Official Interpretation | "Implementation Plan for Setting and Allocation of Total National Carbon Emission Trading Quota in 2021 and 2022 (Power Generation Industry)"

Recently, with the approval of the Carbon Peak and Carbon Neutralization Working Leading Group, the Ministry of Ecology and Environment issued and implemented"Implementation Plan for the Setting and Allocation of Total National Carbon Emission Trading Quota in 2021 and 2022 (Power Generation Industry)"(hereinafter referred to as the "Quota Plan"). Regarding the key content of the society's concern in the Quota Plan, the relevant person in charge of the Department of Climate Change of the Ministry of Ecology and Environment introduced the relevant situation.

Q: As an important basic institutional document for the national carbon market, what basic principles are followed in the compilation process of the Quota Plan?

Answer: The quota allocation system is an important basic system for the national carbon market and the cornerstone for ensuring the healthy, stable and orderly operation of the carbon market and achieving policy goals. The "Quota Plan" stipulates the quota accounting and allocation methods for the national carbon market power generation industry in 2021 and 2022, and clarifies management processes such as quota issuance, adjustment and clearance and performance. The main principles followed in the preparation of the Quota Plan are "three persistences".

First, insist on serving the overall situation. With the goal of helping my country achieve carbon peak and carbon neutrality, we will fully consider the international and domestic economic situation and ensure energy supply and other factors, and reasonably design the plan on ensuring that the total quota growth adapts to the growth requirements of economic and social development for the power industry. The Quota Plan adopts the idea of intensity-based quota allocation and does not require enterprise dioxideCarbon emissionsThe amount is absolutely reduced, but based on the actual output, that is, the larger the actual power supply and heat supply, the more quotas are obtained, which will not restrict power production and will not affect the guarantee of power supply.

The second is to insist on seeking progress while maintaining stability. The quota allocation plan for 2021 and 2022 basically continues the overall framework from 2019 to 2020. The overall idea of quota allocation remains unchanged, the scope of coverage remains unchanged, and the relevant work processes remain basically unchanged. At the same time, we adhere to problem-oriented approach, and in response to the problems of unannual setting of benchmark values in the first fulfillment cycle, we will continue to improve the quota allocation method, consolidate the data foundation, improve the level of information management, optimize and adjust the power supply and heating reference values of various units, and ensure that the total industry quota and total emissions are basically equivalent.

The third is to adhere to policy orientation. Encourage large-capacity, high-energy, low-emission units and units undertaking cogeneration tasks, so that enterprises with good carbon emission management levels and low emission levels can obtain benefits by selling surplus quotas. Enterprises with relatively poor carbon emission management levels and high emission levels have gaps to purchase quotas, and establish a value orientation that "carbon emissions have costs and carbon reduction has benefits". During the quota allocation process, the cooling method is used to correct the coefficient, the heat supply correction coefficient, and the load (output) coefficient correction coefficient are used to encourage units to supply heat on a larger scale and participate in power peak shaving, and give full play to the guiding role of the carbon market in optimizing the power structure and promoting the clean and low-carbon transformation of the power industry.

Q: What are the improvements and optimizations of the Quota Plan released this time compared with the first fulfillment cycle?

Answer: Compared with the quota allocation plan for the first fulfillment cycle, the quota allocation methods for 2021 and 2022 have maintained the continuity and stability of the policy overall. At the same time, they have made adjustments and optimizations based on the new spirit, new situation and new tasks of the 20th National Congress of the Communist Party of China and the actual situation of industry technological progress. They have made optimizations in the annual division, balance value, benchmark value, correction coefficient, etc. of quota management, which can be summarized as "five more".

First, implement annual quota management and make daily management more refined. In order to better connect with my country's annual carbon emission management goals and promote the normal management of quota pre-allocation, approval, and clearance of quota regularity according to the natural year. Different from the practice of adopting the same quota allocation benchmark value and two-year merger performance in 2019 and 2020, different quota allocation benchmark values were adopted in 2021 and 2022. The benchmark value for the second year was determined based on the actual emissions of the previous year, making the benchmark value more in line with the actual situation of the industry, reflecting the trend of the energy efficiency of the power generation industry increasing year by year and the carbon emission per unit output decline year by year. Quotas will be issued and performance will be carried out in 2021 and 2022, especially when implementing the performance exemption mechanism to count the quota gap rate, it will be changed to annual calculations.

Second, equilibrium value is introduced for the first time, and information release is more transparent. The construction and operation of the national carbon market in 2019-2020 has effectively promoted the improvement of corporate carbon emission management awareness and ability level. In 2020, the proportion of coal-fired element carbon content units has increased significantly, resulting in the overall calculation results of the industry's overall carbon emission intensity being about 10% lower than the enterprise emission data based on the benchmark value, which makes the numerical difference between the 2021 and 2022 benchmark values compared with 2019-2020. In order to facilitate better understanding among all sectors of society, the Quota Plan introduced a balanced value. The balance value is the corresponding carbon emission intensity value when the power supply and heating carbon emission quota of various units is balanced with their verified emissions (quota amount to be paid). It is an important reference basis for formulating the power supply and heating reference values.

The third is to optimize the setting of quota allocation benchmark value, and the policy orientation is clearer. The "Quota Plan" is based on the balance values of various units in 2021. According to the principle of overall balance of quotas, industry enterprises can bear, encourage advanced, and punish backward punishment, it fully considers the technological progress of the power generation industry. Based on the benchmark value of the first fulfillment cycle, the benchmark values of power supply and heating of various units have been optimized and adjusted, so that the benchmark values for 2021 and 2022 can truly reflect the actual level of carbon emissions in the industry. Overall, it reflects the policy orientation of encouraging efficient cleaning units and constraining inefficient units, which is consistent with the current requirements of carbon emission management.

Fourth, adjust the scope of application of the unit load (output) coefficient correction coefficient, and the people's livelihood security policy is more prominent. Unlike the load (output) coefficient correction coefficient used only when the quota allocation of conventional coal-fired generator units from 2019 to 2020, in order to reflect the support of the national carbon market for efficient heating production, in 2021 and 2022, the load (output) coefficient correction coefficient is also used to provide quota compensation for the low-load operation of cogeneration units for cogeneration units, reflecting the policy orientation of "ensure heating and people's livelihood".

Fifth, reduce the burden on grassroots and enterprises, and make more abundant measures to benefit enterprises. By simplifying rules, we will improve the level of informatization and reduce the burden on grassroots units. In the pre-allocation process, 70% of the verified emissions of the unit in 2021 is used as the pre-allocation quota for each unit in 2021 and 2022, simplifying the calculation method of pre-allocation quota, which is convenient for operation and conducive to improving work efficiency. Reduce the burden on enterprises through the policy of exempting the performance gap rate ceiling, the gas unit exemption mechanism and a flexible mechanism that can prepay 2023 quotas. Improve the workflow of quota issuance, rely on the information platform to carry out quota review and issuance, realize intelligent quota management, ensure the accuracy of data and the consistency of calculation methods, and improve work efficiency and quality.

Q: In 2021 and 2022, some thermal power units face great operating pressure due to the epidemic and energy supply guarantee. What measures are there in the "Quota Plan" to reduce the burden on enterprises?

Answer: Taking into account the impact of the epidemic in 2021 and 2022 and the pressure of energy supply guarantee, in order to effectively alleviate the performance burden of the power generation industry, the Quota Plan continued the previous performance cycle to implement a performance exemption mechanism for gas units and enterprises with large quota gaps, and added a flexible performance mechanism and a personalized relief mechanism.

First, continue to control the quota gap between enterprises and gas units in the quota gap in the quota approval process, and adopt the method of clearing quota exemption. When the annual quota approved by key emission units is less than 80% of the verified emissions, the quota amount that should be issued is equal to 80% of the annual verified emissions. It is estimated that this policy will reduce the burden on 306 companies in 2021.

Second, considering that enterprises face great operating pressure due to the impact of various factors such as the epidemic and energy supply guarantee in 2021 and 2022, we will increase the flexible mechanism to prepay quota for 2023 to alleviate the pressure brought by quota fulfillment to key emission units. For key emission units with a quota gap rate of more than 10% (inclusive), if they are unable to fulfill their obligations on time through purchasing quotas due to operating difficulties, they can perform their obligations from the pre-spread part of the pre-allocated quota in 2023, and the pre-spread does not exceed 50% of the quota gap.

Third, in order to scientifically, accurately and effectively reduce the performance burden of key emission units, if key emission units that undertake major people's livelihood security tasks are still difficult to complete their performance after implementing the performance exemption mechanism and flexible mechanism, the Ministry of Ecology and Environment will coordinate the research of personalized relief plans.

Q: How is the quota amount of a power generation company calculated? How are the reference value and correction coefficients in the calculation formula determined? Why set these correction coefficients?

Answer: The carbon emission quota is the corresponding carbon dioxide emission limit for generator units owned by key emission units. The quota for 2021 and 2022 is free to be allocated, and the unit quota is calculated using the benchmark method. The calculation formula is as follows: Unit quota = power supply reference value × unit power supply × correction coefficient + heating reference value × unit heat supply.

The benchmark value reflects the industry's average carbon emission intensity and is determined according to the principle of overall balance of the total quota, that is, the total amount of industry quota issuance is basically the same as the total amount of quota to be paid, and there is no additional burden on the industry. In June 2022, we have completed the verification of carbon emission data in the power industry in 2021. The 2021 benchmark value is calculated based on the actual carbon emission data in 2021 and has high accuracy. The 2022 benchmark value is based on the 2021 data, benchmarking the carbon peak carbon neutrality target, and repeatedly calculating the energy consumption intensity and carbon emission intensity of the thermal power industry in recent years.

In order to encourage units to undertake people's livelihood heating, participate in power peak shaving and improve energy efficiency, three correction coefficients were introduced when calculating unit quota, including load (output) coefficient correction coefficient, heat supply correction coefficient, and cooling method correction coefficient.

The load (output) coefficient correction coefficient is set to encourage thermal power units to participate in the power grid peak shaving and ensure renewable energy access to the grid, making up for the efficiency losses of reducing loads and frequent start-stop. The lower the load rate of the thermal power unit, the higher the unit's energy consumption per unit output. The basis for setting this coefficient is the "Privacy Policy of Energy Consumption Per Unit Products of Conventional Coal-fired Generator Units" (GB 21258-2017) and the "Privacy Policy of Energy Consumption Per Unit Products" (GB 35574-2017). The above two national standards obtain the quantitative relationship between the unit load rate and the energy consumption per unit product through a large number of unit statistics.

The heat supply correction coefficient is set to meet the actual needs of encouraging coal-fired cogeneration to increase heat supply and replace small coal-fired boilers and loose coal. According to my country's current "power-based power distribution method" in "heat-based power", for cogeneration units, as the heat supply increases, the overall efficiency of the unit increases, and the carbon emission intensity of power supply decreases. The heating supply correction coefficient is obtained based on statistical fitting of a large number of measured samples. According to the change curve of the power supply carbon emission intensity of the two types of units under different heating ratios, the heating supply correction coefficients of the two types of units are (1-0.22×heat ratio) and (1-0.6×heat ratio) respectively.

The cooling method correction coefficient is set to encourage air-cooling units in water-deficient areas. This coefficient takes into account the energy consumption per unit product caused by different cooling processes, distinguishes between water-cooled and air-cooled coal-fired units, and corrects the quota amount of the two types of units through different assignments (the cooling method correction coefficient of water-cooled units is 1, and the air-cooled units is 1.05), which is consistent with the cooling method correction coefficient proposed in the "Permanent Product Energy Consumption Limit of Conventional Coal-fired Generator Units" (GB 21258-2017) and the "Permanent Product Energy Consumption Limit of Cogeneration Units" (GB 35574-2017).

Q: The Quota Plan was released in 2023, but the quotas for 2021 and 2022 are allocated. Why should this "post-distribution" method be adopted?

Answer: The preparation of the "Quota Plan" follows the principle of adhering to the principle of serving the overall situation and seeking progress while maintaining stability. The calculation of the plan needs to be based on accurate and reliable data, with high requirements for data accuracy. The overall requirement for quota allocation is supply and demand balance, and the profit and shortage ratio should be controlled within the predetermined target range as much as possible. The national carbon market is in its early stages of development in 2021 and 2022, and the level of carbon emission accounting and verification and data quality supervision capabilities need to be improved. Especially since the proportion of units measured carbon content of coal-fired elements has changed greatly, there is certain uncertainty in carbon emission data. Adopting "pre-allocation" requires accurate estimates of carbon emission data, which should be based on high-quality carbon emission data and scientific and accurate analysis and prediction.

To be safe, we adopt the "post-distribution" method to continue the first fulfillment cycle practice to better ensure that the total quota allocation meets the expected goals. We will not cause the industry's emission reduction burden due to the tightening of the total allocation, nor will the carbon market be unable to better play the role of promoting emission reduction due to the loose distribution. Since the first fulfillment cycle has sent out policy signals, companies have also expected a decline in carbon emission benchmark value, so "post-distribution" will not affect the national carbon market's role as a policy tool for controlling greenhouse gas emissions. In addition, most local pilot carbon markets also use quota "post-distribution". Practice shows that the "post-distribution" method at this stage can more accurately control the total quota allocation and the overall industry emission reduction efforts.

In the next step, as the national carbon market data quality system continues to improve, the management level gradually improves, and the timeliness and accuracy of data acquisition are improved, we will actively study how to gradually adjust from "post-existence distribution" to "in-progress distribution" or "pre-progress distribution" specific plans, and clarify expectations to market entities as early as possible.