China's carbon market needs more legal, auditing efforts, experts say

China's carbon trading market celebrated its third anniversary last month. Despite the progress made, experts are calling for more legal support and a more professional auditing system to better develop the market.

To cut emissions, the Chinese government sets a carbon emission cap within a certain time limit and allocates quotas to companies on the market as an incentive to encourage them to reduce emissions. Companies could sell their surpluses for money, but would have to buy more quotas if they use them up.

As one of the country's core policy tools to achieve carbon peaking and neutrality goals, the market saw over 460 million tonnes of carbon emission quotas, or 27 billion yuan (about $3.7 billion), transacted as of July 15.

China's Xinhua News Agency reported that the market now has 2,257 companies, which account for over 40 percent of China's total carbon dioxide emissions.

The Chinese Ministry of Ecology and Environment also said last month that the market, consisting primarily of companies of the power-generation sector, has been developing steadily and prompting the companies to become greener since its launch three years ago.

However, experts say that the market, despite the progress it has made, still needs more legislation and law enforcement support, especially a more professional auditing system.

Currently, the highest-level legislation for the market is a set of temporary regulations that came into effect in May this year.

"The regulations are China's first special law in combating climate change. For the first time, it states the trading system of carbon emission rights in an administrative law, and thus is a milestone," Yu Wei, director of the Research Center for Carbon Neutrality and Green Development at China Jiliang University, told CGTN.

However, Yu admitted that the market still needs a national law made by the nation's legislatures, which will have more legal force than administrative regulations issued by the government.

Yang Zhaoxia, director of the Ecological Law Research Center at Beijing Forestry University, echoed the opinion in an interview with CGTN. 

"Although we have a basic frame for the market, at the national law level, there is still no specific law for combating climate change or promoting a low-carbon economy," Yang said.

"Administrative regulations are not at the top of the 'pyramid' of laws in terms of its effect, and when dealing with some legal issues that go beyond the authorization of the State Council, they become overstretched and lacking sufficient legal force. A law legislated by the National People's Congress which has specific stipulations for carbon emission rights trading is the next step in developing the market and promoting the carbon peak and carbon neutrality goals," he said.

Experts also point to the carbon emission data auditing system for improvement.

Liu Zonghong, a partner of DeHeng Law Offices, a Beijing-based law firm, wrote in an article published on the firm's website that the auditing system has three steps, companies' data collection, companies' data reporting and third-party auditing.

But carbon experts Yu and Yang told CGTN that the system still has many loopholes.

"In practice, one of the weakest links in the government departments who are responsible for carbon trading is their lack of professional knowledge. For example, they would confuse key concepts, which will undermine the efficacy of the auditing," said Yang.

"Some unprofessional auditing organizations and their 'willful negligence' also greatly influence the auditing. For example, some auditing institutions only do a superficial job without checking the source of the data and whether the data is true, some turn a blind eye to obvious problems, and some only sign their names without checking the report," Yu told CGTN.

Carbon data collection and auditing, which could directly change companies' emission quotas and their behavior, is believed to be the foundation for the carbon trading market.

Experts also call on stricter legal enforcement to crack down on illegal activities such as data fabrication. 

(Cover image via CFP)