China’s Emissions Trading System Faces Challenges as Officials Target Data Fraud and Plan Expansion

Chinese authorities have announced a crackdown on carbon data fraud in an effort to strengthen the nation’s emissions trading system ahead of its expansion, according to Bloomberg’s news.

The current system, which encompasses over 2,000 major power plants and covers more emissions than any other trading system globally, has been facing challenges, including low prices, accusations of data fabrication, and thin liquidity.

In a report presented to the annual parliamentary gathering in Beijing on Sunday, the National Development and Reform Commission stated that officials will improve statistics and accounting of carbon emissions, as well as “crackdown on data fraud.” The government also plans to integrate the carbon market with systems for trading renewable power to help increase clean energy investments.

China’s national market for emissions allowances, which was launched in 2021 after facing several delays, is set to be extended over the coming years to add more industries, with large aluminum and cement producers expected to be included this year. The market is also expected to expand to steel and oil in the next two years.

Inaccuracies with emissions data submitted by power plants were discovered during environmental inspections carried out in 2022. Power plants are required to pay for every ton of carbon dioxide they generate that exceeds an allocated amount. Four consulting firms that assist utilities with submissions have also faced criticism over alleged negligence or falsifying data.

In an effort to counter European Union carbon border taxes, the China Iron and Steel Association has proposed committing to a 40% cut in emissions by 2040 from 2020 levels. The steel sector is the biggest industrial source of China’s CO2 releases.

Sinopec Group, Asia’s largest refiner, has also lobbied the government to reopen the country’s separate carbon credit system, seeking changes that could help fund carbon capture and geothermal projects, and offer better tools to collect CO2 data for oil processing. Mo Dingge, chairman of Sinopec’s Zhenhai Refining & Chemical Co. and a delegate of the Chinese political advisory body, stated that oil companies need to track carbon footprints for all oil products throughout their entire lifespan and apply advanced cloud computing tools to help set fairer allowance allocation plans.