China’s national ETS could have material impact by mid-decade: new analysis

17 August 2021

China’s landmark national emissions trading scheme has the potential to reduce the country’s carbon emissions by three to six billion tonnes a year by 2060, new analysis by the Asia Investor Group on Climate Change (AIGCC) and Schroders has found.

The new analysis finds that the initial impact of the national trading scheme (ETS) launched will be limited but could become more material for covered industries and companies by the mid-2020s as China aims to peak emissions before 2030.

Adopting two scenarios, the analysis projects that the emissions trading scheme could reduce Chinese emissions by 30 to 60 per cent by 2060 from 2020 levels depending on the rate of reduction in intensity caps, expansion of industry coverage and the carbon inhibition factor.

The utilities sector is expected to be the first to be materially affected by the ETS, followed by steel, cement, chemicals and aluminium.

Over time the trading scheme could drive significant changes to revenue and net profit, with companies in chemicals derived from coal, utilities and cement to be most impacted, followed by steel and aluminium.

AIGCC Vice Chair and Schroders Head of ESG Integration APAC, Wong Dan Chi, said: “The launch of the national emissions trading scheme could be one of the most significant drivers of carbon abatement in Asia and with the right settings will be instrumental in delivering China’s goals of peak emissions before 2030 and carbon neutrality by 2060.

“Investors need to understand the growing and future impact of the national China ETS on a range of carbon-intensive industries and companies as part of their ongoing management of climate risk across their portfolios.”

AIGCC Chief Executive Officer, Rebecca Mikula-Wright, said: “Investors are increasingly seeking to reduce their exposure to climate risks and better position themselves for the opportunities that will be created by China’s commitment to carbon neutrality.

“Carbon pricing is generally supported by investors as an efficient way to mitigate emissions and help price climate risk in the economy. It is important that there is clear market information about the design and operation of any carbon pricing mechanism such as auctions, permit allocations and caps.”

Read the report here.

Read the media release here.