Tag Archives: carbon emissions

Carbon Trading In China Is A Slow Burn

A coal-fired power plant in Shuozhou, Shanxi province, China. Licensed under the Creative Commons Attribution 3.0 Unported license. Photo credit: Kleinolive.CHINA, THE WORLD’S biggest polluter, is taking the slow road to market-based initiatives to tackle climate change.

As far back as June 2011, Wang Shu of the National Development Reform Commission (NRDC)’s Climate Change office said, “The initial plan is to establish carbon emissions trading schemes in some pilot regions, and try to establish a unified national system in 2015.”  By 2015, the deadline for a national carbon market had been pushed back to 2017, though pilot markets had started running in seven cities from 2013.

On December 19, the NRDC finally announced a nationwide carbon emission trading system. That sort of met the delayed deadline. But only sort of.  It will cover only the power generation industry — such as the coal-fired power-generation plant in Shuozhou seen above — and not the total of eight heavy industries originally proposed.

Also, implementation details are still to be worked out. The start of trading is probably at least a year away.

Nonetheless, the announcement marks a milestone on the way to establishing a what will be by some distance the world’s largest national carbon market. With more than 1,700 power-generating firms with aggregate carbon-dioxide emissions of 3.3 billion tonnes — about one-third of China’s greenhouse gas emission — the new market will surpass the EU’s Emissions Trading System (EU-ETS) in size to become the world’s largest.

By comparison, the seven pilot markets traded emission quotas covering 200 million tonnes of carbon dioxide (with a traded value of 4.6 billion yuan, or $700 million).

Both the EU and China’s are cap-and-trade markets. In these, governments set a cap on allowable emissions and then issue companies with emissions credits adding up to that cap. The market incentive is for companies to cut their emissions so they can sell unused allocations to corporate polluters who are exceeding their share of the cap; and for the heaviest polluters to reduce their emissions to cut their costs. In a perfect world, carbon pricing drives innovation in low-carbon technologies and promotes a shift to a clean energy economy.

Environmental economists have a rule of thumb that a price of at least $35 for a tonne of carbon is needed to make companies change their behaviour. In the EU-ETS, carbon is trading at around $7 a tonne and has done for several years.

That is likely to be the initial price when China’s national market starts. The challenge will be to steer the market, so it gets the price to above $35 a tonne.

Plenty of details still have to be worked out.  National systems for reporting data, registration and trading will have to be set up. Once trading starts, there is also likely to be a phase of free trading so companies can get used to market. That could last as long as a year.

Only then will the market be able to be expanded beyond electricity generators. There are some 7,000 companies in industries from cement making to paper production that are likely eventually to be brought under the carbon market regime.

A successful cap-and-trade scheme relies on a strict but feasible cap that decreases emissions over time. China at least has a starting point in that regard. In its voluntary targets submitted to the UN’s climate talks in Paris in 2015, Beijing said it aimed to cut carbon dioxide emissions per unit of GDP by 60-65% from the 2005’s level by 2030, the year in which it is expected to hit peak emissions.

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China To Trial Carbon Trading Market For Three To Five Years

China plans to run its pilot carbon trading market for three to five years before extending it nationally. That sliver of information comes from Su Wei, the government’s chief climate negotiator, speaking at the international climate talks in Durban, South Africa to devise a successor to the Kyoto accord. As we noted ahead of those talks, two provinces, Guangdong and Hubei, and five cities, Shenzhen, Tianjin, Beijing, Chongqing and Shanghai, will comprise the initial market, which is likely to start trading in 2013. But details still remain nearly as sketchy as they were in Beijing’s recent white paper on climate change.

Meanwhile, at the same meeting, officials have indicated that Beijing could set absolute caps on its carbon emissions by as soon as 2020. This would be a significant shift from China’s position that emission reduction targets should be set in terms of energy intensity (the amount of energy used to create a unit of GDP).  There is a danger of reading too much into conference comments this early, but they could imply that Beijing is preparing to take the initiative in breaking the deadlock with the U.S. over which country moves first in cutting fossil fuel emissions, and in making an early play for the capital and technology that will be needed for developing nations to develop low-carbon economies.

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Shenzhen Joins Pilot For China’s Carbon Trading Market

Shenzhen has been added to the list of provinces and municipalities that will pilot China’s proposed carbon trading market. That takes the initial set to seven. The participation of Beijing, Chongqing, Shanghai, Tianjin, Hubei and Guangdong has been known since the summer. An official with the National Development and Reform Commission confirmed the go-ahead with the pilot scheme to Xinhua, but otherwise details remain sketchy. Central government has still to set overall carbon discharge reduction targets, which are a prerequisite for establishing the national carbon trading market that has been pencilled in for a 2015 launch.

By then, China’s goal is to have cut carbon dioxide emissions per unit of GDP by 17% from 2010 levels, according to a white paper on climate change issued this week ahead of the UN’s forthcoming climate change talks in Durban in South Africa. A reduction of that magnitude will be a tough ask given the pace of the economy’s growth. The pilot carbon-trading scheme is expected to start in 2013.

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A Green China Is A Nuclear China

The one-day U.N. summit in New York on climate change produced more hot air than substantive progress towards a meaningful deal at December’s Copenhagen summit. President Hu Jintao made a lot of the right noises to be heard as internationally cooperative but his offer to curb carbon emissions by a “notable” but unspecified margin by 2020 from 2005’s levels, while the first time China has said it will cut emissions, is an empty promise in as much as the expected rapid growth of the economy will mean that an overall reduction in emissions is unlikely even if China is able to meet its promise to cut carbon dioxide emissions per unit of GDP. In practice, the main thrust of this will mean that China will increase its reliance on nuclear power, expected to account for 15% of energy consumption by 2020.

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Tianjin Takes A Lead In Carbon Cap and Trade

Tianjin looks set to become the first of China’s designated carbon trading exchanges to be up and running in an organized way, according to a Financial Times report.  The Tianjin Climate Exchange, a joint venture between the Chicago Climate Exchange, PetroChina and Tianjin’s municipal government, expects to start trading within the year.

The China Beijing Environmental Exchange and the Shanghai Environment Energy Exchange are its likely rivals. China doesn’t yet have a regulatory framework for carbon exchanges or even standardized futures contracts. (Beijing’s carbon exchange is partnering with Blue Next, a spot market; while Shanghai is experimenting with credits for local companies.) Nor does China have a national cap on emissions (a Copenhagen climate conference surprise to come?), so participation in any market would have to be voluntary, as it is for the Chicago Climate Exchange.

Cap and trade legislation may be out of favor in the U.S. (or at least politically stalled in a Washington that seems unable to get its head out of its own political sands), but China has a strong incentive to get carbon markets established. It is the world’s largest producer of carbon emissions and if it doesn’t establish its carbon markets quickly it may lose the ability to control global pricing.

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Poor Rich Country

There are lies, damn lies and statistics, as the old saw has it. Then there is the World Bank’s shrinking of its estimate of the size of China’s economy.

The new number shows gross domestic product at $5.3 trillion in 2005 or 40% lower than previously estimated. It is based on purchasing power, and is intended to provide much needed up-to-date comparative growth data between economies. It still shows China as the second biggest economy after the U.S. (GP of $12 trillion) but with a GDP per capita at $4,091 of only 9.8% of America’s. China’s share of world GDP falls to 10% compared to 15% under the traditional measure, which does currency conversions at prevailing market rates.

The Bank’s president Robert Zoellick, who has been in China this week, says that the bank is drawing no policy conclusions from the revisions. But they could effect everything from China’s voting rights at the International Monetary Fund to how much aid and investment it gets from international institutions because it is poorer than thought — and especially when it comes to the adaption funds discussed at the recent UN conference on climate change in Bali by which rich countries would provide developing countries with finance and technology to help with the practical and social costs of reducing carbon emissions.

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Bali Result: China 1 – 0 U.S.

Those scoring the undercard match between the U.S. and China at the U.N. conference on climate change in Bali would have given it to China on points.

Beijing scored for being seen to be a constructive participant whereas Washington was seen as obstructive. China’s media has been playing up U.N. Secretary-General Ban Ki-moon’s comments about how China has sent a positive signal to the world over climate change. As such Beijing emerged as a leading spokesman for developing countries, especially the fast emerging economies such as itself, Brazil, India and South Korea.

Beijing also saw off U.S. attempts, mainly for domestic consumption it should be noted, to portray the view that climate change is now really China’s fault, and thus China should be pressed into accepting binding numerical targets. The Bush administration, despite its volte face on climate change earlier this year, has no great appetite for binding targets for itself, but it certainly doesn’t want to have them imposed on it but not on China. Plus, the technology, voluntary targets and energy efficiency approach it is pushing promises future business for American companies that sell green and clean technologies, so it wants China and other developing nations to have a reason — and a deadline — to buy them.

This is all geopolitical power jockeying and doesn’t change any of the underlying facts: Per capita emissions in the U.S. in 2004 were about five times higher than China and 16 times higher than India’s. However, China may by now have overtaken the U.S. as the world’s largest total emitter because of its population size, rapid growth and reliance on coal to generate electricity.

And Beijing, too, has a domestic political agenda to be seen as green that goes beyond the environmental need to make the air breathable and the water drinkable. The leadership doesn’t want to cede a power vacuum around the issue into which a future possible rival could step.

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