Climate Change Regulation 2023 Comparisons

China attaches great importance to addressing climate change. As the world’s largest developing country, China actively and constructively participates in international negotiations on climate change and deepens multilateral co-operation mechanisms. China adheres to the principles of fairness, common but differentiated responsibilities and respective capabilities, and the principles of openness, transparency, broad participation, contracting-party driven emphasis and consensus, guiding and promoting the realisation of important outcome documents such as the Paris Agreement.

In terms of willingness and action, China has implemented a series of strategies, measures and actions to address climate change, participated in global climate governance, continuously strengthened its participation in international climate negotiations, actively mitigating and adapting to climate change, convention implementation, and provision of climate governance plans, achieved positive results in addressing climate change, and pushed international climate governance in a new direction.

• China acceded to the UNFCCC on 4 June 1993. As a Party, China participates in the annual Conference of the Parties (COP) meetings and negotiation processes and presents its positions and initiatives at the meetings.
• China formally acceded to the Kyoto Protocol on 29 May 2002 and is actively involved in its implementation, promoting the development of Clean Development Mechanism (CDM) projects, and reducing greenhouse gas emissions through these projects.
• China officially joined the Paris Agreement on 3 September 2016. As a developing country, China has developed its own NDCs, committing to peak emissions and working towards reducing carbon intensity by 2030.
• In 2019, China officially established the International Coalition for Green Development on the Belt and Road, creating a platform for policy dialogue and communication, environmental knowledge and information, and green technology exchange and transfer for the “Belt and Road” green development co-operation. As of January 2021, China had launched ten low-carbon demonstration zones, 100 climate change mitigation and adaptation projects, and 1000 training quotas for addressing climate change in developing countries.

In view of the insufficient supply of funds, technology and international leadership in the field of international climate governance, China has taken the initiative to assume the role of a key participant, important contributor and leader, put forward China’s climate governance concepts and plans, and built the “Green Development Road” as an important part of the “Belt and Road” initiative. China has provided financial, technical and equipment support to many developing countries, and promoted the adoption and active implementation of the Paris Agreement.

China has established a “bottom-up” new model for global greenhouse gas emissions reduction, proposed and continuously improved national independent contribution goals, and played an important role in promoting the establishment of fair, reasonable and win-win climate change co-operation relationships.

China attaches great importance to promoting regional co-operation, working together with developing countries to address climate change, and promoting the development of regional legal systems.

Implementation of the “Belt and Road” South-South Co-operation Plan on Climate Change

China has been implementing the “Belt and Road” initiative since 2013 and set up the China South-South Climate Co-operation Fund in 2015. South-South co-operation on climate change is an important area in implementing the Paris Agreement and promoting global co-operation on climate change.

In 2019, China officially established the International Alliance for Green Development, creating a policy dialogue and communication platform for the “Belt and Road” green development co-operation environmental knowledge and information platform, green technology exchange and transfer platform.

In 2021, China and 28 countries launched the “Belt and Road” green development partnership initiative and continued to improve the “Belt and Road” green development international partnership construction. The initiative calls on all countries to take climate action based on the principles of fairness, common but differentiated responsibilities and respective capabilities, in accordance with their respective national conditions, to address climate change.

As of January 2021, China had launched ten low-carbon demonstration zones, 100 climate change mitigation and adaptation projects, and 1000 training quotas for addressing climate change in developing countries.

Promotion of Regional Co-operation in Addressing Climate Change in Asia and the Pacific

China has actively participated in regional co-operation mechanisms in Asia, Southeast Asia and the Pacific, such as the Asian Development Bank (ADB) and the Asia-Pacific Economic Cooperation (APEC), and jointly formulated the Framework of ASEAN-China Environmental Co-operation Strategy and Action Plan (2021-2025). These mechanisms provide a platform for member countries to jointly respond to climate change, share experience and technology, and formulate regional climate change policies and legal frameworks.

Promotion of the Establishment of Other Multilateral Consultation Mechanisms

China has promoted the establishment of multilateral consultation mechanisms such as the Ministerial Conference of the “BASIC Countries” (Brazil, South Africa, India, China) and the Ministerial Conference on Climate Action, actively co-ordinating the climate change negotiation positions of the “BASIC Countries”, “Like-Minded Developing Countries” and the “Group of 77 and China”.

China and the African Union (AU) jointly issued the Declaration on China-Africa Cooperation in Addressing Climate Change and launched the China-Africa Three-Year Action Plan to Address Climate Change.

China actively participates in climate negotiations under the frameworks of the Group of Twenty (G20), the International Civil Aviation Organization, the International Maritime Organization and the BRICS Conference, mobilising the synergy of multiple channels and promoting the continuous progress of multilateral processes.

Since 2012, China has implemented the new development concept and made active adaptation to climate change an important part of its national strategy to actively respond to climate change. It has actively carried out adaptation actions in key regions and fields, continuously increased the reduction of carbon emissions intensity, continuously strengthened the goal of independent contribution, increased efforts to respond to climate change, and promoted a comprehensive green transformation of economic and social development.

China’s climate change policy formulation process fully considers the achievements of current climate change science and references the multilateral climate change system. In response to the IPCC report, China has set the goal of reducing carbon intensity, controlling total energy consumption, and increasing the proportion of non-fossil energy through national independent contribution and long-term, low-carbon development strategy to promote greenhouse gas emission reduction.

Build a “1+N” National Policy System for China to Achieve Carbon Peaking and Carbon Neutrality

“1” is the guiding ideology and top-level design for China to achieve carbon neutrality, playing a leading role in the carbon peak carbon neutrality “1+N” policy system, including the “Opinions on Fully and Accurately Implementing the New Development Concept to Achieve Carbon Neutrality” and the “Action Plan for Carbon Peak before 2030” released in October 2021, which clarify the timetable, roadmap and construction plan for China to achieve carbon peak carbon neutrality.

“N” is an implementation plan and related support plan for key areas and industries, including energy, industry, transportation, urban-rural construction, agriculture and rural areas, pollution reduction, carbon reduction and other key areas, as well as security plans for key industries such as coal, oil and gas, steel, non-ferrous metals, petrochemical and chemical engineering, building materials, and technology support, financial support, statistical accounting and other security plans.

China Formulates a Medium- to Long-Term Greenhouse Gas Emission Control Strategy

In 2015, the Chinese government promised, in its national development plan submitted to the Paris Conference, to reach its peak carbon emissions by around 2030. In October 2021, China officially submitted the “New Measures for Implementing National Independent Contribution Achievements and New Goals” and “China’s Long-Term Low Emission Development Strategy for Greenhouse Gases in the Mid Century”, updating its nationally determined contribution (NDC) targets.

China has put forward a new goal of national independent contribution, which is to reach the peak of carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. China’s carbon dioxide emissions per unit GDP will fall by more than 65% compared with the level in 2005, non-fossil energy will account for about 25% of primary energy consumption, forest storage will increase by 6 billion cubic meters compared with 2005, and the total installed capacity of wind and solar energy will reach more than 1.2 billion kilowatts.

China has also formulated a long-term development strategy for low greenhouse gas emissions. China has proposed the basic policy, strategic vision and technological path for achieving carbon neutrality before 2060 for the long-term development of low greenhouse gas emissions in the middle of this century. It has deployed strategic priorities in ten areas, including economy, energy, industry, urban-rural development and transportation. By 2060, a clean, low-carbon, safe and efficient energy system will be fully established, with energy utilisation efficiency reaching international advanced levels, and the proportion of non-fossil energy consumption reaching over 80%.

China Formulates and Implements National Policies and Strategies for Mitigating and Adapting to Climate Change

China has always attached equal importance to mitigating and adapting to climate change, and promoted and implemented the major strategy of adapting to climate change.

In terms of climate change mitigation policies, China has taken proactive measures, including adjusting industrial structure, developing green and low-carbon industries, and strictly controlling the blind development of high energy consumption, high emissions, and low-level (“two high and one low”) projects; optimising the energy structure, promoting energy conservation and efficiency improvement, controlling non-carbon dioxide greenhouse gas emissions, enhancing the carbon sink capacity of the ecosystem, promoting the synergistic effect of pollution reduction and carbon reduction, and carrying out pilot demonstrations.

In terms of actively adapting to climate change policies, China has always been proactive in carrying out various efforts to adapt to climate change. In June 2022, China released the National Adaptation to Climate Change Strategy 2035, which provides important guidance and a basis for adaptation work, promotes the comprehensive integration of adaptation to climate change into the overall economic and social development situation, and strengthens climate change monitoring, warning and risk management, strengthens the adaptability of natural ecology and economic and social systems to climate change, enhances the climate resilience of key vulnerable areas and achieves positive results in adapting to climate change.

The Chinese government continues to improve its policy system and support for addressing climate change, and has achieved positive results in legislation and standards, economic policies, the construction of a national carbon emission trading market, technological innovation support, talent cultivation and capacity building, and green and low-carbon national action. It has launched the online trading of the national carbon market, continued to promote the construction of the national carbon market system, and actively participates in global governance to address climate change.

During the COP27 meeting, China officially submitted the “Progress Report on the Implementation of China’s National Independent Contribution Goals (2022)” to the UNFCCC Secretariat, summarising China’s new measures since the NDC update.

China is formulating the Law on Addressing China Climate Change and the Energy Law to provide basic legal guarantees for the implementation of climate change work. In the Guiding Opinions on Coordinating and Strengthening Work Related to Climate Change Response and Ecological Environmental Protection issued by the Ministry of Ecology and Environment in 2021, it is focused on accelerating the promotion of legislation related to climate change response, while adding content on climate change response in the revision process of relevant laws and encouraging localities to formulate local regulations.

In terms of current laws and regulations in China, the existing climate change response laws and regulations can be divided into four categories.

• The basic laws for addressing climate change are mainly based on the legislation in the pollution prevention and control law system and ecological protection law system, including environmental protection law, air pollution prevention and control law, clean production promotion law, circular economy promotion law, forest law, grassland law, environmental impact assessment law, etc.
• Specialised standards and norms for addressing climate change. For example, Resolution of the Standing Committee of the National People’s Congress on Actively Responding to Climate Change, Measures for the Management of Carbon Emissions Trading (Trial), Guidelines for the Verification of Greenhouse Gas Emission Reports of Enterprises (Trial), Rules for the Management of Carbon Emissions Trading (Trial), and relevant technical guidelines for carbon emission accounting and verification.
• The separate laws in the energy law system, such as the Energy Conservation Law, Renewable Energy Law, Coal Law, Electricity Law, etc.
• Normative documents to promote the research and development, promotion, transformation and large-scale application of green and low-carbon technologies, such as the Interim Measures for the Promotion and Management of Energy Saving and Low Carbon Technologies and the Law on Promoting the Transformation of Scientific and Technological Achievements.

China actively promotes bilateral co-operation on climate change with other contracting parties, carries out policy dialogue, experience sharing and technical co-operation with other countries, and jointly promotes the implementation of the Paris Agreement and climate action, covering technology transfer, energy co-operation, carbon market construction, adaptation measures and mitigation actions.

In 2021, China and the United States successively issued the “China-US Joint Statement Addressing the Climate Crisis” and the “China-US Joint Glasgow Declaration on Enhancing Climate Action in the 2020s”, signed the “China France Joint Statement” with France, and signed the “China Brazil Joint Statement on Addressing Climate Change” with Brazil.

While acknowledging “common but differentiated responsibilities and respective capabilities,” China is committed to co-operating with other developed countries and agrees to working with other countries to do more to cut emissions in the next decade, jointly promoting the implementation of the Paris Agreement and making positive progress on issues such as mitigation, adaptation, loss and damage, and means of implementation.

China will expand and enrich bilateral co-operation in the field of climate, such as in the transition to a sustainable and low-carbon global economy; smart city; green infrastructure; green industry development; renewable energy, including providing services and support to remote communities; electric vehicles; green technology innovation, research and development; and in areas such as green investment and financing, jointly supporting the elimination of global illegal logging and deforestation. It will also further co-operate in technology development and sharing, promoting exchange of knowledge and best practices on forest protection and sustainable management, regeneration and vegetation restoration in ecologically degraded areas, and will provide other forms of co-operation.

To strengthen the overall co-ordination of climate change response, China has established a national leadership group on climate change response and energy conservation and emission reduction, with the Premier of the State Council as the group leader and 30 relevant ministries as members. Each province (district, city) has established a provincial-level leadership group on climate change response and energy conservation and emission reduction work.

In April 2018, China adjusted the functions of relevant departments under the State Council, integrating the responsibilities of the Ministry of Environmental Protection with those of the National Development and Reform Commission in addressing climate change and emission reduction, and established the Ministry of Ecology and Environment.

The Department of Climate Change Response was established to be responsible for addressing climate change, strengthening the synergy between addressing climate change and ecological environment protection.

In 2021, China established a leading group to guide and co-ordinate the work of carbon peaking and carbon neutrality. Each province (district, city) has successively established the same.

The main regulatory agencies responsible for climate change policy formulation and regulatory implementation in China now include the following.

• National Development and Reform Commission (NDRC) – As the macroeconomic management agency of the Chinese government, NDRC is responsible for formulating and co-ordinating the country’s economic development strategy and policies. In the field of climate change, NDRC is responsible for formulating and supervising national emission reduction targets, carbon market construction, energy structure adjustment and other policy measures, co-ordinating and scheduling the implementation of carbon peak and carbon neutrality targets by relevant departments in various regions, and organising the implementation of carbon peak action plans before 2030.
• Ministry of Ecology and Environment (MEP) – As the competent environmental protection department of the Chinese government, MEP is responsible for formulating and implementing environmental protection policies. In terms of climate change, MEP is responsible for co-ordinating emission reduction efforts, promoting innovation in energy-saving and emission-reduction technologies, monitoring and evaluating carbon emissions, etc.
• Energy Administration (NEA) – As the energy management agency of the Chinese government, NEA is responsible for the planning and management of energy development and utilisation. In response to climate change, NEA is responsible for promoting the development and utilisation of clean energy, enhancing energy efficiency and promoting the application of renewable energy.
• National Meteorological Administration (CMA) – As the competent meteorological department of the Chinese government, CMA is responsible for meteorological observation, forecasting and services. In the field of climate change, CMA undertakes the task of monitoring and researching climate change and provides climate science support for government decision-making.

In addition, regulatory agencies in various fields and industries such as energy, industry, urban-rural development, transportation, agriculture and rural areas will also formulate plans, improve policies, and promote carbon peaking and carbon neutrality within their respective scopes.

China will fully integrate its response to climate change into the overall strategy of national economic and social development, take active measures to effectively control greenhouse gas emissions from key industrial sectors, promote green and low-carbon development in urban and rural construction, build a green and low-carbon transportation system, promote non-carbon dioxide greenhouse gas emissions reduction, co-ordinate the governance of mountains, rivers, forests, fields, lakes, grasslands and sand systems, strictly implement relevant measures and continuously improve ecological carbon sink capacity.

In terms of mitigation measures, since 2009, China has proposed the goal of reducing carbon emissions per unit of GDP by 40% to 45% from 2005, implemented a series of carbon emission management by objectives measures, such as target decomposition assessment, carbon emission trading market and inventory preparation, and completed the emission reduction goal ahead of schedule in 2017.

At this stage, China has put forward a higher goal of achieving carbon peak by 2030 and carbon neutrality by 2060. The Outline of the 14th Five Year Plan of the People’s Republic of China mentions “implementing a system that focuses on carbon intensity control, supplemented by total carbon emission control”, and stressed at the Central Economic Work Conference at the end of 2021 that it is necessary to put forward to realise the transformation from “dual control” of energy consumption to “dual control” of total carbon emissions and intensity as soon as possible. During the 14th Five Year Plan period, China will gradually establish and improve a total carbon emission control system.

The legislation on greenhouse gas emission control is scattered in the Law on Environmental Pollution Prevention and Control, the Energy Monopoly Law, and the Clean Production Legislation. The revised “Air Pollution Prevention and Control Law” in 2015 for the first time involves greenhouse gases in national legislation for air pollution prevention and control, proposing principle provisions for the co-ordinated control of air pollutants and greenhouse gases.

Energy legislation such as the Energy Conservation Law, the Renewable Energy Law, and cleaner production legislation such as the Cleaner Production Promotion Law and the Circular Economic Law constitute the legal system of energy conservation and emission reduction.

China continues to promote the construction of a national carbon market system. Since 2013, seven pilot carbon markets have been launched for trading, covering nearly 3,000 key emission entities in over 20 industries such as electricity, steel, and cement.

In 2020, the National Carbon Emissions Trading Market Construction Scheme (Power Generation Industry) was  issued, and the Carbon Emissions Trading Management Measures (for trial implementation) and the quota allocation scheme for the first performance cycle of the national carbon market were introduced.

According to the Measures for the Administration of Carbon Emissions Trading (for Trial Implementation), the key emission units shall prepare their greenhouse gas emission report of the previous year according to the technical specifications for greenhouse gas emission accounting and reporting formulated by the Ministry of Ecology and Environment, specifying the emissions, and report to the provincial ecological and environmental management department where the production and business premises are located before March 31 of each year.

Since 2021, China has successively released corporate greenhouse gas emission reports, verification technical specifications, and three management rules for carbon emission rights registration, trading and settlement, establishing a preliminary national carbon market system.

In 2021, the Ministry of Ecology and Environment issued the “Guiding Opinions on Strengthening the Prevention and Control of Ecological Environment Source for High Energy Consumption and High Emission Construction Projects (two-high)”, which requires on-site verification of “two-high” enterprises that implement key management of pollution discharge permits, and no permission shall be granted in accordance with the law for those that do not meet the conditions. New, reconstructed and expanded “two-high” projects must comply with ecological environment protection laws, regulations and relevant legal plans, and meet the total control of key pollutant emissions carbon emission peak target, ecological environment access list, relevant planning and environmental assessment, environmental access conditions for corresponding industry construction projects, and approval principles for environmental assessment documents.

China has many plans to adapt to climate change, including actions in agriculture, water resources, forestry, oceans, meteorology, disaster prevention, mitigation and disaster relief. However, there is currently no specialised law aimed at adapting to climate change.

In the past decade, with the gradual recognition of the necessity of adapting to climate change, the National People’s Congress has passed the Resolution on Actively Responding to Climate Change and is currently preparing the Climate Change Response Law. The laws and regulations that have been promulgated have covered many aspects related to adapting to climate change.

The top-level design of the national adaptation policy system has been determined in policy documents such as the “China National Plan for Climate Change Response” and the “National Plan for Climate Change Response (2014-2020)”. The “National Strategy for Climate Change Adaptation” and various laws and regulations provide guidance for the implementation of China’s adaptation policies and actions.

In 2022, China issued the “National Climate Change Adaptation Strategy 2035”, focusing on strengthening overall guidance, communication and co-ordination, strengthening observation and assessment of climate change impacts, enhancing the ability of key areas and vulnerable areas to adapt to climate change, and will carry out actions to adapt to climate change in key areas.

China has prepared the National Comprehensive Disaster Prevention and Reduction Plan for the 14th Five Year Plan, revised the National Emergency Plan for Flood Control and Drought Relief, and the National Emergency Plan for Natural Disaster Relief, deployed and implemented a megaproject for comprehensive disaster prevention and reduction to adapt to climate change and established a sound early warning and emergency response mechanism.

At the local level, all 31 provinces, autonomous regions and municipalities in China have completed provincial-level climate change response plans, proposed clear goals and means and measures. Based on the actual situation in each region, there are significant differences in their policy objectives and key areas of adaptation to climate change.

In urban areas, developing action programmes for urban adaptation to climate change effectively mitigates the urban heat island effect and related climate risks through urban cluster layouts and the construction of green corridors, greenways, parks and other urban green environments, and improves the adaptability of national transport networks to extreme weather conditions such as low temperatures, snow, floods and typhoons.

In coastal areas, annual national sea level change monitoring, impact surveys and assessments will be organised, and reclamation will be strictly controlled to improve the ability of key coastal areas to withstand climate change risks. In other key ecological areas, climate adaptation and ecological restoration work will be carried out in ecologically fragile areas such as the Qinghai-Tibet Plateau, the Yangtze and Yellow River basins, and the capacity to adapt to climate change will be improved in a concerted manner.

China aims to accelerate the transformation of agricultural development and enhance the ability of agriculture to reduce emissions and sequester carbon; vigorously research and promote new technologies for agricultural weather disaster prevention and adaptation, such as disaster prevention, mitigation and yield increase, and climate resource utilisation; scientific afforestation and greening in accordance with local conditions and appropriate trees, to comprehensively enhance the ability of forestry to adapt to climate change; improve the flood prevention and mitigation system, strengthen the construction of water conservancy infrastructure, and enhance the optimal allocation of water resources and the ability to defend against water and drought disasters.

It aims to strengthen monitoring and early warning and disaster prevention and mitigation capabilities, improve natural disaster monitoring and early warning forecasting and comprehensive risk prevention systems. The issue of climate change adaptation is not directly reflected in the emissions permit system and other environmental permits, but the process of granting environmental permits is gradually taking into account the issue of climate change response and adaptation.

In June 2015, to promote the successful signing of the Paris Agreement, China officially submitted its 2030 NDC target to the Secretariat of the United Nations Framework Convention on Climate Change for the first time.

On 3 September 2016, the Standing Committee of the National People’s Congress of the People’s Republic of China approved the accession to the Paris Agreement. Since then, China has been one of the parties that completed the ratification of the agreement.

At the UN Climate Change Conference in Glasgow in December 2021, the parties finally agreed on all the implementing rules of the Paris Agreement, including Article 6. In accordance with the Paris Agreement’s requirement to update the NDC every five years, China has submitted an updated version of its National Autonomous Contribution Target (NDC) in the run-up to the Glasgow Climate Conference (COP26).

The implementation of the Paris Agreement needs to be promoted at both the mechanism and non-market mechanism levels. China attaches great importance to the use of market mechanisms to address climate change and actively promotes the construction of a carbon emission trading market, which includes both a mandatory and a voluntary market.

Mandatory Market

The mandatory market refers to the national carbon emissions trading market, where the traded allowance product is CEA (Chinese Emission Allowance). CEA is the carbon emission allowance allocated by the government to key emission units (petrochemical, chemical, building materials, iron and steel, non-ferrous, paper, power, aviation – eight key industries are included in the scope of carbon emissions trading).

The enterprises in the industries covered by the national carbon emissions trading market with annual greenhouse gas emissions of 26,000 tons of carbon dioxide equivalent are included in the list of key greenhouse gas emission units. These units have carbon allowances allocated by the government and need to complete the clearance of allowances (carbon compliance) within a specified period.

Since 2013, China has been piloting a mandatory carbon market. The nine major pilot trading markets currently included in the domestic carbon market pilot are: Beijing, Shanghai, Guangdong, Hubei, Shenzhen, Tianjin, Chongqing, Fujian and Sichuan.

The national carbon market was officially launched in 2021. At present, China’s national carbon emission trading market covers the power industry. During the 14th Five Year Plan period, energy-consuming and high-emission industries such as petrochemical, chemical, building materials, iron and steel, non-ferrous metals, papermaking and aviation will be included in the carbon trading system one after another. By the end of 2022, the cumulative volume of carbon emission allowances traded in the national carbon market was about 230 million tons, with a cumulative turnover of CNY10.4 billion.

In terms of the range of gases included, the local pilot carbon markets, except for Chongqing, only include carbon dioxide gas, and Chongqing includes six greenhouse gases (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride). The scope of greenhouse gases in the national carbon market explicitly includes carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6) and nitrogen trifluoride (NF3).

China will also continue to strengthen the construction of market functions, gradually expand the coverage of the national carbon market industry, enrich the trading subjects, trading varieties and trading methods, and develop carbon finance in an orderly manner.

Voluntary Market

The voluntary market refers to the CCER (China Certified Emission Reduction) trading market, which is China’s self-developed carbon emission reduction standard and a key complement to the national carbon emissions trading market. The types of CCER allowed to be used in the context of the national carbon market include renewable energy, forestry carbon sinks and methane utilisation.

In 2012, the National Development and Reform Commission issued Promulgation of the Interim Measures for the Administration of Voluntary Emission Reduction Trading for Greenhouse Gases and the Guidelines for the Validation and Certification of Voluntary Greenhouse Gas Emission Reduction Projects, which defined the workflow of voluntary emission reduction projects.

China officially launched the national voluntary emission reduction trading information platform and started trading in 2015, and suspended project filing applications in 2017. With the continuous development of online trading in the national carbon market, the call for CCER restart is rising and is expected to be restarted in 2023.

The pricing mechanism for CCERs is mandatory market oriented and is positively correlated with, but lower than, the general allowance price. The appropriate use of emission reduction offsets by companies that are included in the management of carbon emission allowances can reduce the cost of compliance. The national carbon market does not have any special requirements for CCER projects, but the offset cap is set at 5%.

In terms of carbon market legislation, since 2017, the carbon market authorities have also issued the National Carbon Emissions Trading Market Construction Plan (Power Generation Industry), the Carbon Emissions Trading Management Measures (for trial implementation) and the management rules related to quota allocation, carbon emission reporting and verification, trading, registration and settlement.

The above legislation has initially built up the institutional system of the national carbon market, promoted the standardised development of the national carbon market, and guaranteed the stability of the market.

To reduce carbon emissions, the Ministry of Ecology and Environment issued the Guidance on Strengthening the Prevention and Control of High Energy Consumption and High Emission Construction Projects at the Source, tightening the approval of high energy consumption and high emission projects, preventing and controlling the “two-high” projects at the source, and curbing the blind development of industries.

China will also continue to strengthen the national carbon market laws, regulations and policy system, promote the introduction of the Interim Regulations on the Management of Carbon Emissions Trading, and improve the supporting trading system and related technical specifications. To ensure the smooth and healthy operation of the national carbon market, the Ministry of Ecology and Environment and other regulatory departments will also strengthen the supervision of carbon emissions and carbon accounting data quality and operation management level, establish and improve the management mechanism of information disclosure and credit discipline, and increase the punishment for carbon data falsification and other illegal and irregular acts.

According to Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 establishing a carbon border adjustment mechanism, the carbon tariff levy covers industries such as steel, cement, aluminum, fertilizer, electricity and hydrogen, mainly targeting direct emissions from the production process and indirect emissions from the three major categories of cement, electricity and fertilizer.

For example, the amount of products exported from China to the EU, which are regulated by CBAM (steel, aluminum and aluminum products, cement, fertilizers, hydrogen, electricity and six other major categories of products), accounted for only 3.2% of the total exports of goods to the EU in 2022.

Among them, the amount of steel and aluminum exported from China to the EU accounted for the most total imports by the EU, accounting for about 99% of exported products. Since there is no electricity trade between China and the EU, and the scale of fertilizer and cement exports is very small, in the short term, the direct cost impact of the introduction of CBAM is limited; the main impact on products exported from China to the EU are concentrated in the steel and aluminum industries. 

The overall macro-economic impact of the introduction of CBAM on China is relatively limited, mainly because China’s exports of high-carbon products to the EU represent a very low share of China’s total exports. However, the medium- to long-term impact of the application of CBAM and the accompanying trend toward greening of the supply chain on the Chinese economy could rise significantly.

In the long term, the coverage of CBAM will be further extended and the text of the CBAM bill under consideration has identified a phased approach to take the following into account: possible coverage of all industries currently covered by the EU ETS, along with indirect emissions under specific conditions (Scope II emissions). Some products may also be extended to downstream industries, which would then have a significantly greater impact on China.

If extended to the downstream of the industry, the impact of CBAM application on China will be expanded. Taking steel as an example, although steel exported from China to the EU does not account for a high proportion of exports, the export of machinery and equipment with steel as raw material accounts for a high proportion.

If indirect emissions of Scope II are also included in the calculation, the volume of taxation will increase significantly. Taking aluminum production as an example, it currently relies mainly on electrolytic aluminum technology, and the largest emission link is the emission from electricity use. Since China has the top level of indirect carbon emissions from electrolytic aluminum in the world, the impact on China will be highlighted once indirect emissions are included in the CBAM.

At present, China has been committed to achieving the “3060” carbon peak carbon neutral target, formulating and improving the policy guidelines and implementation plans for reducing pollution and carbon emissions, and will improve the construction of the carbon market mechanism as soon as possible, including the steel and non-ferrous industries into the carbon market, gradually reducing the proportion of free carbon quotas, and studying whether to introduce a carbon tax policy in the country. For domestic high-carbon industries and enterprises, current national policies and development plans emphasise the need to accelerate the development of low-carbon technologies and make full use of financial resources to complete the green transformation. China will also actively promote emission reduction rules in line with national development interests through the UN climate change negotiations and multilateral platforms such as WTO and G20 and participate in the development of international standards for related products.

Among the economies affected by CBAM, China ranks second in terms of trade volume. The implementation of CBAM policy may cause other developed economies to launch their own carbon tax policies. Under the situation of carbon emission reduction, the production cost of high-carbon products is bound to increase, and the competitiveness will become weaker. When Chinese enterprises participate in international trade, the green and low-carbon supply chain of trade products is an important consideration. Facing carbon tax will also become the core of Chinese enterprises’ investment returns and risk assessment in international trade.

Exporters in relevant affected industries shall make preparations to cope with the implementation of CBAM as soon as possible, closely tracking the dynamics of changes in CBAM and the guidance from national and industry sectors, making good use of the transition period to improve their carbon emission management capabilities, including: quantification of product baselines, verification of the carbon footprint of products, supply chain management, etc. The above-mentioned affected enterprises shall continue to build up their enterprise carbon emission management mechanism and carbon management capacity, and be ready to submit carbon emission data of export products and other required information.

The application of TCFD in China began with the co-operation between China and the UK in the field of green finance. At the 9th China UK Economic and Financial Dialogue held in December 2017, the Chinese and British governments agreed to strengthen co-operation in the field of green finance and encourage financial institutions from both countries to jointly carry out pilot climate and environmental information disclosure.

Subsequently, China and the UK jointly launched a pilot project on climate and environmental information disclosure. Ten financial institutions from both sides, as the first batch of pilot institutions, adopted TCFD’s recommendations and shared their experiences and lessons with subsequent adopters. The Industrial and Commercial Bank of China, as the leading Chinese institution for the pilot project, organises and promotes the implementation of the pilot project.

In 2019, the pilot scope of the project was expanded to achieve full coverage of financial sectors between China and the UK. The number of pilot institutions has expanded from the initial ten to 13. By the end of 2022, there were 61 institutions in Chinese Mainland supporting TCFD’s disclosure proposal, including 26 financial institutions and 35 non-financial institutions.

At present, the information disclosure guidelines issued by Shanghai Stock Exchange and Shenzhen Stock Exchange do not explicitly mention the part of TCFD framework. However, in the latest guidelines of the Hong Kong Stock Exchange, all listed companies are required to disclose relevant information in accordance with the requirements of the TCFD in 2025. Many companies listed on A+H shares or H shares have begun to disclose relevant information in accordance with the requirements of TCFD in recent years.

The “G” in ESG refers to governance factors in the decision-making process of a company. In a narrow sense, it mainly refers to the constraints and supervision issues between shareholders, directors and management of the company, while in a broad sense, it can include the relationship between the company and stakeholders.

From a regulatory perspective, among major exchanges in China, the Hong Kong Stock Exchange has requested disclosure of the ESG governance structure, taking the lead in increasing the accountability of the board of directors to a mandatory level.

In 2019, the Hong Kong Stock Exchange revised the “ESG Guidelines”, clearly proposing requirements for the board of directors: adding mandatory disclosure provisions for the “governance structure”. This is to emphasise the importance of the ESG governance structure, the leadership role of the board of directors, and improve the accountability of the board of directors in ESG.

In 2020, the Hong Kong Stock Exchange also released the “Guidelines for the Board and Directors: Leadership Role and Accountability in ESG”, providing guidance on how the board regulates ESG, ESG management policies and strategies, and how the board monitors ESG-related goals. The regulatory attention to ESG matters in mainland China is constantly increasing.

On 14 April 2023, the Stock Exchange of Hong Kong Limited issued a consultation document seeking market opinion on the proposed optimisation of climate information disclosure under the ESG framework. The climate change responsibilities of the board of directors will also be continuously implemented with the effectiveness of the consultation documents.

At present, there are no cases in China where shareholders are held responsible for illegal acts of the company.

Only when the parent company itself participates in the breach of contract or instructs its subsidiaries to violate the law, will the parent company be liable for the breach of contract by a third party.

The supervision intensity of ESG reporting in Chinese Mainland and Hong Kong is different at present, but tends to converge.

Hong Kong

In 2012, the Hong Kong Stock Exchange issued the “Environmental, Social and Governance Reporting Guidelines”, which first mentioned the disclosure of ESG information by listed companies in Hong Kong, but it was not mandatory at that time. It was not until 2015 that the “explain if not comply” clause was added, and it is now mandatory for all listed companies in Hong Kong to disclose ESG information.

In November 2021, the Hong Kong Stock Exchange issued the “Guidelines for Climate Information Disclosure”, encouraging and assisting issuers to make disclosures based on TCFD’s recommendations, and assisting issuers in making climate change reports based on TCFD’s recommendations.

Chinese Mainland

Chinese Mainland requires listed companies to disclose the contents related to corporate governance, environmental protection and social responsibility in their annual reports. Whether or not to disclose ESG information in the form of an ESG report is still voluntary, but mandatory disclosure will become a trend in policy making.

The Guidelines for the Governance of Listed Companies formulated by the CSRC clearly stipulate the content of “governance” that listed companies need to disclose. In 2020, the Shanghai Stock Exchange’s Rules for the Listing of Science and Technology Innovation Board Shares stipulated that listed companies should disclose their performance of social responsibilities in annual reports, and prepare and disclose social responsibility reports, sustainable development reports, environmental responsibility reports, etc, as appropriate. In 2021, the China Securities Regulatory Commission issued the latest revised “Standards for the Content and Format of Information Disclosure by Companies that Offer Securities to the Public No 2 – Content and Format of Annual Reports” and “Standards for the Content and Format of Information Disclosure by Companies that Offer Securities to the Public No 3 – Content and Format of Semi-annual Reports”, with a special section on environmental and social responsibility added.

In terms of environmental information disclosure, the “Management Measures for Legal Disclosure of Enterprise Environmental Information” will be implemented in 2022. Except for listed companies and their subsidiaries, key pollutant emission units and bond issuing enterprises are required to regularly disclose environmental information, including carbon emission data related to climate change response, as well as information related to climate change response and ecological environment protection of financing investment projects.

In May 2022, the State-owned Assets Supervision and Administration Commission of China released the “Work Plan for Improving the Quality of Listed Companies Controlled by Central Enterprises”, which proposed to encourage more state-owned listed companies to disclose ESG special reports and strive to achieve “full coverage” of relevant special report disclosures by 2023. Driven by policies, central state-owned enterprises are in need of “mandatory disclosure”.

A range of topics, such as climate change and greenhouse gas emissions are included in ESG due diligence. Climate change due diligence is typically conducted in the context of M&A, financial and property transactions.

In addition to the traditional financial/tax, legal and technical due diligence of the acquired company, an increasing number of investors are requesting third-party independent consultants to conduct ESG performance due diligence activities on the acquired company to assess the significant ESG risks of the company.

Climate change due diligence is often undertaken in transactions. Disrupted industries, unsustainable business models and supply chain issues may all require mergers, acquisitions, joint ventures or divestitures to demonstrate that a company is future proof and up to date. Ensuring this requires changes to two key aspects of an M&A transaction: the due diligence of the target business and the transaction documentation to implement the acquisition.

The assessment criteria for ESG (including climate change) due diligence should also be raised from the environmental/social/commercial criteria of the project location to follow the UN Sustainable Development Goals (UN SDGs), the GRI Standards issued by the Global Reporting Initiative (GRI), the World Bank IFC Environmental and Social Sustainability Performance Standards (IFC Performance Standards), the Equator Principles, and the UN Task Force on Climate-related Financial Disclosure’s Task Force on Climate-related Non-financial Disclosure Recommendations (TFCD), among other important international climate change and sustainable development standards.

Specifically, the specific steps of ESG due diligence include pre-investment ESG due diligence activities, ESG performance management of post-investment operations, and assessment of ESG risk liabilities and recommendations for remedial measures prior to the sale of the business.

In recent years, China has taken an encouraging attitude towards renewable new energy, and governments around the country have introduced industrial policies and financial subsidies to support the development of the industry. At a national level, the main ones are as follows.

Provide Support in National Special Strategic Planning

In March 2022, the National Development and Reform Commission and the National Energy Administration issued the “14th Five Year Plan for Modern Energy Systems”, which calls for vigorous development of non-fossil energy sources, accelerating the development of wind power and solar power generation, giving priority to local and nearby development and utilisation, accelerating the construction of decentralised wind power and distributed photovoltaic in load centres and surrounding areas, and promoting the application of low wind speed wind power technology

In June 2022, the National Development and Reform Commission, the National Energy Administration and nine other departments jointly issued the “14th Five Year Plan for Renewable Energy Development”, focusing on the development of renewable energy and the construction of ecological civilisation, new urbanisation, rural revitalisation, new infrastructure, new technologies and other in-depth integration, focusing on the deployment of nine major actions, with solid and effective actions to ensure the plan has been fully implemented.

Establish and Improve a Regulatory System Based on the Renewable Energy Law

The law, which has been in force in China since 2006, establishes a number of basic institutions that make up China’s renewable energy legal policy system, including the following.

• A system of aggregate targets – specifying the proportion of renewable energy in the overall energy mix over a certain period of time, providing market players with market-oriented information for development.
• Full guaranteed acquisition system – grid enterprises sign grid-connection agreements with renewable energy power generation enterprises that have obtained administrative permits or submitted for record in accordance with the law, and fully acquire the renewable energy grid-connected electricity within their grid coverage that meets grid-connected technical standards; in 2016, China also promulgated the Management Measures for Full Guaranteed Acquisition of Renewable Energy Power Generation.
• A system of categorised (feed-in) tariffs – for different renewable energy technologies (wind, solar, small hydropower, biomass, etc), the feed-in tariffs are determined separately and made public, with the intention of co-ordinating the development of energy categories with different levels of technology, clarifying the return on investment and limiting unfair competition.
• Special fund system – the state treasury has set up a renewable energy development fund, which is financed by the special funds arranged by the state treasury annually and the income from the renewable energy tariff surcharge levied by law, etc. The fund is used for subsidies and subsidies for renewable energy development and utilisation projects, in addition to compensation for all kinds of renewable energy generation.

Financial Support

In May 2022, the Ministry of Finance issued the Opinions on Financial Support for Good Carbon Peaking and Carbon Neutral Work, proposing to optimise clean energy support policies, strongly support the application of a high proportion of renewable energy, and promote the construction of a new power system with a gradually increasing proportion of new energy, support renewable energy sources such as photovoltaic, wind power and biomass, as well as new energy sources with smooth power output to replace fossil energy.

Fiscal policy measures to be applied include strengthening the role of financial support and guidance, improving the market-based diversified input mechanism, playing the role of tax policy incentives and constraints, improving the government’s green procurement policy, and strengthening international co-operation in addressing climate change.

Promoting Application Through Rural Revitalisation and New Urbanisation

The Promotion of Rural Revitalisation Law, which was implemented in 2021, encourages and supports the use of clean and renewable energy.

The Act stipulates that people’s governments at all levels shall establish a mechanism for joint construction, management and sharing involving the government, village-level organisations, enterprises, farmers and other parties, and encourage and support the use of clean and renewable energy to continuously improve the rural habitat.

China attaches great importance to the role of climate investment and financing in achieving comprehensive green transformation during the 14th Five Year Plan period and achieving the goal of reaching carbon peak and carbon neutrality in the 30th Five Year Plan period. By formulating policies and improving relevant evaluation standards, China encourages and guides more responsible investment to flow into the field of addressing climate change, including the following.

Building a Top-Level Institutional Framework and Policy System for Climate Investment and Finance

In October 2020, the Ministry of Ecology and Environment and other four state departments jointly issued the “Guidance on Promoting Investment and Financing to Address Climate Change”, making systematic arrangements for the overall work on climate investment and financing.

In 2022, the National Development and Reform Commission issued the Opinions on Improving Institutional Mechanisms and Policy Measures for Green and Low-Carbon Energy Transition to promote the establishment of fiscal, financial and policy guarantee mechanisms for green and low-carbon energy transition.

Carrying Out Pilot Work on Climate Investment and Finance

Since December 2021, the Ministry of Ecology and Environment and other ministries and commissions have officially launched pilot climate investment and financing projects in China.

In August 2022, the list of pilot climate investment and financing projects in China was finalised, and a total of 23 pilot climate investment and financing projects were approved in the first batch.

One of the important tasks of the pilots is to accelerate the cultivation of climate-friendly financial institutions, support third-party institutions to carry out evaluations of climate-friendly financial institutions, and encourage financial institutions to launch innovative investment and financing instruments and service models based on carbon emission reduction.

Promoting the Development and Implementation of a Unified and Standardised Carbon Accounting System

The People’s Bank issued a Technical Guide on Carbon Emissions from Financial Institutions in August 2021, encouraging some localities to start pilots.

In August 2022, the National Development and Reform Commission, the National Bureau of Statistics and the Ministry of Ecology and Environment also issued the Implementation Plan on Accelerating the Establishment of a Unified and Standardised Carbon Emissions Statistics and Accounting System, which provides a basis for carbon accounting to be conducted relatively more accurately and for financial institutions to better implement their climate-friendly commitments.

Improving Evaluation Criteria for Climate-Friendly Financial Institutions

In June 2022, the China Banking and Insurance Regulatory Commission issued the green finance guidelines for the banking and insurance industry, requiring the banking and insurance institutions to reduce the carbon intensity of their asset portfolios gradually and orderly to reduce their own carbon footprint, and ultimately achieve carbon neutrality in their own operations and asset portfolios.

In December 2022, the Professional Committee on Climate Investment and Finance of the Chinese Society of Environmental Sciences took the lead in formulating the group standard “Evaluating guide for climate friendly financial institutions”, which gives the definition of climate-friendly financial institutions, evaluation principles, evaluation methods and evaluation process.

This evaluating guide defines the definition of climate-friendly financial institutions, evaluation principles, evaluation index system, evaluation methods and evaluation process, and is applicable to the evaluation of climate-friendly financial institutions. The implementation of the evaluating guide has filled the gap in the evaluation standards for climate-friendly financial institutions in China.