Key Points
- China is implementing a comprehensive plan for market-based allocation of resource and environmental elements to drive resource efficiency and green growth, guided by key national principles like Xi Jinping Thought.
- Key targets include developing mature trading systems for carbon emission rights, water usage rights, and pollution discharge rights by 2027.
- The plan involves fundamental changes to quota allocation, including a transition to paid allocation for carbon emissions and requiring paid acquisition of new industrial water use rights in water-scarce areas.
- Markets for carbon, water, and pollution discharge rights will expand in scope and participation, with a push for a unified national water usage rights trading market and integration into public resource trading platforms.
- Significant emphasis is placed on upgrading market infrastructure, price formation mechanisms, financial support (like green finance products), and strict supervision to ensure fair and stable trading.
China is rolling out a game-changing plan for market-based allocation of resource and environmental elements, and if you’re in tech, investing, or marketing, you’ll want to pay attention.
This isn’t just another policy doc; it’s a blueprint for how the country plans to get serious about resource efficiency and green growth. Let’s break down what’s happening.
I. The Big Picture: What’s Driving These Changes?
Beijing is doubling down on creating a more efficient and green economy.
This initiative is guided by top-level thinking, including:
- Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era (Xí Jìnpíng Xīn Shídài Zhōngguó Tèsè Shèhuìzhǔyì Sīxiǎng 习近平新时代中国特色社会主义思想)
- The spirit of the 20th National Congress of the Communist Party of China and the second and third plenary sessions of the 20th CPC Central Committee (党的二十大和二十届二中、三中全会精神)
- Xi Jinping’s Economic Thought (Xí Jìnpíng Jīngjì Sīxiǎng 习近平经济思想)
- Xi Jinping’s Thought on Ecological Civilization (Xí Jìnpíng Shēngtài Wénmíng Sīxiǎng 习近平生态文明思想)
The core idea? Blend an effective market with a responsive government.
They’re looking to fix problems, take things step-by-step, and avoid major risks.
The aim is to build systems for resource and environmental elements that are:
- Clear on rights and responsibilities
- Smoothly operated
- Efficiently coordinated
This is all about channeling these elements to support what China calls New Quality Productive Forces (Xīn Zhì Shēngchǎnlì 新质生产力). In simpler terms: drive innovation and sustainable growth.
It’s a multi-pronged approach: reduce carbon, cut pollution, expand green initiatives, and foster economic growth – all at the same time.
Think of it as a push for a comprehensive green transformation of how the economy and society operate.
The Clock is Ticking: Main Goals by 2027
China has set some concrete targets for the near future:
- Carbon emission rights trading system: Basically improved.
- Water usage rights trading system: Also, basically improved.
- Pollution discharge rights trading system: Established and sound.
- Market-based energy conservation mechanisms: Healthier and more robust.
- Resource and environmental element trading markets: More active.
- Price formation mechanisms: More complete.
The big outcome? Ensure these resources flow smoothly, are allocated efficiently, and the market’s full potential is unleashed to hit environmental targets.
- Carbon emission rights trading system: improved.
- Water usage rights trading system: improved.
- Pollution discharge rights trading system: established and sound.
- Market-based energy conservation mechanisms: healthier and more robust.
- Resource and environmental element trading markets: more active.
- Price formation mechanisms: more complete.
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II. Level Setting: Nailing Down Quotas for Resource & Environmental Elements
Getting the foundation right is key. This means a solid system for allocating quotas.
(I) Connecting the Dots: Linking Goals with Quotas
It’s all about synergy.
For carbon emissions, the trading system needs to align with the “dual control” system (controlling both total emissions and intensity). The plan is to gradually shift the national carbon market from intensity control to total quota control.
For water usage, strict dual control over total consumption and intensity remains. This involves linking water rights trading with river water allocation, resource scheduling, permit management, and usage supervision.
(II) Smart Quotas: Allocation and Transfer Systems
This is where the rubber meets the road for specific resources.
- Carbon Emission Quotas:
- Allocation will consider emission control targets, industry development stages, and historical emissions.
- Plans will be optimized.
- A mix of free and paid allocation will be steadily implemented, with an orderly increase in the proportion of paid allocation. This is a big one – companies might have to start paying more for their carbon footprint.
- Water Usage Rights:
- The mantra: “based on water availability, act within water limits.”
- Emphasis on water conservation.
- Needs for living, production, and ecology will be coordinated.
- Initial allocation system for water rights will be improved, clarifying regional rights, withdrawal rights, and irrigation user rights.
- In water-scarce areas, expect paid transfer of water usage rights.
- Heads up for industry: New industrial water use will geneally require paid acquisition through the water rights trading market.
- Pollution Discharge Rights:
- Stronger links between determined discharge rights and permitted emission volumes.
- Trading entities will be better aligned with pollutant discharging unit classifications.
- A technical system is being built to determine rights, focusing on continuous environmental quality improvement and industry best practices.
- Get ready for paid initial allocation of pollution discharge rights for key air and water pollutants.
III. Expanding the Marketplace: What’s Up for Trade?
China is looking to broaden the scope of what can be traded in these environmental markets.
(III) Carbon Market Evolution: More Coverage, More Players
The national carbon market is set to grow.
- Wider Industry Scope: Based on carbon peaking/neutrality needs and reduction potential, more industries will be brought into the national carbon emission rights trading market.
- More Trading Entities: Expect more participants.
- Richer Trading Options: New trading varieties and methods are on the horizon.
- Voluntary Market Boost: The national voluntary greenhouse gas emission reduction market will be improved, with more supported areas.
- Green Certificates Link-Up: Green certificates will be connected with the carbon emission rights market and the voluntary reduction market. Crucially, this aims to prevent double-dipping benefits for traders.
- Global Connections: While focusing on the domestic market, China will actively promote alignment and mutual recognition with relevant international mechanisms.
(IV) Energy Conservation Gets Market-Savvy
Conservation first!
The energy conservation management system is getting an upgrade across the entire energy production and consumption chain.
Think comprehensive service models:
- Energy conservation consulting
- Diagnosis
- Design
- Financing
- Retrofitting
- Trusteeship/Contracting (tuō guǎn 托管)
The energy conservation service industry is set to be strengthened.
Important note: Energy use rights trading will be coordinated with carbon emission rights trading. Some regional energy use rights pilots might be phased out to avoid duplicate compliance burdens as the national carbon market develops.
(V) Water Rights Trading: More Variety, More Reach
Water trading is getting more sophisticated.
- Cross-Provincial Trades: Actively exploring and regulating water usage rights trading across provincial administrative regions in key river basins like the Yellow River (Huang He 黄河).
- Trading Saved Water: Industrial enterprises and irrigation areas are encouraged to boost water-saving transformations. The saved water can then be traded on the water usage rights market. This creates a direct incentive to conserve.
- Social Capital Welcome: Private investment can get involved in building and operating water-saving projects (like irrigation) and earn returns by transferring the saved water rights.
- Unconventional Water Sources: Trading of reclaimed water, collected rainwater, desalinated seawater, mine water, and brackish water will be promoted based on local conditions.
(VI) Pollution Discharge Rights: Deeper and Wider Trading
The system for paid use and trading of pollution discharge rights will be established and improved, with provincial regions as the basic units.
Expect:
- More Trading Entities.
- More Trading Varieties and Methods.
- Regions will be supported to expand the types and geographical scope of trading based on pollution control needs.
- Integrated Trading Focus: Deepening pollution discharge rights trading in the Yangtze River Delta region (Chang Sanjiao Quyu 长三角区域).
- Cross-Basin Exploration: Exploring trans-provincial trading within the same river basin.
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IV. Building a Better Bazaar: Upgrading the Trading System
A market needs solid infrastructure and rules.
(VII) One-Stop Shop: Public Resource Trading Platforms
As these market-based reforms mature, trading for carbon emission rights, water usage rights, and pollution discharge rights will be orderly included into the public resource trading platform system.
This means aggregated and shared trading data.
Learning from pilot experience (jīngyàn 经验), the relationship between local and national markets will be clarified.
Key directive: No new local or regional carbon emission rights trading markets will be established. Existing local markets will face increased guidance and supervision. The focus is on building a unified national water usage rights trading market.
(VIII) Rulebook Refresh: Clearer Trading Guidelines
Systems for confirming, registering, pledging, and circulating these resource elements will be improved.
Outdated policies will be cleaned up.
Rules for data collection, product trading, information release, and supervision will be refined along with business processes, data management, and risk prevention systems.
(IX) Market Stability: Reserve and Regulation Systems
To keep markets stable, reserve and regulation systems for these elements will be established.
A reserve pool will be formed by:
- Reserving initial quotas
- Recalling expired quotas
- Repurchasing surplus quotas
- Developing incremental quotas
These reserves can be acquired, sold, or released to manage market supply and demand and guide expectations.
(X) Price Discovery: Letting the Market Speak
Market-based principles will guide price formation.
Prices should reflect:
- Market supply and demand
- Resource scarcity
- Environmental damage costs
- Ecological product values
The goal is to use price levers for efficient and rational allocation.
Price monitoring and information release systems will be established based on these trading markets.
(XI) Eyes on the Market: Stepping Up Supervision
Stronger oversight is coming for trading institutions, traders, and third-party service providers.
Expect crackdowns on:
- Data falsification
- Illegal and irregular trading
- Market manipulation
Water usage rights trading will see full-process supervision, including third-party influence and ecological impacts.
A credit system for these markets is being built, with public disclosure of credit info and punishment for serious dishonest behavior.
Cybersecurity for trading systems and data protection will be enhanced to prevent leaks of sensitive information.
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V. The Toolkit: Building Capacity for Trading Infrastructure
Strong markets require strong support systems.
(XII) Laws and Standards Upgrade
Relevant legal systems will be researched and improved to clarify trading principles.
Standards for carbon emission accounting, water quotas, and pollutant emissions will be scientifically formulated and revised.
Energy conservation standards for key industries and important equipment will be updated.
(XIII) Better Data: Monitoring and Accounting Prowess
Capacity for monitoring and accounting carbon emissions, water usage, and pollutant emissions will be strengthened.
Accounting technical specifications will be improved for better authenticity, accuracy, and validity of trading data.
Pilot monitoring of carbon emissions in key industries will be deepened.
Water withdrawal and consumption monitoring and metering will be enhanced.
A pollutant discharge monitoring system will be built faster.
(XIV) Show Me the Money: Financial Support Systems
Financial institutions are encouraged to get involved in building these markets (actively and steadily!).
Guidance will be provided for financial institutions to develop products like:
- Green credit
- Green insurance (lǜsè bǎoxiǎn 绿色保险)
- Green bonds
- Other financial products and services related to resource and environmental elements.
This must be done in compliance with laws, with controllable risks, and on a commercially sustainable basis.
Financial institutions will be promoted to standardize information disclosure related to green finance.
Unified registration and public display for collateral businesses related to carbon, water, and pollution discharge rights will be promoted.
(XV) Service With a Smile: Enhancing Market Support
Third-party service institutions will be cultivated and developed to offer comprehensive services like:
- Resource and environmental element accounting verification
- Valuation
- Consulting
- Training
Trading platforms can cooperate with financial institutions and third-party service providers to offer services such as ownership confirmation, trading, and value assessment.
VI. Making It Happen: Organization and Rollout
This is a top-down effort.
Under the centralized unified leadership (jízhōng tǒngyī lǐngdǎo 集中统一领导) of the Party Central Committee, all regions and relevant departments are responsible for implementation.
They’ll need to improve reform measures based on local conditions and engage in innovation.
The National Development and Reform Commission (Guojia Fazhan Gaige Wei 国家发展改革委), along with other departments, will oversee progress, analyze new situations, and report major matters to the Party Central Committee and the State Council.
This sweeping overall of China’s approach to market-based allocation of resource and environmental elements signals a major shift with opportunities and challenges for businesses, investors, and tech innovators both domestically and internationally. Staying informed is key.
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