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Participating in the carbon emission trading scheme in China: six details you need to know

2021.09.07 ZHU, He (George)NI, Tianling (Carey Nee)、Wang Zhengming、Ning Yingge

Introduction: Following the local emission trading markets’ pilot programs, the National Carbon Emission Trade Scheme (“National ETS”) was officially launched on July 16, 2021. Since the establishment of goals such as “carbon peak” and “carbon neutrality”, we have noticed that more investors (including foreign investors) want to join the local carbon emission trading markets in China. We have compiled our responses to several questions that potential investors may have.

Question 1: Has the National ETS been launched? At this stage, what types of companies can participate?

Answer: Yes. The National ETS has been officially launched, and over 2,000 registered companies in the electric power industry in China are now able to directly participate in trading. The scope of the participants will be gradually extended to companies in other industries. Further information can be found in our previous newsletter: National Carbon Emission Trade Scheme Officially Launched.

Question 2: As the National ETS has been launched, can investors still participate in the local carbon emission trading markets?


Answer: Yes. At present, there are nine local state-filed carbon emission trading exchanges across the country, which are in Beijing, Tianjin, Shanghai, Chongqing, Shenzhen, Guangzhou, Hubei, Sichuan, and Fujian.

Question 3: Considering that the National ETS has been launched, will the local carbon emission trading markets be integrated into the National ETS?

Answer: We have observed that the local carbon emission trading markets will run in parallel to the National ETS for a period of time, subject to further clarification from the regulatory authorities as to their integration plans (e.g., how and when the local carbon emission trading markets will be integrated into the National ETS).

Question 4: What are the requirements of the local carbon emission trading markets for investors when investors apply for membership of such local exchanges?

Answer: Investors should be aware that the local carbon emission trading exchanges have different membership policies and application requirements, and the local exchanges also have different rules and requirements for different categories of membership. For example, the China Emission Exchange (Shenzhen) (“Shenzhen ETS”) has two types of members: trading members and service members. The trading members are categorized into five categories: entrusted members, brokerage members, institutional members, natural person members, and public interest members. Each category has its particular requirements.

Question 5: Can foreign investors participate in the local carbon emission trading markets? 

Answer: Yes. However, the specific requirements vary from exchange to exchange. Foreign investors can participate in local carbon emission trading markets by establishing a foreign-invested enterprise in mainland China. A few local exchanges (e.g., the Shenzhen ETS) may allow companies incorporated outside mainland China (“Foreign Entities”) to participate directly, but such exchanges may impose restrictions on the trading products for Foreign Entities.

Question 6: Are there any special requirements for foreign investors to participate in the local carbon emission trading markets as compared to Chinese investors? 

Answer: We are not aware of any special requirements of the local carbon emission trading exchanges for foreign investors in terms of membership application. However, for Foreign Entities which participate directly in the local carbon emission trading markets, they are obliged to open a Non-Resident Account (“NRA”) with a bank designated by the respective exchange for emission trading.

We will continue to pay attention to the status of and investment path for the trading of carbon emission allowances, CCER, and carbon trading-related financial products (including financial derivatives) in connection with the national and local carbon trading markets, and we will also continue to share and discuss the relevant topics with you. If you are interested in topics regarding the establishment of investment entities, the opening of accounts with carbon emission exchanges, the opening of Non-resident Accounts, and carbon trading, please contact us via email: ecoenvpro@junhe.com. 

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