is in development. In 2011, China set up an oxygen-enriched combustion carbon capture test base in Wuhan and officially put it into operation.

Climate matters in transactions

Climate matters in M&A transactions

What are the main climate matters and regulations to consider in M&A transactions and other transactions?

It is necessary to conduct carbon investigations for the relevant enterprises and take into account the carbon assets and their management of the enterprises.

Update and trends

Emerging trends

Are there any emerging trends or hot topics that may affect climate regulation in your country in the foreseeable future?

Emerging trends27 Are there any emerging trends or hot topics that may affect climate regulation in your country in the foreseeable future?

First, under the background of administrative structural reform in China, the climate change response has been incorporated into the competence of the Ministry of Ecological Environment. The Ministry of Ecological Environment makes a unified plan for climate change from the perspective of ecological and environmental protection.

Secondly, in the future, an important trend in China’s climate control is to improve the carbon emission trading market and use market mechanisms to promote emission reduction.