On 2 July 2024, the Chinese Ministry of Ecology and Environment (MEE) released the draft allocation planfor the power sector (in Chinese) for 2023 and 2024. The draft sets out the quantity of allowances to be allocated per unit of electricity and heat production for the power sector during these years.

The draft allocation plan covers approximately 2200 coal-fired and gas-fired power plants with 5 billion tonnes of annual emissions. The plan sets out distinct allocation benchmarks for four types of installations: conventional coal-fired power plants above an installed-capacity threshold of 300 MW; conventional coal-fired plants with capacity below this threshold; unconventional coal-fired plants (such as coal gangue, coal slime, and coal water slurry); and natural gas-fired plants. 

All four benchmark values proposed for 2023 are lower than those in 2022. The benchmarks for coal-fired power generation have been tightened, with reductions ranging from 6.5% to 18.8%, while the benchmarks for heat generation have been reduced by 3.8% to 6.1%.  In an explanatory document (in Chinese), the MEE gave the following rationale for the reductions: 

• Change in coverage: The benchmark for 2022 included indirect emissions from purchased electricity and heat. These emissions have been excluded from the new allocation plan as they account for less than 0.1% of the total emissions in the power sector.
• Changes in calculation methods: The previous allocation plan relied on some internal data, which was difficult for third party verifiers to cross check. To ensure fairness, the new draft redefines output and adjusts some calculation factors. As a result, the intensity will decrease with the new method, and the benchmark value is lowered accordingly. 

In addition to the updated benchmark values, other changes outlined in the plan include:

• Change to one-year compliance cycle: The previous two compliance cycles covered emissions from two years (2019-2020, 2021-2022). Under the new plan, compliance will be annual.
• Changes in the banking and borrowing rules: Banking is now limited to increase market liquidity. Allowances equaling 1.5 times the covered entities’ net sold allowances from 2019-2024 will be eligible to be banked. Borrowing from a subsequent compliance period is now not allowed.

Other flexibility rules remain the same. Coal generators must submit allowances for 20% of the emissions above their initial allocation amounts and gas-fired generators have no further compliance obligations. 

In contrast to the previous two compliance cycles, where allocation plans were published towards the end of the applicable period and regulations applied retroactively, the new draft plan was released six months before the end of the period it covers, marking a shift in timing for regulatory adjustments. A short public consultation on the plan concluded on 10 July 2024. The MEE will now review the comments and suggestions from stakeholders before finalizing the allocation plan.

Source: ICAP