Noncompliant emitting entities face stiffer fines

China has introduced tougher penalties for key emitting entities that fail to surrender their carbon emission allowances on time, including an initial fine of 1 million yuan ($149,429) to 5 million yuan and a further penalty of up to 10 times the market-linked price for continued noncompliance.

The revised regulations on carbon emissions trading were unveiled by the Ministry of Ecology and Environment on Saturday, following a State Council decision issued on Aug 8.

Under the revised rules, enforcement will follow a two-stage mechanism, with a fixed fine imposed initially and a market-linked penalty applied if the violation persists.

A key emitting entity that fails to surrender its carbon allowances in full within the prescribed period will be ordered to rectify the violation by a specified deadline and fined between 1 million and 5 million yuan.

If the entity still fails to complete the surrender within the rectification period, it will face a further fine equivalent to five to 10 times the average market transaction price of carbon allowances during the month preceding the original surrender deadline. Environmental authorities may also order the entity to suspend production for rectification.

Under the previous regulations, entities that failed to surrender their allowances were ordered to rectify the violation and fined five to 10 times the average market transaction price of carbon allowances during the month preceding the surrender deadline.

If they refused to rectify the violation, authorities could deduct an amount equivalent to the outstanding allowances from their allocation for the following year and order them to suspend production for rectification.

The regulations were first issued by the State Council on Jan 25, 2024, and took effect on May 1 of that year.

Carbon trading involves the buying and selling of allowances to emit greenhouse gases among designated emitters.

China launched pilot carbon trading programs in seven regions, including Hubei province, Beijing and Shanghai, in October 2011. Trading under the pilot programs began in 2013.

The national carbon emissions trading market began operating in July 2021, initially covering only the coal-fired power generation sector. Under the scheme, carbon emission benchmarks are set for power plants based on the amount of electricity they generate. After each trading cycle, operators can sell surplus allowances if their emissions remain within the applicable benchmarks. Those that exceed their allowances must purchase additional ones.

The national market was expanded to include the steel, cement and aluminum smelting industries in 2025.