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.

Three industry leaders said that one option is to create a carbon emission trading system (ETS). The executives stated that this would resolve industry concerns about the current system, which incentivizes the production of electric vehicles (EV), but does not address carbon emissions.

At a briefing held last month, Xu Haidong (an official from China Association of Automobile Manufacturers) stated that the replacement is currently under discussion at ministries.

According to people who are familiar with this matter, the policy talks are continuing and they are not yet final. Current system will remain in place until 2023. It was established in 2017. It allows automakers to receive credits for the sale of electric and fuel-efficient cars that offsets penalties for those with higher carbon emissions.

The system’s modification could have significant consequences for the automakers’ product plans and technology development in China. China has more than 25,000,000 cars sold annually last year making it the biggest auto market.

According to two people familiar with the matter, the auto industry does not have to be among eight industries that must trade carbon emissions. But, Chinese industry organizations have arranged for automobile companies like Tesla (NASDAQ.) Inc, to review the trading system.

As the details of these talks aren’t public, they declined to name any industry executives. China’s Industry Ministry did not immediately reply to my request for comment.

At a recent industry conference, Sanae Nuimura (Vice President at Honda China) stated that this new system was 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.

China Society of Automotive Engineers, (China-SAE), predicts that carbon dioxide emissions from China’s automobile industry will peak in 2028 and fall to 20% by 2035. This projection is widely supported by government officials and companies.

Based on a standard called GB-27999, the new policy should calculate carbon emissions associated with electric vehicle use. It was first published in 2019.

GAC, a state-owned automaker, has stated that it will work with Guangzhou’s carbon trading platform to create carbon accounts in order to encourage trading.

China’s automakers, such as Volkswagen (DE) require their suppliers to produce renewable energy. They also need to plant trees in order to supply the government with fuel.

According to Reuters, this April, policymakers will likely create a credit program for commercial vehicle makers.

Yin Hang is an official from China’s Vehicle Emission Control Center. He stated in April that regulators would likely be testing vans and trucks’ carbon-dioxide emission levels, which is an area that is not currently covered by the regulations.