China’s National Carbon Market: When, Where and How?

By Ed King

June 3, 2015


Traders are banking on Beijing’s plans for a national carbon market being a success, but challenges in its design remain.

Barcelona has seen more raucous partygoers, but the sharp suits drinking in the beachfront Carpe Diem bar last week were in bullish form.

Wine, beer and champagne flowed as carbon traders from around the world gathered on the final night of industry fair Carbon Expo to toast what many think could be their finest hour.

Many of their colleagues have fallen in the past few years, brought low by the twin woes of the EU’s emissions trading scheme and the UN’s Clean Development Mechanism.

Both heralded a new dawn of market-based climate policies. Both were found wanting. The price of EU and CDM credits don’t lie. Nor does the string of bust companies.

But in the East a red dawn is breaking. In June 2013 China launched the Shenzhen pilot carbon trading scheme. Six more – including two in Beijing and Shanghai – have followed.

In 2016 the country plans to go national, setting a market emissions cap of four billion tonnes of CO2 equivalent.

By 2020 when the system is expected to be fully operational the world’s largest emitter of greenhouse gases could likely control the fate of CO2 trading around the world.

“The moment China came into carbon market it changed the landscape,” says Xueman Wang, a World Bank official charged with helping developing countries on emissions trading.

“When China comes into play we see the emergence of a global carbon market.”

The role of markets in the Communist superpower’s climate toolbox will form the centrepiece of China’s pledge to a UN climate pact, set to be finalised in Paris later this year.

Known in UN circles as an Intended Nationally Determined Contribution (INDC) and due this month, the commitment will be a huge moment for hopes that dangerous levels of climate change can be avoided.

China’s emissions leapt 4.2% from 2012-2013, accounting for 28% of the global total. To stop the world overheating they need to come down.

In November 2014 president Xi Jinping made an historic pledge to guide the country to peak its greenhouse gas emissions by 2030, building on a 2009 goal to cut the carbon intensity of GDP 40-45% on 2005 levels by 2020.

In December 2014 the NDRC, Beijing’s premier economic body, released plans for a national market, followed by a more detailed framework and timeline in February 2015.

The direction of travel is clear, although Jeff Swartz, head of policy at the International Emissions Trading Association (IETA) warns against expecting too much, too soon.

“I think it’s important everyone manages their expectations… but clearly it’s a place where once China has made a decision, things happen quickly,” he says.

“We shouldn’t be too confident that the launch next year means we will suddenly see an active liquid carbon market – it could just mean more companies start to measure and report emissions.”

EU Lessons

Work on a national emissions trading scheme started back in 2006, with the publication of the National Assessment on Climate Change.

Since then, NDRC developers and think tanks have watched the pained progress of the EU’s emission trading scheme closely.

In particular says Hongliang Chai, an Oslo-based analyst with Thomson Reuters Point Carbon, they want to avoid a situation where vast numbers of carbon credits allow polluters off the hook at minimal cost.

“The EU ETS is definitely the default market which China officials decision makers and think tanks when they look at examples,” he says.

“They have said want to avoid the over allocation of credits seen in EU markets, and want to set the cap right up front.”



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