By Terry Wang, Interfax China, March 6, 2008

China is ready to adopt a nationwide permit-based pollutant emission trading scheme as a key part of its drive to increase energy efficiency and reduce pollution, an official with the People’s Bank of China (PBOC) said at an industry conference on Thursday March 6th.
“China has attained the necessary conditions for setting up a trading exchange for pollutant discharge permits,” said Mu Huaipeng, director of the central bank’s financial market department.

The country, which aims to cut emissions of major pollutants by 10 percent during the 2006-2010 period, initiated a pilot sulfur dioxide (SO2) emissions trading trial program in 2002. The program allows companies in the provinces of Shandong, Shanxi, Jiangsu and Henan, as well as the cities of Shanghai, Tianjin and Liuzhou, to exchange emission credits with the China Huaneng Group, the country’s largest power producer.

Jiangsu’s provincial government announced in November last year that a full buy-and-sell water pollution emissions trading system would come into effect at the beginning of this year. Some 266 enterprises that discharge pollutants into Lake Tai, which is notorious for serious pollution problems, must buy permits from other firms if they exceed their emission quotas. Initial pollution permit prices are set at RMB 10.5 ($1.48) per kilogram of chemical oxygen demand (COD), a measurement of water pollution, for chemical firms; RMB 5.2 ($0.73) for printing and dyeing mills; and RMB 1.8 ($0.25) for paper mills.

Despite the lengthy implementation of the trial programs, the country has stalled the launch of a national trading system. Industry insiders say that is due to complications that arose regarding permit allocation.

“There is a lot of disagreement over how emission permits should be allocated between different industries, and whether the industrial output values of various sectors should be taken into consideration,” said an official with Guohua Electric Power, a power subsidiary under China’s major coal producer Shenhua Group. “But, I believe such a domestic trading system will be implemented very soon,” the official, who wished to remain anonymous, said.

The pollution permit trading system is one of a series of moves initiated by the Chinese government aimed at improving
environmental protection measures.

According to rules drawn up last year by the State Environment Protection Bureau, PBOC and the China Banking Regulatory Commission, financial institutions are forbidden from extending credit to any newly-constructed project that has not gone through proper environmental assessments, and will be penalized if credit is not withheld from enterprises that have exceeded emission quotas or failed to apply for necessary emissions permits.

This article was originally published by Interfax-China, and is republished with permission.  Interfax-China’s team of in-country analysts track China’s industries and markets, providing comprehensive daily coverage of China’s energy sector.  Learn how more about these markets and the opportunities they offer your business. Learn about energy in China through our China Energy Weekly and focused energy reports carbon trading, clean & renewable energy, CTL, oil & gas, and power generation.  Free Trial – Contact Andrew Billard; andrew@interfax.cn or by phone at 86-10-8532-5021 (Beijing, China).

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