Carbon Trade and China’s Carbon Exchange Market Du Shaozhong July, 2014

Progress of China’s Carbon Market DevelopmentIntroduction to Beijing Environment ExchangeOrigin of Carbon Trade and Global Carbon Market Contents

I. Origin of Carbon Trade and Global Carbon Market

Background— F ​ i ​ f ​ t ​ h ​ ​ A ​ s ​ s ​ e ​ s ​ s ​ m ​ e ​ n ​ t ​ ​ R ​ e ​ p ​ o ​ r ​ t of IPCC: human activity is most probably (more than 95%) the principal cause of global warming. Warning line——2 ℃ Target of Temperature Control % reduction of GHG globally （ 2009 ， G8 ）。  1992 ， United Nations Framework Convention on Climate Change （ UNFCCC ）  1997 ， Kyoto Protocol  2015…… China’s Situation ： largest emitter in the world China’s promise: by 2020, China’s CO2 emission will be decreased by % on the basis of the level in The objective in 12 th 5-year Plan is 17%. Global Warming and GHG Reduction

Orders Regulations Standards Finance Taxation Tax Subsidy Financing Market Emission trading Energy Performance Contracting Policy instruments for emission reduction The rising of market policy instruments results from its cost- effectiveness, comprehensiveness and flexibility.  Various types of policy tools  Applicable in different situations  Comprehensive and coordinated application

Basic principles of carbon trading （ cap-and-trade ） buy discharging quota for inadequate part Original quota distribution A Discharger A Discharger discharging quota Discharge buy discharging quota for inadequate part remaining discharging quota B Discharger B Discharger discharging quota Discharge sell the remaining discharging quota Original quota distribution

Supporting tools Registry system Reporting system Trading platform Relevant organizations Authoritative organization Supervision organization Financial organization Regulatory mechanism Price regulation Quota storage Offset mechanism Framework of Elements Coverage Total Target Quota allocation MRV Compliance mechanism Legal system Carbon trading framework

Quota ---Compliance IET EU-ETS Local pilot projects in China Quota---Voluntary CCX Quota ---Compliance CDM JI CCER Quota---Voluntary VER Classified by the purpose Classified by the producing method of the subject matter Classification of carbon market

supply and requisitioning parties BuyerSeller Third party service provider Intermediate traderexchange Third party auditing organization Financial institution Consulting services （ law and technology ） Participants in the carbon market

Source: WB 、 PointCarbon International carbon trading

 Market types: Quota market + Project market （ primary market and secondary market ）  EU Emissions Trading Scheme is the largest market. Carbon trade volume and amount account for more than ¾ of the globe International carbon market

Overview of the global market established （ compulsory legislation ） Establishing legislation completed, date is set ） Planning （ government promises/formulate plans ） Country Local CDM/JI Multi-lateral Offset Domestic offset Planning connection Caif. RGGI Quebec Chile Brazil EU Switzerland Ukraine Turkey Kazakhstan China South Korea Japan Tokyo Prefecture Australia New Zealand

II. Progress of China’s Carbon Market Development

China’s low-carbon policy development Decision of the 3 rd Plenary Session of the 18 th party committee introduce the system for energy saving, carbon allowances, pollution discharging allowances and water allowances report at 18th Party Congress Actively launch pilot markets for energy saving, carbon allowances, pollution discharging allowances and water allowances NDRC deploys the building of carbon market 七省市碳排放 权交易试点 自愿减排交易 暂行管理办法 working plans for the emission control of GHG in the 12 th 5- year Plan Explore to establish carbon allowance trading market Outline of the 12 th 5-year plan gradually establish carbon trading market To solve the environmental problems by means of market direction got more and more recognition Environment market with carbon trading as the representative enters into people's views Let market play a decisive role in the allocation of market resources two parallel carbon trading system with intersections 7 provinces and cities establish carbon trading pilot projects Interim regulation on voluntary reduction trading

National （ top to bottom ） preparatory work at the national level  November 2011, NDRC distributed the Notice on Launching Pilot Carbon Trading Markets, approving Beijing, Shanghai, Tianjin, Guangdong, Shenzhen, Chongqing and Hubei to carry out the corresponding work.  Establish markets following the current mechanisms in EU and New Zealand, etc.  Embodies local features and China’s development stage Provincial （ bottom up ） pilot carbon trading markets in 7 provinces and cities  VER projects (future national offset mechanism)  national registry system  guidance on GHG accounting in key industries  top-level design for the national unified carbon market Preparation and development in the 12-th 5-year Plan

Route map of China’s Carbon Market Development （ at present) （ ） （ ） （ after 2015 ） starting of carbon financial market Development and improvement of carbon market Market types and features Policy premise Kyoto Protocol 《 Regulations on the Operation of CDM projects 》 《 Regulations on VER of GHGs 》 policy for pilot carbon trading markets Licensing policy for financial businesses Carbon finance stage CDM projects Odd VER transactions Regional experimentation Preparatory stage Regional experiment ation- Regular stage National carbon market

Pilot carbon trading markets in 7 provinces and cities  On June 18, 2013 the first trading market was launched in Shenzhen, and on June 19, 2014 Chongqing market was launched. All pilot markets were launched in seven provinces and cities, with a cumulative volume of more than tons, and a turnover of over yuan.  In the carbon trading system more than 2000 Chinese enterprises are included, and the number of carbon emissions quota is more than 1.2 billion tons. China has become the world's second largest carbon market.  Covering power, iron and steel, petrochemical, cement, paper making, heat and other high emission industries

AreaStarting date Trading volume on the 1 st day （ ton ） Average price on the 1 st day （ yuan ） Total volume of the annual quota （ 100m tons ） Number of emission control organizations Shenzhen , Shanghai , Beijing , Guangdong , Tianjin , Hubei , Chongqing , General situation of pilot carbon trading markets

Threshold of different pilot trading markets Pilot areas Reduction target of carbon emission per unit GDP Standards Shenzhen In 2015 a 21% drop than 2010 Annual emission of CO2 reaches more than 5000 tons, commercial building area larger than 20,000m2, public building area larger than 10,000m2. Shanghai In 2015 a 19% drop than 2010 Annual industrial emission of CO2 reaches more than 20,000 tons, non-industrial more than 10,000 tons. Beijing In 2015 a 18% drop than 2010 Annual emission of CO2 reaches more than tons, or consume an energy amount equivalent to 5000 tons of standard coal Guangdong In 2015 a 19.5% drop than 2010 Annual industrial emission of CO2 reaches more than 10,000 tons, non-industrial more than 5,000 tons. Tianjin In 2015 a 19% drop than 2010 Annual industrial emission of CO2 reaches more than 20,000 tons Hubei In 2015 a 17% drop than 2010 Annual industrial emission of CO2 reaches more than 60,000 tons Chongqing In 2015 a 18% drop than 2010 Annual industrial emission of CO2 reaches more than 20,000 tons

Price Trends in China’s Carbon Market

Overall Transactions of China’s Carbon Market

 In the 13 th 5-year Plan we will expand the scope of the pilot markets, and gradually establish a top-down national carbon market.  National carbon trading registration system construction and the greenhouse gas accounting and reporting in 18 industry key enterprises and institutions will be completed in the "Twelfth Five Year Plan" period, which lays the foundation for the development of national carbon market in the 13 th 5-year Plan.  The promulgation of the “national nine articles" promoted the China Securities Regulatory Commission to carry out studies of carbon trading varieties and supervision, clearing away obstacles for large carbon market in 13 th 5-year Plan. The current pilot markets are only the prelude of China’s carbon market!

III. Introduction to China Beijing Environment Exchange

Mission of CBEEX Basic function  using economic measures to carry forward energy saving, emission reduction, ecological protection to deal with climate change Role of the platform  A national VER organization registered in NDRC  A Beijing-Government-designated platform for elimination of old vehicles  A Beijing-Government-designated pilot trading platform for carbon trading Founded on Aug 5th, 2008 with a registered capital of 200 million yuan. The most influential environment equity exchange platform in China

Environmental issues Low-carbon development Administ rative means total volume Market mechanism Trading Fiscal subsidy Green public service Financial instruments Investment and financing Policy performance Market expectation Credit lever Business logic

Business layout Pollution rights exchange Carbon exchange energy efficiency credits exchange Green circulation Low-carbon development The establishment of "point-line-area" business ideas  Multi point support, the establishment of business development structure with carbon trading as the dominant >Multi lines support, to establish a industrial chain of key businesses  Cooperation, is conducive to the establishment of various business development cooperation group The formation of four major business lines, and four supporting businesses International projects Partnership Research projects Green finance Low-carbon Transformation service

Cases compile CO2 emission reduction report for a Shanxi sulfur coal power plant Beijing Subway Line 16 CCER carbon assets project Beijing ETC VER projects Service regions of low-carbon planning and GHG emission list Qingyuan county, Zhejiang province Huhehaote, Inner MogoliaDujiangyan, Sichuan

Future prospects Steadily promote the existing products Carry forward the formation of trading commodities Actively explore financial products Promoting the commodity market, and innovating financial marke.

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