China Will Open Carbon Markets

Chinese leadership is aware that they have a climate problem. Even more immediately, they have a problem in bringing their cities up to livability standards that the rest of the world can except – a must if they expect to continue developing as a world power – and indeed, if they wish to maintain social order.  Pollution is now the number one cause of social instability in China.

NYTimes:

China plans to introduce its national market for carbon permit trading in 2016, a government official said on Sunday, adding that Beijing is close to completing rules for what will be the world’s biggest emissions trading program.

The nation accounts for nearly 30 percent of global greenhouse gas emissions, and it plans to use the carbon market to slow its rapid growth in climate-changing emissions.

China has pledged to reduce the amount of carbon it emits per unit of its gross domestic product to 40 to 45 percent below its 2005 levels by 2020.

It has already introduced seven regional pilot markets in a bid to gain experience ahead of a nationwide program.

“We will send over the national market regulations to the State Council for approval by the end of the year,” Sun Cuihua, a senior climate official with the National Development and Reform Commission, told a conference in Beijing on Sunday.

The national market will start in 2016, although some provinces would be allowed to start later if they lacked the technical infrastructure to participate from the outset, she said.

The Chinese market, when fully functional, would dwarf the European emissions trading system, which is now the world’s biggest.

Reuters:

It would be the main carbon trading hub in Asia and the Pacific, where Kazakhstan and New Zealand already operate similar markets. South Korea will launch a national scheme on Jan. 1, 2015, while Indonesia, Thailand and Vietnam are drawing up plans for markets of their own.

The Chinese market will cap carbon dioxide emissions from sources such as electricity generators and manufacturers. Those that emit above their cap must buy permits in the market.

Five pilot markets that opened in China last year saw a high degree of compliance by included emitters in their first year, although data secrecy and a tendency to hand out too many permits made them inefficient in cutting emissions.

The pilot schemes are keen to attract professional trading companies to boost liquidity, and Shenzhen – the smallest of the pilots – recently allowed trades to be settled in foreigncurrencies in a bid to make trading easier for foreign traders.

Carbon Brief:

China is the world’s largest emitter of greenhouse gases. Historically, it has been reluctant to cut emissions, fearing that doing so could impede its economic growth. But there are signs that position is shifting.

Late last year, the government banned the building of new coal power plants in particular areas due to air pollution concerns. Now it has announced it will seek to implement a national carbon market by 2016.

The announcement wasn’t much of a surprise. Since 2011, China has been developing seven pilot carbon markets with the aim of one day creating a national scheme. The National Development and Reform Commission – the department responsible for the schemes – has long said it wants to include plans for a national market in China’s next five year plan.

But could a carbon market form the backbone of China’s response to climate change?

Rationale

China has pledged to reduce the carbon intensity of its economy – the level of greenhouse gas emitted for each Yuan of GDP generated – by 40 to 45 per cent. That means its economy is destined to become more efficient, but doesn’t guarantee an overall emissions cut.

The government is putting a range of policies in place to help hit that goal. It’s now clear a carbon market is also part of the plan.

China has been relatively slow to jump on the carbon market bandwagon. The EU’s emissions trading scheme (ETS) – the world’s largest – was set up in 2005. There are now 46 carbon markets operating worldwide, including China’s.

The basic principle behind all the schemes is that polluters should pay. Market regulators set a cap on how much carbon dioxide companies can emit. They then allocate a certain number of permits – normally one per tonne of carbon dioxide emitted – to companies participating in the scheme.

Companies that need to emit more than the allowances they hold can buy them from companies that make the effort to reduce their emissions – setting a carbon price. Regulators gradually tighten the cap over time, reducing overall emissions.

At least, that’s the theory. Since the recession hit, many carbon markets – most prominentlythe EU ETS – have suffered from an oversupply of permits and low carbon prices. That means companies don’t need to make as much effort to reduce emissions.

Perhaps wary of repeating other markets’ mistakes, China is taking a cautious approach to carbon trading.

The rest of the article details some of the challenges uncovered in experimental carbon markets that China already has underway, and prospects for overcoming early obstacles.