Some things to note: there is no total cap. More electricity generated by coal and gas-fired power plants will generate more emission quota.
Quota are allocated for free. Coal-fired power generators that run at less than full capacity get ‘bonus’ emission quota. The average Chinese coal plant ran at about 49% of capacity over 2019. This would give them 9.7% additonal freely allocated emission quota.
Gas-fired generators that emit more carbon dioxide than they have freely allocated quota do not have to buy and submit additonal quota. For coal-fired power plants, settlement requirements are capped at freely allocated quota +20%
All in all, this promises to be a fairly generously/over-allocated market and can be expected to see low prices and little effectiveness for some more years. But that’s how most carbon markets started their life.
Source: China Energy Portal
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