context: These innovative mechanisms aim to factor in elements leading to environmental degradation across the country. Examples of ecological compensation mechanisms already exist in the Yangtze River basin, but will be trialled elsewhere.

Environmental rights trading will be expanded, per ‘Opinions on deepening ecological protection compensation system reform’, released 13 Sep 2021. The opinions document proposes establishing systems allocating water, energy, pollution and carbon emissions with absolute caps. It also proposes

  • setting up environmentally friendly stock indices
  • developing carbon emissions futures trading
  • setting up a carbon emission offset mechanism based on CCERs (China-certified emissions reductions)
    • this will incorporate emissions reductions from forestry, renewable energy, methane utilisation etc. into the carbon market
  • implementing pollution discharge permit systems
    • including permits that can be traded and purchased in zones that require environmental protection
  • encouraging insurance firms to create green insurance products
  • setting up natural resource asset property rights systems
  • improving purchasing systems for the right to use natural resources based on market principles, intergenerational compensation, the scarcity of the resource and the resource’s ecological value
  • compensating entities who protect natural resources
  • refining horizontal ecological compensation mechanisms
    • encouraging localities positioned along rivers to set up such mechanisms
    • advancing these schemes in the Yangtze and Yellow river basins
      • including inter- and intra-provincial mechanisms
    • allocating central and provincial funds to horizontal compensation mechanisms in catchments of high ecological value
    • exploring horizontal compensation mechanisms for air pollution

According to the document, these ecological compensation mechanisms will be set up by 2025 and fully functioning by 2035.

It will still be some time before carbon emissions derivatives and CCERs are included in the national carbon market, claims Caixin. Mei Dewen 梅德文 Beijing Environment Exchange president expects the following changes in the national carbon market over the next 7-8 years

  • companies will be required to purchase their allocations instead of receiving them free
  • absolute emissions will be regulated, rather than emissions intensity
  • financial derivatives will be included