China to Launch Pollution Permit Market within 3 Years

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BEIJING – The Ministry of Finance (MOF) said on Monday that China plans to launch a nationwide scheme to trade pollution permits within three years in order to clean up its environment. A draft guideline for the scheme has been submitted to the State Council.

China’s rapid economic growth, outdated power generation equipment and poor regulatory system have jointly contributed to its environmental crisis. The combined health and non-health related costs of air and water pollution for China’s economy adds up to around US$100 billion a year (or about 5.8 percent of the country’s GDP). Dealing with pollution is on China’s top legal agenda this year.

The MOF said that China will issue proposals for new pilot trading projects in major cities, and in particular aims to facilitate cross-regional trading.

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The pollution permit scheme is expected to curb the emissions of key pollutants from major factories. Those that exceed their emission caps will be forced to buy permits in the market or invest in cleaner equipment.

The scheme mainly targets the emission of sulphur dioxide (SO2) and ammonium nitrate.

Since 2007, 11 areas in China, including Tianjin, Jiangsu and Zhejiang provinces, have been allowed to launch pilot pollutant permit schemes and as many as 72 documents have been issued by these pilot areas. Further, approximately RMB2 billion in income has been achieved from the auctioning of pollution permits, which was then used to treat pollutants.

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