China launched the world’s largest carbon market on Friday, July 16, helping to reduce emissions from Asia, the world’s largest greenhouse gas emitter. It is the largest investor in new energy, and Beijing has promised to achieve carbon neutrality by 2060.

The Shanghai Energy and Environment Exchange began trading at 9:30 a.m. local time, the official China New News Agency said in a brief statement. This carbon market for the first time allows provincial authorities to set aside allocations for thermal power plants and allows companies to purchase pollution rights from others with low carbon footprint.

The first transaction is set at 52.78 yuan ($ 6.80) per tonne of carbon. Very low price compared to what was charged in the EU last year (about $ 36) and in California ($ 17).

Ability to be proven

For each ton of carbon dioxide (or other greenhouse gases) a company issues a certificate of accreditation for emissions. In case of non-compliance, the latter will have to pay a fine. In the interests of transparency, companies are required to disclose their pollution data and verify it by a third party.

This carbon market currently refers only to the electricity sector, with power plants in China still mostly running on coal, which is one of the most harmful energies to the environment. For some analysts, the penalty for non-compliance is not sufficient for a deterrent. Another point: Pollution permits are distributed free of charge instead of at auction. As a result, companies have less incentive to reduce their emissions faster.

President Xi Jinping received applause at the end of 2020 for announcing that his country would begin to reduce its pollutant emissions before 2030 and reach carbon neutrality by 2060 – that is, to absorb emissions. But in its current form, “The carbon market will not play a major role in achieving these goals”, Larry Milevirta of the Clean Air and Energy Research Center (CREA) warns.