China’s Polluters Take Steps to Meet EU’s Carbon Tax Challenge

China’s Polluters Take Steps to Meet EU’s Carbon Tax Challenge

China’s environment ministry is asking large industrial polluters to tighten up their emissions reporting, as it adopts the procedures necessary to expand its national carbon market and prepare Chinese industry for the European Union’s carbon tax.

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(Bloomberg) — China’s environment ministry is asking large industrial polluters to tighten up their emissions reporting, as it adopts the procedures necessary to expand its national carbon market and prepare Chinese industry for the European Union’s carbon tax. 

Factories releasing the equivalent of more than 26,000 tons of CO2 a year across seven key industries will need to verify their 2022 data by December, according to a document posted on the ministry’s website on Wednesday. The industries include aluminum, cement, steel, petrochemicals, chemicals, paper and aviation, all of which are slated to join China’s carbon market by 2030 and some as early as next year.

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The ministry is centralizing an annual reporting process that was previously handled locally, in a bid to help exporters meet the requirements of the EU’s Carbon Border Adjustment Mechanism, which began data collection this month and formally launches in 2026. The ministry said aluminum, cement and steel — industries covered in the first phase of CBAM — will need to complete their data verification by September from next year, earlier than the other sectors. 

China’s carbon market currently covers just power firms. By highlighting those three sectors, the ministry is likely signaling their inclusion will be prioritized. Expanding the market is an important step toward meeting President Xi Jinping’s goal of peaking nationwide emissions before the end of the decade. More broadly, measuring emissions, and aligning how they’re reported across regions, is crucial to efforts to rein in global warming as well as facilitating trade.

Delivering a robust reporting system will help China “tackle the challenges from CBAM, making enterprises more prepared for the EU tariff,” said Qin Yan, lead carbon and power analyst at the London Stock Exchange Group.

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Carbon costs in the EU are far higher than in China, creating one of the biggest obstacles to alignment. There are workarounds, however. For industries like steel, Chinese firms “have a variety of production lines with products of different level of emissions-intensity,” said Qin. Carbon reporting would allow exporters to ship “greener products to the EU and the dirtier ones to other markets without carbon tariffs.”

The steel industry has long been a bugbear for China’s international trade partners. Talks are ongoing as to whether it should be subject to joint EU-US action to tackle excess production and reduce carbon emissions.

The environment ministry’s document also lays out a stricter regime for what constitutes zero-emission power. The only deductions allowed from a company’s emissions would be clean energy derived from captive plants that aren’t connected to the grid.

That’s likely to be controversial because it means green energy certificates purchased by companies to offset their emissions will no longer be a valid method of reducing their carbon footprints. The green certificate program was expanded as recently as August to include more renewable power sources.     

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The Week’s Diary

(All times Beijing unless noted.)

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Thursday, Oct. 19:

  • Chilean President Gabriel Boric’s trip to China continues with events in Shanghai
  • China new home prices for September, 09:30
  • China winter gas summit hosted by Chongqing Petroleum and Gas Exchange in Beijing
  • AZ China Aluminum Industry International Summit in Shanghai, day 1
  • China Wind Power conference in Beijing, day 4
  • EARNINGS: CATL

Friday, Oct. 20:

  • Chilean President Gabriel Boric’s trip to China continues with events in Shanghai
  • China sets monthly loan prime rates, 09:15
  • China Sept. output data for base metals and oil products
  • China’s 3rd batch of September trade data, including country breakdowns for energy and commodities
  • China weekly iron ore port stockpiles
  • Shanghai exchange weekly commodities inventory, ~15:30
  • Electric power supply industry conference in Xiamen, day 1
  • AZ China Aluminum Industry International Summit in Shanghai, day 2
  • EARNINGS: HKEX

Saturday, Oct. 21

  • Electric power supply industry conference in Xiamen, day 2

Sunday, Oct. 22

  • Electric power supply industry conference in Xiamen, day 3

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On the Wire

China home prices fell more steeply in September, adding to doubts over whether Beijing’s steps to prop up the property market are enough to revive the sector. 

China’s latest economic data put the government’s growth goal of about 5% well within reach and lessened the likelihood for more stimulus before the end of 2023. But the ongoing housing crisis remains a serious drag, clouding the outlook for next year.

President Xi Jinping reiterated that China supports Moscow’s efforts in safeguarding its national sovereignty, security and development interests, while seeking a breakthrough on a Sino-Russian gas pipeline. 

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