China Beijing Environmental Exchange

The China Beijing Environmental Exchange is a domestic and international environmental equity public emissions trading scheme established by the China Beijing Equity Exchange and authorized by the Beijing Municipal Government.

Background

Climate crisis

Many of China's environmental policies have been developed in response to the country's significant greenhouse gas emissions, particularly from carbon dioxide, which is the main greenhouse gas it emits. In 1980, China emitted less than 1.5 gigatonnes of CO₂ per capita from fossil fuels.
Over the next two decades, during the period of economic reforms under Deng Xiaoping's leadership, CO₂ emissions rose by about 4% annually to approximately 3 Gt per capita. From 2000 to 2012, the emissions rate more than doubled, and China began emitting over 9 Gt per capita annually. Although the rate slowed over the following years due to economic shifts and climate reforms, emissions increased again to meet the rising demand for air conditioning.
The main source of emissions is coal. Between 1980 and 2010, China's combined yearly emissions from oil, cement, and natural gas did not exceed 2 Gt, whereas coal alone accounted for over 2 Gt in 2000 and peaked at nearly 7.5 Gt in the early 2010s.
Large-scale coal production dates back to the Seventh Five-Year Plan, which organized China's division of labour according to regional specializations. As a result, the more industrialized provinces in the coastal and central regions became the main drivers of China's economy. Historically, coal-intensive industries have been among the most successful, and coal consumption has often been correlated with economic growth. Following this economic development model, other provinces—particularly less developed ones—adopted similar industrial practices, which led to increased coal use.
Some of these underdeveloped provinces, such as Shaanxi and Sichuan, do not specialize in heavy industry, resulting in lower economic productivity compared with central China. Consequently, this has led to inefficient use of land resources and wasteful coal consumption.

Origin

Coal-related CO₂ emissions became a major focus in China's Eleventh Five-Year Plan, which set a target to reduce emissions intensity relative to GDP by 20%. One of the key strategies introduced was the establishment of China's first emissions trading exchange in Tianjin in September 2008. With the assistance of international exchanges such as the Chicago Climate Exchange and the European Climate Exchange, China emerged as a major participant in the Asian emissions market.
Around the same time, the China Beijing Environmental Exchange was established as a platform for trading environmental equities. The exchange adopted similar objectives to those of the Tianjin Climate Exchange and contributed to fulfilling the environmental goals outlined in the Eleventh Five-Year Plan.

History

Panda Standard

In collaboration with BlueNext, the China Forestry Exchange, Winrock International, and the Asian Development Bank, the China Beijing Environmental Exchange launched the first Chinese standard to address greenhouse gas emissions—specifically carbon dioxide —at the Copenhagen Summit in late 2009. The goal was to create mechanisms that support China’s environmental, economic, legal, and social development while ensuring transparency and credibility in the carbon market.
The initiative aimed to promote the agriculture, forestry, and other land use sector under the Clean Development Mechanism, helping to provide employment opportunities for impoverished communities while encouraging the adoption of more efficient, sustainable land-use practices.

Projects

The Panda Standard includes four main project categories through which companies can earn carbon credits. Examples of each category are as follows:

Forest Management

Rotation extensions: Allowing trees to grow for longer periods to increase carbon absorption.
Harvest rate reduction: Cutting fewer trees and using harvested wood more efficiently to minimize waste and increase credit potential.
New techniques: Introducing new methods, such as combining different tree species to enhance carbon storage, or substituting logging practices with alternative materials.
Deforestation prevention: Implementing measures to prevent deforestation or converting land used for unplanned deforestation into vegetation or other carbon-friendly uses.
Forestation and Vegetation Increase
Tree planting: Planting trees from seeds in a manner that preserves ecosystems and promotes habitat health.
Fallow period adjustments: Extending fallow periods or planting in barren areas to restore land productivity.
High-biomass planting: Establishing vegetation that increases living biomass and enhances the longevity of local ecosystems.
Cropland Management
Soil carbon stock improvement: Reducing or eliminating tillage, expanding cropland areas, or adding exogenous carbon materials such as manure, compost, or biochar to improve soil efficiency and reduce emissions.
Legume cultivation: Promoting the planting of legumes, which have a lower carbon production cost and serve as a sustainable food source. This aligns with campaigns to reduce meat consumption and promote healthier, low-carbon diets.
Reduced mechanisation: Minimising the use of fossil fuel-powered machinery to lower emissions.
Grassland Management
Degradation control: Limiting biomass cutting and allowing ecosystems time to recover, thereby reducing emissions.
Livestock management: Modifying grazing patterns to enable grasslands to regrow naturally.
Species composition management: Altering plant species composition to increase long-term soil carbon storage and support efficient carbon reduction.

Notable transactions

The first transaction under the Panda Standard involved cooperation between China and France. Technical support was provided by the Ministry of Science and Technology, while funding came from the French Development Agency and the French Facility for Global Environment. Franshion Properties, a subsidiary of Sinochem, purchased voluntary emission reductions from Yunnan Mengxiang Bamboo Industry Co. Ltd.
Over 50,000 hectares of bamboo were planted, representing 16,800 tonnes of VERs. This project supported forest industry development, contributed to poverty reduction, and became the first carbon-neutral real estate initiative in China.

Emission Trading System (Beijing)

In China's Twelfth Five-Year Plan, the government aimed to advance environmental policies by targeting a 17% reduction in carbon emissions relative to GDP. This objective marked a shift from the previous plan, which had focused primarily on improving overall energy efficiency. The Twelfth Plan also sought to moderate GDP growth, adding complexity to the challenge of reducing emissions. Building upon the achievements of the Eleventh Five-Year Plan, it became increasingly difficult to encourage smaller enterprises—many of which already operated efficiently—to adopt stricter targets. To achieve its goals, China re-evaluated its traditional industries and explored environmentally friendly alternatives, such as transitioning from coal to nuclear and solar energy sources.
During the development of the Twelfth Five-Year Plan, China introduced the concept of a carbon trading market, which led to the creation of the Chinese Emissions Trading System (ETS). Initially, the ETS was launched as seven pilot programs across different regions. The national carbon trading scheme was formally implemented in late 2017.
Similar to carbon markets globally, companies participating in the ETS are issued emission permits that regulate the amount of carbon they are allowed to emit. These permits are essential for maintaining compliance; without them, companies face market restrictions and must reduce emissions to remain within set limits. Permits can also be traded internally or with other firms to obtain carbon credits.
The establishment of the ETS aimed to regulate and gradually reduce carbon emissions through market-based incentives while promoting sustainable economic growth. This approach contributed to improved air quality across multiple cities, including Beijing, which served as one of the ETS pilot locations and launched its program in late 2013.
The Beijing ETS operates under the "1+1+N" policy framework. The first "1" represents the service regulations that define the responsibilities of all stakeholders, assign oversight roles, and ensure government supervision of trading activities. These principles are outlined in the Decision on Implementing CO₂ ETS in Beijing. The second "1" establishes the legal foundation for the ETS, as set out in the Interim Measures for the Management of Emissions Trading in Beijing. This document specifies departmental responsibilities, operational procedures, and carbon market governance. The "N" component provides supplementary guidelines and advisory documents that reinforce and clarify the two main regulatory pillars.
The China Beijing Environmental Exchange plays a key role in maintaining the integrity and stability of the Beijing ETS. Its main objectives include ensuring market liquidity, overseeing trading operations, and promoting transparency and fairness in all transactions. Companies participating in the system must comply with CBEEX regulations to verify that all trades conducted through the platform are legitimate and properly monitored.
Two primary trading mechanisms are recognised within the Beijing ETS: Beijing Emissions Allowances and project-based offsets. The BEA system concerns the allocation and trading of emission allowances, denominated in tCO₂. Project-based offsets include Chinese Certified Emission Reductions, energy conservation projects, carbon sink initiatives, and Motor Vehicles Voluntary Emission Reduction programmes. These offsets are measured in tCO₂e.
Trading can occur either online or in person under CBEEX supervision. In online trading, three main order types are available:

All-or-none orders, which must be executed fully or not at all;
Sweep-to-fill orders, which aggregate and select orders based on specific price characteristics; and
Limit orders, which set a fixed price threshold for a transaction, allowing multiple buyers to purchase the same item at or above the designated price.

Carbon Emissions Trading Scheme

In 2017, the CBEEX, in collaboration with the European Energy Exchange, launched China's official Carbon Trading Scheme. However, trading activity did not commence immediately. Given its significant influence in the national economy, China effectively had the capacity to control carbon pricing within the market. Partnering with the EEX, the CBEEX became a key player in shaping carbon trading both domestically and internationally. The scheme primarily targeted thermal power plants, which are major consumers of coal and account for approximately 40% of China's carbon emissions.
Trading officially began in July 2021, when orders valued at US$32 million were recorded on the first day. The price of carbon started at 48 yuan per tonne and later increased. Covering more than 2,000 plants and encompassing substantial volumes of carbon emissions, the system quickly became the largest carbon market in the world.
Several mechanisms from the earlier emissions trading system were not retained in the new scheme. Unlike the previous structure, permits are allocated based on emissions per unit of generation, or carbon intensity, rather than under a fixed cap, although thresholds are set for participating plants. This structure aligns with China's ongoing efforts to reduce emission intensity, even as total emissions have continued to rise through the 2010s. China pledged to reduce emission intensity by up to 65% by 2030—an increase from its earlier commitment of up to 45%—while also aiming to reach peak emissions around the same period.
As the scheme focuses primarily on thermal power plants, total national emissions are expected to decrease, given that these facilities contribute substantially to China's overall output. However, the current framework does not extend to smaller or less carbon-intensive plants, meaning that overall emissions could still rise if new facilities are constructed.

New Chinese Certified Emission Reductions

The Chinese Certified Emission Reductions programme was introduced during the development of the Emissions Trading System but was suspended in 2017 due to low trading volume. The CCER initiative aims to facilitate low-cost emission reductions and promote renewable energy development as a complement to the ETS. It provides firms with an additional mechanism to earn credits through the reduction of greenhouse gases other than carbon dioxide, such as methane and nitrous oxide. This approach serves as an additional policy tool to help maintain lower overall emissions levels.
Following the launch of the national Carbon Trading Scheme, plans were made to relaunch the CCER system in 2022, with broader energy options and the goal of increasing trading activity compared to the earlier phase. The updated version of CCER also restructured its offset mechanism to encourage greater participation from firms, positioning it as a viable alternative to the national carbon market for obtaining emission credits.
In the same year, Beijing announced plans to establish a dedicated centre for the new CCER system, aiming to reduce emission costs and promote innovation in green technology.

Impact

Pilot ETS programmes

A common misconception about adopting greener policies is that they significantly slow down economic growth. However, a substantial economic decline is unlikely if a country's growth rate is not accelerating rapidly. In China's case, with a population exceeding one billion, measuring national economic performance as a whole is challenging. Economic conditions in major cities and provinces—particularly those serving as pilot regions for the Emissions Trading System —are more indicative of overall economic trends.
These pilot regions vary greatly in demographics and economic structures. For instance, Beijing and Guangdong differ in population by roughly 100 million people, and Guangdong exhibits greater income disparity. Their industrial specialisations and geographic locations also lead to different levels of energy consumption. As of 2014, Beijing's GDP per capita was 99,163 yuan, compared with Guangdong's 63,258 yuan. Despite higher energy consumption in Beijing, its energy intensity was lower. Such regional variations make measuring nationwide economic growth under environmental policies difficult, which is why pilot ETS programmes were designed with region-specific goals and regulations.
Among the pilots, Guangdong recorded the greatest short-term economic losses, while Beijing's losses were comparatively minor. Guangdong's challenges stemmed from applying a single ETS framework to a large and diverse population, leading to reduced policy flexibility. In contrast, Beijing's smaller population and administrative significance enabled smoother implementation, and its economic performance recovered quickly after initial adjustments.
The primary goal of the pilot ETS programmes was to reduce carbon emissions relative to GDP. Within the first two years, firms reported an average 16.7% reduction in carbon emissions. However, overall emission reductions were also influenced by a transition from coal-based production to cleaner alternatives such as natural gas, leading to an increase in natural gas consumption but a decline in total emissions.
China's National Development and Reform Commission oversaw the pilots, balancing economic growth and emission reduction objectives. The carbon market's success was attributed more to political will and policy direction than to market-driven economic factors. Beijing demonstrated the fastest market response due to early adoption, while Guangdong achieved the largest total emission reductions.
By the 2020s, the experience gained from the seven pilot ETS programmes contributed directly to the development and implementation of China's national Carbon Trading Scheme. The pilot phase allowed experimentation with sector-specific approaches suited to different regional economic contexts. As of December 16, 2021, the national scheme covered only the electricity sector—China's largest source of coal use—resulting in notable reductions in carbon emissions, though potentially increasing other pollutants such as methane and sulfur dioxide. These developments align with China's long-term environmental objectives. While the integration of all sectors into the national system remains uncertain, early pilot successes have fostered optimism about the future of the Carbon Trading Scheme.

New Carbon Trading Scheme

Since its launch in July 2021, China's national carbon market remains in its early stages. While designed with significant political influence, the scheme seeks to enhance efficiency and fairness by regulating carbon prices nationally. However, price control alone cannot determine market activity, as trading volume depends on shifts in supply and demand.
Economic expansion anticipated in the early 2020s is expected to increase energy consumption, potentially offsetting emission reductions relative to GDP. Although the policy focuses on emission intensity rather than absolute emissions, this dynamic may challenge the long-term goal of reducing total emissions despite strengthened environmental regulations.

Problems with pilot ETS programmes

Allocation

Allowance allocation in each pilot region was determined using two main approaches: grandfathering and benchmarking. Grandfathering relies on historical emissions data, while benchmarking emphasises efficiency and innovation. Other allocation methods include auctioning and the relative performance mechanism.
In Beijing, grandfathering was applied to established sectors, while benchmarking was used for newer ones. Guangdong adopted benchmarking for the electricity, cement, iron, and steel industries, while applying grandfathering to others. A major challenge with grandfathering was the reliance on historical data, which allowed some firms to overstate previous emissions to secure larger quotas. As a result, actual emissions data were often inaccurate, with some companies receiving excessive allowances. Among alternative methods, auctioning was considered the most efficient and equitable for determining allocation limits due to its transparency and market-based pricing.
Economically, inconsistent quota distribution led to fluctuating carbon prices, which in turn affected electricity prices and other sectors linked to energy production.

Carbon prices

As China's first carbon trading platform, the Emissions Trading System experienced early challenges and inconsistencies. Each pilot operated differently, resulting in significant variation in carbon prices. Because the concept was new at the time, estimating the long-term value of carbon assets proved difficult. During the initial phase, price adjustments were made frequently in an attempt to stabilise markets. Administrators often lacked the expertise to manage carbon pricing effectively and sought guidance from local governments or third parties, leading to delayed and volatile decision-making.
Another issue was the relatively low carbon prices compared to those in European markets. Although the Chinese pilots drew inspiration from Europe's system, they lacked comparable institutional experience and technical expertise. Early transactions on the China Beijing Environment Exchange were largely symbolic, intended to demonstrate commitment to environmental goals rather than to establish an efficient trading system.

Low liquidity

Market liquidity—the ease of buying and selling carbon permits—was another major challenge in the pilot phase. Low trading volumes made it difficult to liquidate permits, particularly in smaller or less active markets. Limited participation reduced supply and demand interaction, contributing to volatility in carbon prices. As in any market, stable liquidity depends on a balanced and active marketplace; however, most ETS pilots lacked this equilibrium. Some pilots also imposed complex participation requirements, restricting access to experienced traders. Although the early years were characterised by instability, the later establishment of the National Carbon Trading Scheme helped to address liquidity issues by unifying prices and expanding participation.
Differences in trading rules among pilots also created disparities in carbon credit values. Carbon was not priced uniformly across regions: for example, in the early years of the ETS, Beijing's carbon price averaged 50.6 yuan per tonne, while Guangdong’s average was 31.72 yuan per tonne, with a wider range from single digits to 77 yuan. These price gaps made interregional compatibility difficult. Although Beijing and Guangdong are geographically distant, improved coordination among all pilot regions was seen as essential to maintaining market liquidity and efficiency.

Legislation

The effectiveness of the ETS was also constrained by delays in legislative development. Rules, monitoring systems, and enforcement mechanisms lagged behind market evolution, leading to weak compliance and oversight. Penalties for excessive emissions were often outdated, reducing deterrence and enabling some firms to continue emitting beyond their allowances.
Among the seven pilot regions, only Shenzhen possessed local legislative authority to regulate carbon trading independently; the other six relied on older or less comprehensive legal frameworks. The lack of alignment between enforcement mechanisms and market operations weakened the correlation between penalties and carbon prices. These inconsistencies made it difficult to determine whether current carbon prices in the pilot programmes reflected true market efficiency.

Future

As of 2020, the China Beijing Environmental Exchange was renamed the China Beijing Green Exchange. The carbon market in Beijing has continued to perform strongly, recording a turnover of more than 2 billion yuan in 2021. Prior to this, several sectors joined the carbon market, including the Beijing Public Transport Group, which introduced lower-emission vehicles and implemented policies to optimise traffic management and reduce daily emissions.
According to China's Fourteenth Five-Year Plan, carbon dioxide intensity is targeted to decrease by 18%, while overall energy intensity is expected to decline by 13.5%. The plan also introduced a national carbon dioxide cap to support the country's long-term climate and energy transition goals.