China to Start Trial Trading in Energy Use to Cap Consumption

  • Country to launch trial trading in four provinces next year
  • Companies have to pay for energy use that surpasses allocation

China plans to start a trial energy-use trading program mainly targeted at major power-consuming companies next year as it seeks to cap energy consumption by 2020.

The world’s biggest energy consumer will first implement the trial in the Zhejiang, Fujian, Henan and Sichuan provinces, the National Development and Reform Commission, China’s top economic-planning agency, said in a statement on Wednesday. The country plans to gradually expand the trading program to other areas depending on a review of the results in 2020, it said.

The nation will allocate energy-consumption quotas to companies, who will have to pay if they exceed the limit, the NDRC said, adding the payment will be used to help reduce local emissions.

China has been stepping up efforts to save energy and cut emissions as it works to combat climate change. The world’s second-biggest economy seeks to cap energy consumption at a maximum of 5 billion metric tons of standard coal equivalent by 2020, a ceiling that represents a 16 percent increase from 4.3 billion tons in 2015, or growth of about 3.2 percent a year.

“The nation wants to put a cost on emissions or energy use to force companies to upgrade technology,” said Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd., a London-based research company with a focus on China. “Companies will have to eliminate outdated capacity or buy extra quotas,” if needed, she said.

— With assistance by Feifei Shen

Before it's here, it's on the Bloomberg Terminal.