In the years to come, China's national carbon market should gradually include the energy demand side in the coverage of the industry, and gradually introduce demand-side industrial enterprises and even individual consumers to participate in market transactions.

The first task is to establish and improve a carbon footprint management system and build the carbon footprint calculation methodology. On this basis, China should further explore the interaction mechanism between carbon footprints and the carbon market, which could provide support for the inclusion of the energy demand side into the carbon market.

To date, the national carbon emissions trading market in China has achieved fruitful outcomes, with a cumulative turnover of approximately 27 billion yuan ($3.72 billion) since its inception three years ago, becoming the world's largest carbon market in terms of greenhouse gas coverage.

China has pledged to speed up the establishment of a carbon footprint management system for products. By 2027, China aims to preliminarily establish a unified national system for managing carbon footprints. By 2030, the national carbon footprint management system will be further refined and applied in more diverse scenarios.

At present, China has made some progress in carbon footprint policy formulation and system building.

To start with, the carbon footprint calculation standards for industrial products have been preliminarily established, laying a foundation for industrial enterprises to participate in carbon footprint management.

Various government bodies have issued pilot carbon footprint calculation methods for the products in key industries, such as iron and steel, cement and other energy-intensive industries, to provide more detailed and targeted calculation methods.

Second, China has preliminarily explored the carbon footprint management mechanism for individual consumers and examined the feasibility of incorporating individual consumers into the carbon market.

For example, Guangdong province has established a carbon inclusion mechanism to convert the approved low-carbon behaviors of residents into accumulable carbon credits, which residents can exchange for diverse incentives — they can redeem a 5-yuan voucher with nine subway trips. And Hubei province has combined carbon inclusion with electricity consumption and explored the formulation of carbon inclusion methodology. The carbon reduction amount for each kilowatt-hour of electricity saved by residents corresponds to about 0.02-0.04 yuan in the carbon market.

Third, a market pattern involving multiple parties has been initially formed, and a number of regions and industries have launched pilot programs for carbon footprint certification.

For example, Shanghai has taken the lead in piloting product carbon footprint certification in key industries such as iron and steel, and issued a white list for the first batch of products, including key export products such as steel, new energy products and daily consumer goods.

Fourth, the Tiangong database was officially launched on Nov 27,2023, marking an important step toward aligning China's carbon footprint rules with international ones.

However, there are still many challenges to be overcome to build a carbon footprint management system.

First, it is difficult to quantify the carbon footprint on the consumption side.

At present, most enterprises on the energy demand side have not established a sound carbon footprint data collection, analysis and reporting system. And there's a lack of human resources and financial input in this regard. Thus, they can hardly get a clear picture of their own greenhouse gas emissions.

For individual consumers, there is no scientific accounting method or unified quantification standards for household carbon emissions reduction. And there are problems such as low accuracy and double calculation of individual carbon credits.

Second, the stimulative effect of carbon footprint management is limited, and the consumption side's willingness to participate in the system is not high.

There are additional costs for companies to calculate and publish their carbon footprints. At present, most carbon management policies are voluntary, with a lack of mandatory regulations and standards, and thus a lack of external pressure for companies to participate.

At the same time, economic incentive policies are yet to be improved, and the economic motivations for enterprises are not enough. For individual consumers, the direct economic benefits from the carbon footprint management mechanism are limited, resulting in weak enthusiasm for participation.

Third, actors on the consumption side lack awareness of carbon footprint management.

Many companies are not fully aware of the role of carbon footprint management in environmental protection and sustainable development. As a result, many enterprises have not formulated specific targets and corresponding action strategies for carbon emissions reduction, and have not yet incorporated carbon management into their overall sustainable development planning. Moreover, most individual consumers lack the awareness of carbon trading and low-carbon lifestyle, resulting in low willingness to participate in carbon footprint management.

Fourth, there exist difficulties in international mutual recognition of carbon footprint management systems.

In terms of the carbon calculation and pricing mechanism in the global commodity trade, Europe and the United States are unilaterally formulating and implementing rules. Most of the internationally renowned carbon footprint databases are commercial in nature. Their carbon calculation methods are often not entirely transparent to the public. Some countries may use this as a basis to monopolize the discourse power on carbon emissions calculation, and use it as a tool for trade protection and setting technical barriers to trade.

To establish a carbon footprint management system in China, the country should first integrate the carbon footprint management system with existing mechanisms.

Priority should be given to the management of pilot enterprises' carbon footprints, and carbon footprint requirements should be included in China's tax incentive and subsidy system. Industry leaders should be encouraged to participate in carbon footprint management and invest in low-carbon technologies and carbon reduction projects.

At the individual consumer level, the extension of carbon inclusion incentive mechanisms should be promoted in the field of daily consumption. In the future, the inclusion of carbon accounts in the financial credit system can be considered.

Second, the carbon footprint management system should be deeply integrated with enterprises' green and low-carbon development strategies.

The quantification of carbon footprints and the establishment of carbon accounts are key steps. In the meantime, great importance should be attached to the security of personal data. The construction of a carbon footprint management system by transitioning from the quantification of individual carbon credits to docking with carbon trading platforms should be promoted.

Third, the awareness of carbon footprint management on the consumption side should be enhanced.

There should be more publicity to enhance the awareness of carbon emissions and carbon footprint management among consumption-side entities, and to improve the awareness of consumption-side enterprises and the public on key policy tools such as carbon markets and carbon inclusion platforms.

Fourth, the quality and credibility of China's carbon footprint data should be improved to boost the influence of China's carbon footprint database.

The author is a chair professor at the School of Management and dean of the China Institute for Studies in Energy Policy at Xiamen University. The author contributed this article to China Watch, a think tank powered by China Daily.

The views don't necessarily reflect those of China Daily.

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