Ministry of Environment plans to implement a domestic carbon trading mechanism in the first half of the year. At a public hearing held on the 8th, the industry voiced concerns about the Ministry's proposed 5% transaction fee, considering it too high. Climate Change Administration defended the fee, stating it reflects the industry's carbon reduction responsibilities and is not comparable to financial commodity fees. Additionally, to prevent speculation, the draft does not allow carbon credit to be resold, permitting each carbon credit to be traded only once.

Ministry of Environment introduced the draft "Greenhouse Gas Emission Reduction Quota Trading, Auction, and Transfer Management Measures" (referred to as the Carbon Trading Measures) in December 2023. On the 8th, a public hearing and discussion forum were held, inviting government agencies, civil society organizations, and industry representatives to participate. Deputy Director-General of the Climate Change Administration, Mr. Huang, stated that the measures will be implemented in the first half of this year.

The draft establishes three methods for domestic carbon credit  trading: fixed-price trading, negotiated trading, and auctions. Regardless of the trading method chosen, Ministry of Environment will impose a 5% transaction fee on the buyer. A representative from China Petrochemical Corporation pointed out that the typical transaction fees for securities trading are usually below 1%, indicating that the transaction fee for carbon trading is too high. The Steel Association also believes that the 5% transaction fee for "negotiated trading" is unreasonable as it doesn't utilize the carbon trading platform.

Mr. Huang stated that the carbon trading transaction fee is not a standard fee or a platform service fee and should not be understood from a financial product perspective. When interviewed, Mr. Huang added that the purchase of carbon credit by operators to offset emissions does not actually fulfill the obligation to reduce emissions. In foreign countries, it is common to levy additional charges on operators through transaction fees to replenish the national carbon reduction fund. Taking Singapore, a country with a carbon trading system similar to ours, as an example, the carbon trading transaction fee is also 5%.

However, the draft stipulates that transactions involving carbon credit of 100 metric tons or less are exempt from transaction fees, raising concerns that some operators may divide transactions into multiple smaller ones to avoid fees. The Financial Supervisory Commission (FSC) also suggested that the Ministry of Environment consider adjusting the threshold. In response, Mr. Huang stated that carbon trading typically involves transactions of over 100 metric tons. If anyone attempts to evade fees, the amount involved could be considerable, prompting further consideration on how to address this issue.

Each carbon right can only be traded once, as stipulated in the draft to prevent speculation. However, the Semiconductor Industry Association suggests that trading frequency should be moderately liberalized, such as allowing operators to resell up to 10% of the acquired carbon rights. Mr. Huang expressed concern that allowing carbon credit to be transferred might lead to speculative hoarding and the emergence of "old carbon" on the market, which doesn't align with carbon reduction goals. He added, "If you want to sell it, but nobody wants to buy it," it would ultimately be disadvantageous to operators.

The former Ministry of Environment once allowed certain industries to obtain carbon reduction quotas through "Early Action Projects." However, the issuance mechanism at the time was not stringent, leading environmental groups to criticize these quotas as "trash carbon rights." In response to the Ministry of Environment's decision to allow such carbon credits to be subject to negotiated trading, Lin Yuxuan, a researcher at the Taiwan Climate Action Network, urged further establishment of price limits to prevent the bulk acquisition of low-quality carbon rights at low prices by operators, which could affect carbon pricing. The Semiconductor Industry Association also called for equal treatment, arguing that Early Action Projects and other types of carbon reduction quotas (Offset Projects and Voluntary Reduction Projects) are all obtained through legal applications and should not be limited to negotiated trading only.

Mr. Huang stated that Early Action Projects were introduced to encourage early action and were not as rigorous as subsequent carbon reduction methods. He emphasized the need for strict limitations on the use, trading, and offsetting of carbon fees to prevent misleading the public into thinking they are equivalent to other types of carbon reduction quotas. He emphasized that Early Action Projects' offsetting of carbon fees "will not be one-to-one" but will require "significant reductions," although he did not respond to whether upper and lower limits would be set.

Regarding whether companies with carbon neutrality needs can purchase domestic carbon credit, Mr. Huang stated that according to the Climate Change Act, companies must have demand for incremental offsetting or offsetting of carbon fees or other "purposes approved by the Ministry of Environment" in order to participate in buying and selling. However, the purposes of the latter have not been established in the draft Carbon Trading Measures, and relevant mechanisms will be reassessed.

Source:
Environmental Information Center