China Proposes Max $4,500 Fine for Carbon Market Violations

(Bloomberg) -- China’s top environmental regulator is proposing a maximum fine of 30,000 yuan ($4,500) for participants in the country’s new national carbon market that don’t buy enough allowances to cover their greenhouse gas emissions.

The punishment was among several details outlined in a consultation paper the Ministry of Ecology and Environment sent to other government departments, seeking stakeholder opinions. Another penalty for insufficient coverage was an unspecified reduction in the amount of initial emissions allowances companies would get the following year.

The maximum penalty would be small compared to Europe, where a carbon market has been operating since 2005, and where damages are set at 100 euros per metric ton of emissions not covered by allowances. Three airlines that entered either administration or liquidation face penalties of more than 30 million pounds each as of Sept. 29, according to U.K. government data.

“The financial fine of up to 30,000 yuan is relatively low compared to the international existing systems,” Lina Li, China coordinator at the International Carbon Action Partnership, said by email. Still, she expects compliance levels of the national program to be satisfactory based on the experience of regional pilots.

China has spent years developing its national carbon market, which is expected to start by covering its power sector that accounts for about 14% of the world’s fossil fuel-derived emissions. The country currently has several regional pilot programs that will be folded into the national market, and the government will eventually add firms from other polluting industries.

In addition to the proposed penalties, the ministry laid out the following in its consultation paper:

• Companies can use China Certified Emission Reductions (CCERs) as credits to offset a maximum of 5% of their emissions.
• Large companies in specified industries that emit 26,000 tons of carbon dioxide equivalent a year will be required to participate.
• Companies will be given a certain number of allowances for free based on emissions history, and would have to purchase any necessary additional allowances to avoid penalties.
• The ministry, which will oversee the market, will keep an unspecified amount of allowances in reserve for market adjustments.
• The yearly cap on emissions will take account of the country’s 2060 carbon-neutrality goal, along with economic growth targets, industrial restructuring goals and other pollution control efforts.
• Other qualified financial institutions and individuals will be allowed to participate but settlement banks for capital transactions will not be.

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