Analysis: China's green car credit system to be replaced as country pursues carbon neutrality

© Reuters. FILE PHOTO: Cars are seen in a traffic jam during evening rush hour in Beijing, as the country is hit by an outbreak of the novel coronavirus disease (COVID-19), China April 8, 2020. REUTERS/Tingshu Wang/File Photo

By Yilei Sun and Brenda Goh

SHANGHAI (Reuters) - China may replace its green car credit system with a new policy focusing more broadly on reducing carbon emissions, industry executives say.

One option being considered is a carbon emissions trading scheme (ETS), three industry executives said. That would address industry concerns that the current system incentivizes electric vehicle (EV) production without addressing carbon emissions in general, the executives say.

"(The replacement) is under discussions at ministries," Xu Haidong, an official at China Association of Automobile Manufacturers (CAAM), said at a briefing last month.

The policy discussions are ongoing and are not final, people familiar with the matter said. The current system, which will be in effect until 2023, was introduced in 2017. Under it, automakers get credits for selling electric or fuel-efficient vehicles that can offset penalties on their more carbon-intensive models.

Any change to the system could significantly affect automakers' product planning and technology development in China, where more than 25 million vehicles were sold last year, making it the world's largest autos market.

The auto industry is not among the eight industries required to trade carbon emissions, but Chinese industry bodies have arranged for auto companies, including electric vehicle maker Tesla (NASDAQ:TSLA) Inc to study the trading system, two sources familiar with the matter said.

The industry executives declined to be named as the talks are not public. China's industry ministry did not immediately respond to a request for comment.

Sanae Nuimura, vice president at Honda China, said at an industry conference this month that the new system would be very important.

LOWERING CARBON

Chinese President Xi Jinping last year announced plans to raise the country's Paris climate accord target, saying China would achieve a peak in carbon dioxide emissions before 2030 and carbon neutrality before 2060.

The China Society of Automotive Engineers (China-SAE) predicts carbon dioxide emissions from China's auto industry to peak around 2028, and drop to 20% from that level by 2035, a projection widely shared by companies and government officials.

The new policy is likely to calculate carbon emissions related to use of electric vehicles based on a standard called GB-27999, which was published in 2019.

State-owned automaker GAC has said it would work with Guangzhou's carbon trading exchange to design carbon accounts to promote trading.

Automakers in China, including Volkswagen (DE:VOWG_p), already require suppliers to use renewable energy and plant trees to meet government demand.

On commercial vehicles, policymakers are expected to roll out a separate credit system this year for truck and van makers, Reuters reported in April.

Yin Hang, an official at Vehicle Emission Control Center of China's Ministry of Ecology and Environment, said that in the future, regulators are likely to test trucks and vans' carbon-dioxide emissions, an item that is not among the current requirements.