Lecture 18

in this lesson first we'll discuss International crates namely clean development mechanism CDM and Joint implementation ji and their role in climate change mitigation objectives next we discuss the emission trading scheme of China including its pilot and National carbon markets further we also discuss emion trading systems from UK and compare it with European Union emion trading system in this video we'll introduce International credits namely clean development mechanism and Joint implementation we'll also highlight their role in achieving climate change mitigation in the context of European Union International credits are financial instruments that represent one ton of CO2 or carbon removed or reduced from the atmosphere as a result of an emission reduction project at present International credits are generated through two key mechanisms set up under Kyo protocol these are clean development mechanism and Joint implementation ji CDM and ji in this backdrop this clean development mechanism allows industrialized countries with a greenhouse gas reduction commitment these are called nx1 countries NX one countries to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries next we have joint implementation mechanism ji ji allows industrialized countries to meet part of their required Cuts in greenhous gas emissions greenhouse gas emissions by paying for projects that reduce emissions in other industrialized countries here joint implementation Pro provides for the creation of emission reduction units or erus whereas clean development mechanism provides the creation of certified emission reductions these CRS can be traded and sold and used by industrialized countries to meet a part of their emission reduction targets under Kyo protocol these emission reduction units or erus and CRS are basically account for the same amount of reduction but differ in their origin so c c RS they originate from CDM projects while erus they originate from joint implementation or GI based projects sometimes the term emission reductions ERS is used when talking about the Project based mechanisms in general each unit represents a reduction in one ton of CO2 equivalent emissions here participants in euts can use international crates from CDM and ji towards fful part of their obligations under the eets subject to qualitative and quantitative restrictions till 2020 the EU has a domistic emission reduction Target and does not currently inar continuing of these International credits for UTS compliance after 2020 so a mechanism is stipulated to meet their Coto Proto targets under the burden sharing agreement most of the European countries plan to make use of their flexible project mechanisms Nam CDM and ji in the Koto protocol from 1997 the EU members agreed to cut down their overall Greenhouse GS emissions related to their 1990 Levels by 8% in the period 2008 to 2012 over time this pressure to reach the targets has become even stronger and many countries realize that they have to start acting in order to achieve their targets as most countries are aware they'll not be able to reduce their emissions sufficient ently ly with domestic action alone they want to make use of flexible mechanisms of qto protocol focusing on these Project based mechanisms namely CDM and ji these Project based mechanisms have been designed to help countries to accomplish their Koto protocol Targets in an economically efficient and environmentally effective manner it must be noted that this rational behind Project based mechanism is that it is of secondary importance for the global environment where the emission reductions occur provided that real emission reduction are indeed achieved many of the European governments have already advanced plans to make use of CDM and ji in some cases considerable parts of necessary emission reductions are hoped to be achieved abroad via these mechanisms also these CDM and are important for European countries for European emission trading scheme for CO2 that is a major component of European climate strategy in addition CDM andji will also play an important role within the emission trading system as a linking between the ETS and the two Project based mechanisms has been established that allows to recognize J and CDM crates as equivalent to eu's emission allowances U now to make sure that a real emission reduction takes place crates from CDM and ji projects can only be generated if they are additional to what would have occurred in the absence of the project there a baseline scenario has to be developed and justified by the project participants before the project is implemented it has to show what would have happened in terms of emission in the absence of the project lastly the situation in the European Union gives the possibility to make use of GI and CDM on both private and government level for example governments can use ji and CDM credits to comply with their National Kyoto Proto reduction targets private entities that are covered by the UTS can convert the CRS and erus into allowances that can be used in the UTS this became possible with the so-called linking directive linking directive which wants to ensure that private actors can obtain their responsibilities within the European climate policy in the cheapest possible manner to Su rise in this video we discussed how parties to Koto protocol and EU member nations can benefit from International credits like CDM and ji in achieving their climate change objectives and reducing the emissions in a real and substantial manner in this video we'll further deepen our understanding about International creds namely clean development mechanism CDM and Joint implementation ji first the clean development mechanism CDM it allows for emission reduction projects in developing countries to earn certified emission reduction or CR credits each equivalent to one ton of CO2 one ton of CO2 these CR can be then traded sold and used by industrialized countries to meet a part of their emission reduction targets under qto protocol the mechanism stipulates sustainable development and emission reductions while giving industrialized countries some flexibility in how they meet their emission reduction limitation targets moreover article 12 of the Kyoto Protocol gives the possibility for emission reductions in non- anx1 countries which have no emission reduction targets the purpose of clean development mechanism shall be to assist parties not included in anex one countries in achieving sustainable development and contributing to the Fulfillment of the ultimate objective of the convention that is to assist parties included in anx one in achieving compliance with their Quantified emission limitation and reduction commitments under article 3 furthermore anx1 countries here can then use the certified emission reductions which they obtain from CDM project to contribute to their reduction compliance thus the clean development or CDM mechanism also gives the possibility for emission reductions in developing countries that is non anex countries non anex one countries which themselves have no reduction targets under the Koto protocol though the investment in environmental projects in the frame of CDM anx1 countries are supposed to transfer new and efficient Technologies new and efficient Technologies to developing countries and help them in achieving sustainable development next we have joint implementation or ji the mechanism known as joint implementation or ji defined in article 6 of Koto protocol Kyoto Protocol allows a country with an emission reduction or limitation commitment under the kto protocol with anex b anex b commitment party to un emission reduction units or erus erus from an emission reduction or emission Ral project in another anx B committed party each equivalent to one ton of CO2 equivalent emission which can be counted towards meeting its kto protocol Target kto Target joint implementation offers parties a flexible and cost-efficient means of fulfilling a part of their Cotto commitments while the host party benefits from fore investment and Technology transfer please note here that GI is the Project based mechanism referred to in article six of the Koto protocol GI stipulates and stimulates investment in emission reduction projects while giving industrialized countries and economies in transition some flexibility in how they meet their emission reduction or limitation targets joint implementation here ji allows industrialized countries to meet part of their required Cuts in greenhous gas emissions by paying for projects that reduce emission in other industrialized countries precisely ji differs from CDM or clean development mechanisms in a way that it represents a way for industrialized countries and basically an Xmen parties with a commitment inscribed in an XB of the quto protocol to take part in emission reduction projects or a project that enhances removals by syns in the territory of another industrialized countries for example an X1 party with an anx an XB commitment moreover as ji on emission reduction units or erus each equalent to one ton of CO2 the resulting erus from these projects can be counted toward meeting their own Koto Proto targets KP targets also following article six of the Kyoto Protocol GI allows unex parties to implement projects that reduce emissions or increase removal by SNS in the territories of other an next1 parties emission rection units generated by such projects can then be used by investing an next parties to meet their emission targets asj projects take place between anx1 parties the total emission permitted in the countries remain the same so that ji basically a zero sum gain so it's a zero sum operation as both investor and host countries benefit from a J Project it is expected that both countries will strike a fair balance so joint implementation of ji allows next one parties of the Kyoto Protocol to implement projects that reduce emissions or increase removals by syns in the territories of an1 parties and eru generated by such projects can then be used by investing anex one parties to fulfill their kto commitments to summarize this video we further understood in Greater detail about CDM andji and and how EU member nations particularly those that are party to Kyoto Protocol and have some commitment therein they can make use of or benefit from these CDM and ji Project based mechanisms and also facilitate reduction in emission carbon emissions and greenhouse gas emissions and benefit the environment in this video we'll conclude with our understanding and discussion about CDM and ji that is international credits as the world's largest carbon Market the euts is currently the biggest source of demand for these International credits and making it the main driver of international carbon market and the main provider of clean energy investment in developing countries and economies in transition since phase three CR and erus are no longer compliance units within the UTS and must be exchanged for UTS and sub allowances operators must request the exchange of CRS and erus for General allowances up to their individual entitlement limit set within the European Union registry to be precise there are three possibilities to acquire CDM and J crates these J crates and CDM projects CDM projects are in non anex fund developing countries while J projects are in anx1 industrialized countries and economies in transition the first one is to undertake CDM ji projects this option is particularly attractive for international funds and establishments in non- nx1 or transformation countries in which CDM and ji projects can be undertaken now here once the EU ETS firm reports erus and C to government Authority in step one in the Second Step the government Authority exchanges eus and CRS for additional allowance allocation units which are traded in UTS so these additional allowances are introduced to the UTS as the last step and government issues these Aus to affect installations thus eets here facilitates and helps the countries to reach their CTO CTO targets the second step or second way is to buy the er er us and CR from somebody who directly undertakes CBM now the second step or second option is very attractive or mostly chosen by governments which issue tenders for CDM and ji projects by private investors from which they want to buy the CR andus so government use these ER us andc to fulfill their National codo targets and that's why this is useful for them the third possible option is to invest in a fund that finances CDM and gii projects and acquires the erus and CS so this option emploees to invest in a carbon fund that collects money to finance CDM and J projects the general procedure is that the fund selects the GI and CDM projects from which emission crates are to be acquired following in a transparent procurement procedures to summarize this video and conclude the discussion emission reductions abroad via CDM and GI projects are likely to play a very important role for meeting the European kyotto commitments on the one hand governments can use these flexible kyto mechanisms to require less severe emission reductions restrictions by domestic households and domestic industry on the other hand FS covered by the upcoming European emissions trading scheme will be able to exchange the CDM and gii credits to emission allowances for their use within the scheme in this video we'll introduce emission trading systems in China in particular its pilot and National carbon markets in 2011 the Chinese government selected seven provinces namely Beijing tianin shangai guandong Shenzhen Hub chonging to launch pilot carbon emission trading schemes these pilot markets made great efforts in system design technical development and capacity building these seven pilot carbon markets with different characteristics were launched between 2013 and 14 in addition the Chinese Province fuan launched its ETS in September 2016 let us start with two of the pilot car markets including Beijing and gong both these Markets started in 2013 gong was implemented in a phase wise manner with phase one first three years from 13 to 15 then Phase 2 16 to 20 and currently we are in phase three the average allowance price in 2022 was around 13.85 for Beijing $1.35 for gondon for both the pilot carbon markets banking is allowed but borrowing is not allowed the trading takes place in both these markets with Bea in Beijing that is Beijing carbon emission allowances and gong emission allowance GDA and going down CCR or China certified emission reduction carbon crates are also traded in both the markets the method of allowance allocation has been free allocation in Beijing through grandfathering and benchmarking in November 2022 the first auction was held since 2013 generating a total revenue of us 16.4 million in guandong also free allocation through grandfathering and benchmarking remains a major mode it also auctions a small share of Alles next we have markets from hubai and shangai hubai Market started in 2014 and shangai started in 2013 Shanghai was implemented in phases with phase one in 2013 to 15 was trial phase and then 16 onwards we are in phase two the average allowance price was $6.95 in 2022 in hu and $ 5.96 in shangai now here banking is allowed and borrowing is not allowed in hubai the sports product included Hub emission allowances and ccrs the hbas or Hub emission allowances SP forward product was introduced in 2016 but has not been traded since May 2017 in Shanghai market products include Shanghai Mission allowances sha and Shanghai Mission allowance forwards and ccrs the allowance allocation mechanism in Hub has been primarily free allocation through grandfathering and benchmarking although several ad hoc auctions have been held since 2015 in Shanghai the allowances have been primarily free allocated through grandfathering and benchmarking a small share of the annual cap is auctioned one auction was held in each of the following years including 14 16 18 and 2019 since then two auctions have been held each year next we have shenen and tangin the launch date is 2013 for both the markets and currently they are implemented in phases the average allowance allocation price was $ 6.31 this is the average price of allowance being traded in shenen market and $5.1 is the average allowance secondary trading price in panin for both the markets banking is allowed and borrowing is not allowed in shenen ccrs shenen allowances sjas are main traded products in Tangen market products include spot Tangen carbon emission allowances and spot ccrs in shenen allowance has been primarily freely allocated through grandfathering and benchmark so far two auctions have held in 2014 June and August 2022 generating a total revenue of approximately 3.67 million inine allowances have been primarily freely located again through both grandfathering and benchmarking methods lastly we have the pilot Market of chuning and National carbon Market the chuning market started in 2014 while the national carbon Market start in 2021 and ongoing the average allowance traded price in chuning has been been in the range of $ 5.86 while the national carbon Market it has been in the range of $8.2 for both the markets banking is allowed and borrowing is not allowed in chuning there's a spot market for carbon emission trading center for trading of allowances and ccrs no derivative trading is allowed in National carbon Market emission allowances can be traded on a dedicated traded platform managed by shangai environment and energy exchange SE and derivative trading is currently not allowed for in the allowance have been primarily freely allocated through both grandfathering and benchmarking and auctioning was introduced in 2021 for National carbon Market free allocation of allowances through benchmarking was done as of 2021 gradually auctioning method has been introduced to summarize in this video we discussed the particulars of seven pilot carbon markets and the national carbon Market we discussed about their implementation in phases we also discussed the average allowance traded price and the policies related to banking borrowing we also discussed what kind of products are traded in secondary Market trading and we also discussed briefly about their allowance allocation methods in the next set of videos we'll discuss about their Market size volume and Market micr structure in this video we'll continue with our discussion of China's pilot and National carbon market trading schemes in particular we discuss we'll discuss the size and brief snapshot of Market size and turnover of Chinese markets and start the discussion with the carbon Market at Beijing let us have a quick snapshot of China's carbon markets as we can see in all the seven and the new market Fusion the total volume of carbon allowances is 51.52 million tons and in terms of value it amounted to 37032 million euros the average traded price in Euros per turn was 7.19 as we can see the guong has the highest traded volume here 14.45 while in terms of value it was 145. 78 million euros across all the markets they are all heavily traded with volume ranging from 3 to 7 million tons while in terms of value it is around 20250 million e the average price varies from 3 to 10 and averages around 7.19 Euro per turn so the markets have been fairly liquid and heavily traded let us start our discussion with the beijing's carbon Market it launched in November 2013 and since then it is continuing with the first phase itself in terms of average allowance prices the average auction price was around $17.44 us while the secondary market price in 2022 was around $13.85 the total revenue generated from this program amounted to 16.8 million us since 2022 since the the beginning of the program The Beijing pilot Market has seen a relatively high carbon price compared to other emission trading systems in China in this market banking is allowed boring is not allowed next in the Beijing Market the primary allocation of allowances our primary Market consists of allowance distribution through free allocation also there is a provision of 5% of allowances through regular and irular auctions the secondary trading consists of Five Spot products namely Beijing carbon emission allowances ba ccrs Forest certified emission reductions fcr green green transport certified emion reductions utcr and energy saving projects certified emissions PCR the Beijing green exchange manages the trading of all five products due to financial Market regulations in China no forward markets or derivative products are allowed the compliance period is one calendar year from January to December and the covered entities have until mid June of the next year to surrender and furnish the required allowances next we have Market stability Provisions which include first flooring and sealing so the competent Authority can auction extra lances if the baited average price exceeds $22.26 for 10 consecutive days it can also buyb allowances from the market using a special funding resource from the municipal budget if prices are below $2.97 in terms of exchange the Beijing green exchange implements a system of limits on price increases and decreases for trading over the exchange which is around plusus 20% % of the reference price the reference price here is the weighted average price of all transactions on the previous trading day this is to prevent large volatility and price fluctuations The Exchange also sets the maximum position limit for different Market participants which is the sum of their annual allocated allowances plus 1 million tons of compliance entities 1 million tons for compliance entities and 1 million tons for institutional investors and 50,000 t for natural persons individuals the reserve in in terms of reserve the competent Authority May set up 5% of allowances as reserve for regular and irregular options to summarize in this video we saw a brief snapshot of Revenue and volumes of allowances across the pilot markets of China we also discussed the market micr structure of the Beijing Market in detail in next videos we'll see the market micr structure in details of other pilot markets in this video we'll discuss the market micro structure of guong Hub and Shanghai pilot carbon markets the Guang Market started in December 2013 it was first Chinese carbon pilot to start the operation and covered around 40% of the city's emissions in 2021 it has a very broad sectoral coverage the guong emission trading system is the largest of Chinese emission trading system pilots in terms of Market size and spot trading volume it has been implemented in phases the first phase running from 2013 to 15 second phase running for five years from 16 to 20 and the third phase which is ongoing from 2021 onwards as the first Chinese region to introduce auctioning as a method of a location guong held quarterly auctions till 2016 since 2017 auctions have been held on an ad hog basis and cwx exchange organizes auctions for the primary Market we have gong emission allowance GDA as the main spot trading product in the secondary Market bidding transfer has been introduced in 2020 to organized o for covered entities to enhance market efficiency for the secondary Market other products include ccrs phcs they are also traded in the secondary market and all products are traded on CX exchange for this Market the compliance period is one calendar year calendar year from January to December and covered entities have until June to August for the following year to surrender allowances so they sender allowances in the following year for the previous year emissions next we have hub Market it was launched in April 2014 it covers around a quarter of Province emissions Hub carbon market system covers around 339 entities and a broad range of industrial sub sectors unlike other Chinese Pilots Hub does not predefine which sectors are covered under its CS rather it sets a threshold level which applies to all the industrial sectors allowances have primarily been freely allocated through both Grand faring and benchmarking approaches although they have several adoc auctions which are held since 2014 and hub has been one of the most active Regional markets in China in terms of trading and has the largest market in terms of spot trading volume after going down it is also one of the regional Pioneers for allowance forwarding forward trading in China next for Hub the primary market for insurances include China Hub emion exchange which organizes ad hoc auctions for the primary Market since 2019 Hub has held two separate rounds of auctions targeting different types of entities in each compliance year the secondary market products include spot products with Hub emission allowances or hbas and ccrs the HBA spot forward contract was introduced in 2016 but has not traded since May 2017 and China Hub emission exchange manages trading of all the products coming to the compliance period it is one calendar year from January to December the covered entities have until the last working day of May of the following year to surrender allowances in practice in most compliance years the exact date for the covered entities to surrender allow is set by the government on an annual basis and varies across the years coming to the market stability Provisions Hub Market has a provision for Reserve which is 8% of the total cap kept as a government reserve for Market stabilization in terms of interventions in case of Market fluctuations or severe demand Supply imbalances or liquidity issues The Hub exchange Hub EB in consultation with an advisory committee consisting of government institutions and other stakeholders can buy or sell allowances in order to to stabilize the market most specifically The Hubb takes action if the allowance price reaches a low or high point six times during a 20-day period also the exchange set day-to-day price fluctuation limit of 10% movement in either direction the auctioning mechanism is also there where a small share of the annual cap can be auctioned the main purpose of these auctions is to promote price disc Discovery and provide regulated entities with additional Supply to meet their compliance demand till date auctions have been held on an ad hog basis and they took place in 2014 19 20 21 and 22 moreover recent years have seen two auctions per year with the first auction for regulated entities only and the second open to all the participants next we have shangai exchange shangai exchange was launched in November 2013 and was the second region to start its pilot ETS it covered around 36% of the Cities emissions phase one of this exchange from 2013 to 14 also known as the trial phase and phase two was 2016 to present so it has been implemented in two phases it also employs Market stability Provisions first from exchange depending upon the transaction type if prices vary by 10% or 30% in one day the SLE e exchange can Institute price stabilization measures such as temporarily s suspending the trading or imposing holding limits for reserve a small share of the annual cap can be kept in a reserve for auctioning before the end of the annual compliance CLE as Market stability Reserve next coming to the market types so first we have primary issuances where no set percentage of allowance are allocated by auctioning though the shangai ETS regulations said that auctioning is to be introduced gradually presently ad hoc auctions have been held since 2014 to provide compliance entities with additional Supply in addition further auctions have also been held since 2020 where institu investors have been allowed to participate secondary market products incl include Shanghai emission allowances Shanghai emission allowance forwards and CC SAS and CC these are spot products in terms of banking and borrowing rules banking is allowed both within and across trading periods with some restrictions for the latter for banked allowances from the first trading period 13 to 15 only one third per year could be used by compliance entities between 16 and 18 allowances are bankable for institutional investors without such annual maximum limit borrowing is not allowed the compliance period runs calendar year to calendar year and covered entities must surrender allowances in June of the following year following to the current emission to summarize in this video we discuss the market micro structure of guandong Hub and Shanghai in particular we discuss the market dates the implementation in phases the market stability Provisions Market types and banking borrowing rules and compliance period for these three markets in this video we'll discuss the market micro structure of three key important markets including shenen chuning and Tangen to begin with shenen pilot Market began in June 2013 and was the first of the Chinese pilot to start the operation it covers around 36% of the city's emissions and it begin in phases from 2013 onwards the methods included allowance allocation benchmarking grandfathering and option as per the latest regulations for auctioning as per the provincial regulation for shenen emission trading pilot scheme published in 2022 it says that allowances can be sold at auction or at fixed price at least 3% of allowances should be auctioned so far two auctions have been conducted in June 2014 and 2022 August the compliance period runs from calendar to calendar year and covered entities have until the end of August of the following year to surrender allowances next we have the engine pilot Market it was launched in December 2013 it covers around 50% of the city's emissions as per the 2020 data and Emissions are covered for around 11450 it is currently running its first phase from 2014 onwards till present and first the market typ primary insurances of Alles are freely allocated so free allocation tangin climate exchange TC organizes ad hoc auctions as well for primary Market between 2019 and 2021 it held five options in terms of secondary market trading the products include spot Tangen carbon emission allowances pcas and spot CC also tangent climate exchange manages trading of all the products next in terms of compliance period it is one calendar year and covered entities have until the end of June of the following year to surrender allowances the average allowance trated price in secondary Market was around $5.1 and total revenues since the beginning amounted to to approximately $22 million since the beginning of the program lastly we have chuning pilot Market it was launched in June 2014 this emission trading system covers around 51% of the city's emissions as per the 2020 data and 152 entities are covered it is running and implemented implemented in one phase since 2014 and ongoing in this market banking is allowed and borrowing is not allowed in terms of Market types the primary insurances so far allowances are mainly allocated for free and auctioning was introduced in 2021 without a fixed schedule two auctions have been held so far the secondary market trading include products like spot Market at chuning Carbon emission trading center for trading of allowances ccrs due to the financial Market related regulations in China no forward markets or derivatives are allowed yet in terms of Market stability Provisions the draft measure state that a certain number of allowances from the cap could be set aside for several purposes including Market stability however there are no details for the market stability mechanism yet the compliance Market runs for calendar year to calendar year the exact date for the covered entities to surrender allowances set by the government on an annual basis and varies across the years to summarize in this video we discussed the key Market micro structure details of the P Chinese pilot markets including Tangen chonging and shenin the details included their launch the coverage of the market the implementation in phases the provisions for banking borrowing Market types including primary Market insurances and the mechanism for secondary trading the instrument traded in secondary markets we also discuss their Market stability provisions and the compliance period details in this video we'll introduce China's national carbon Market China's national emission trading system on National carbon Market began trading in July 2021 and currently operates in parallel with the number of pilot schemes each is called pilot Q China's ability to Peak emissions by 2030 and be carbon neutral by 2060 is called 36 strategy which relies in part on its ability to demonstrate to the world that it has the necessary infrastructure in place to maintain the inory of the system and has created to realize its 3060 strategy the Chinese National Market or national ETS is a regulated cap and trade based system so regulated cap and trade based system covering 2,162 entities these are called covered entities Each of which emit at least greater than 26,000 tons of carbon in one or more years between 2013 and 19 the national ETS is a mandatory regulat scheme with which all covered entities must apply the first compliance period for the national ETS concluded at the end of 2021 with the ministry of ecology environment reporting that covered entities represent renting 99.5% of the emissions have complied now China's emission controls are expanding both in terms of Industry sector coverage and the volume of energy consumed while there is currently no timetable in place the national ETS will gradually expand to cover more entities more sectors and more products around 17 carbon IND intensive Industries have been identified by the national development and Reform Commission as candidates for coverage by the national ETS including iron steel non-ferrous metal cement flat glass ceramic paper Construction and non- ferous metals and oil refining now currently only China emission allowances each representing 1 metric ton of carbon di oxide emissions are traded on National ETS these CA are allocated free of charge at entity level according to 70% of historical output multiplied by The Benchmark factor that is according to the volume and source of the energy produced Chinese ETS is the world's largest in terms of of covered emissions estimated to cover more than 4 billion ton of CO2 and accounting for 40% of the country's emissions the missions cap under the national ETS is the aggregate of all the CES that are allocated to all the covered entities for the relevant period and the cap is currently set to by reference to 2019 2020 output levels historically China has only set intensity based Target rather than absolute cap on tons of carbon dioxide emitted also China has indicated that that it will move away from the free allocation of Cs towards a paid a biding auction kind of system in alignment with it 6030 strategy CS the Cs can be traded on a dedicated platform operated by Shanghai environment and energy exchange SX covered entities must surrender sufficient CES to cover their actual emissions for the relevant compliance period after surrendering the volume of CES required to offset their actual emissions covered entities with suplus CES May either sell them to covered entities whose ual emissions exceeded their CA location or carry them to the next compliance period trading of CA is currently on spot terms only however the China Securities Regulatory Commission issued a statement confirming that it plans to establish a carbon emission Futures Market to supplement the national ETS to be operated by the Gango Futures exchange however there is no currently timetable in place lastly the covered entities May offset up to 5% of their annual verified I for compliance purposes through the purchase of CCR China certified emission reductions CC it is intended that the pilot schemes will eventually form part of the national ETS however there is no currently timetable for the same it is expected that this integration of pilot schemes into National ETS will take place on a staggered basis this CCR is essentially an offset mechanism it was launched in 2013 so the CCR scheme was halted in 2017 and then resed in 2021 when the me issued a notice allowing covered entities to use pre-existing CCR to offset up to 5% of their annual verified emissions for the compliance purposes with no restrictions on Project type or vintage the national trading platform for CCR is hosted by Beijing green exchange China is expected to relaunch the national CCR scheme during 20120 in order to retas the balance between the fossile fuel based energy producers and renewable energy companies these ccrs may be traded within the voluntary Market subject to compliance with the rules applicable to the applicable pilot scheme and parants may trade ccrs within a pilot scheme even if the project generating the CCR is located in a different region the following are some of the key Provisions under the national measures and the implementation rules for China's national ETS first the partipants currently only onshore covered entities May trade CES exchanges the shandai environment and energy exchang swe is responsible for trading of Cs while the China Hub emission exchange chwe responsible for registration of Cs trading method trading of CA is conducted electronically and on spot delivery terms that is trading carbon certificates with immediate payment and delivery by way of oneway bidding or transfer of agreement in terms of trading regation it shall include the Traders number trading number code of product trading Direction declaration amount declaration price and other information as may be required by SLE single trades the maximum threshold for a single trade is 1 lakh ton of carbon and pricing May fluctuate plusus 10% from the previous dat trading for Block trades the minimum threshold for a block trade is 1 lakh tons of carbon and the pricing May fluctuate 30% from the previous days trading the block trades may only be carried out by oneway bidding trading accounts a covered entity may open a single account in its own name in order to trade Cs and restrictions on the same day transfer so C that have been purchased may not be sold again on the same day the settlement period here are the trades are settled on the delivery versus payment DVP delivery versus payment basis at the end of the trading day to summarize the Chinese National ETS it is regulated by me which operates through the exchanges of two of the pilot schemes first the shangai environment and energy exchange s which is responsible for trading of CES and the China Hub exchange emission exch CH which is responsible for registration of Cs the legal basis and governance structure of the national EAS was established in 2021 person to the National measures of the administration of trading and carbon emission rights the national measures the national measures are supplemented by the detail implementation rules relating to the registration trading and settlement of C which is China emission allowances which together form the legislative f work and basis for the operation of national ETS the Cs can be traded on a dedicated platform operated by the shanhai environment energy exchange and covered entities must surrender sufficient CS to cover their actual emissions for the relevant compliance period after surrendering the volume of Cs required to offset their actual emissions the covered entities with Surplus CS May either sell them to the covered entities whose actual emissions exceed their CL location or carry the Surplus CS over to the next compliance period moreover covered entities May offset up to 5% of their annual verification emissions verified emissions for compliance purposes through the purchase of CCR generated through a pilot scheme to summarize in this video we discussed the mechanisms and operation of Chinese National ETS in this video we'll discuss the key features of UK Mission trading system to begin with the UK emission trading system started operating in 2021 following the departure of UK from European Union U ETS verified emissions from the stationary UK ETS operators currently cover around a quarter of the UK's territorial greenhouse gas emissions the first phase of uks runs till 2030 uks covers around 1,000 entities in the Power Industrial sectors as well as Aviation within the UK and flights departing from UK to Switzerland and the European economic area Alles are primarily allocated through auction with a portion freely allocated to safeguard the competitiveness of emissions intensive trade exposed sectors and minimize the risk of carbon leakage as of 2021 1,000 entities are covered under UK ETS compliance period runs from calendar year to calendar year covered entities have until the end of April of the following year to surrender the allowances these Provisions are the same as under UTS the trading hours are from 7:00 a.m. to 5:00 p.m. UK time in terms of Market types the primary insurances takes place through majority of allowances are located through auctioning auctioning is held every two weeks with dates and allowances amount set out in the auction calendar compliance entities financial institutions and business groupings and public bodies acting on behalf of compliance entities can participate auctions are managed through ice Futures Europe secondary Market instruments include uks which are traded on the ice futes European exchange contracts for daily Futures Futures and options on Futures Contract are available participants in the secondary Market must meet the requirements of the ice Futures exchange and have an account in the UK registry partsman may also trade allowances over the counter looking at the price fluctuations of allowances in UTS and uks it seems that the prices at uks slightly higher but they move pretty much in tandem with the U allowances as we can see here there seems to be high correlation and they fluctu together and given that the size of uks is about 7% of its U counterpart the turnover is also similar in terms of the fraction for example the total market value was similar proportionally with the uks transactions collectively worth around 47 billion or about 7% of the UTS 751 billion market value in 2022 and they seem to be pretty much co-integrated in fact UK ETS the installations were earlier part of UTS only to summarize in this video discuss the market micro structure and key features of uks which is one of the major trading systems emission trading systems in the world to summarize this video International crates are financial instruments that represent one ton of CO2 removed or reduced from the atmosphere as a result of an emission reduction project predominantly two such mechanisms exist namely clean development mechanism CDM and Joint implementation ji the CDM mechanism allows emission reduction or emission removal projects in developing countries to earn certified emission reductions or CS each equivalent to one ton of CO2 these CRS can be traded and sold and used by industrialized countries to meet part of their emission reduction targets under the kto protocol joint implementation that is ji represents a way for industrialized countries or anx1 parties with a commitment inscribed in N XP of the Koto protocol to take part in emission reduction projects or a project that enhances removals by sinks in the territory of another industrialized country that is anx1 party with an anx B commitment it differs from the clean development mechanism in the sense that it represents a way for industrialized countries that is anex one parties with a commitment inscribed in anex B of the quto protocol to take part in a mission reduction projects or a project that enhances removals by syns in the territory of another industrialized country for example an X1 party with an XB commitment next we discuss the ch Chinese ETS Market China emption Trading System comprises One National and eight Regional pilot markets including Beijing Guang Hub shangai shenen tanang chonging and fujan the total volume in these markets amounted to 51.52 million ton in terms of volume and 37032 million EUR in terms of value the average price was 7.19 euro per turn all of these markets include heavily traded spot markets including China certified m reduction credits the L allocation is done through grandfathering benchmarking and auction mechanisms the compliance period followed is calendar year these markets also create Provisions for Market stability in the form of circuit breakers and allowance reserves lastly uks has grown into a successful scheme after brexit the price evolution in the uks is similar and heavily correlated with European Union Mion trading system