WHAT IS EXPECTED to be China’s largest and the world’s second-largest carbon trading market has opened for business. First-day’s trading on the China Emissions Exchange in Guangzhou was roughly double the opening day’s volume on its predecessors in Beijing, Shanghai and Shenzhen.
Exchanges in Chongqing and Tianjin, and the province of Hubei are planned to follow in the next few months as Beijing clamps down on CO2 emissions from heavy industry. Beijing is planning to run the seven exchanges for three to five years as pilots for a national scheme.
Companies have to have a carbon permit for every tonne of carbon dioxide emitted. Most permits will be issued for free initially, but companies will have to pay for 3% of their expected emissions in the first year of the scheme, with that percentage gradually rising in the future. The Guangdong scheme covers the province’s big power generators, cement, iron and steel producers, a group of 242 companies that have been capped at 350 million tonnes of CO2 emissions. Textiles, pulp and paper and metals industries will be added later.
When all the carbon trading markets are up an running they will regulate 800 million tonnes of emissions, equivalent to Germany’s annual emissions. Beijing’s goal is to cut its greenhouse gas emissions per unit of GDP to 40-45% below 2005 levels by 2020, not just to limit the effects of climate change, but also as part of its drive to become more energy efficient and to deflect the negative criticism that comes with being the world’s biggest polluter.
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.
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.
A little more flesh on the bones of China’s plans to establish carbon trading markets. At the Carbon Expo in Barcelona, where China was announced as one of eight countries to be getting $350,000 initial grants from the World Bank towards implementing market-based initiatives to fight climate change, Wang Shu of the National Development Reform Commission’s Climate Change office said:
“The Government of China will, according to the requirements of the Outline of the 12th Five-Year Plan, gradually establish a market system for carbon emissions trading to promote the achievement of its carbon intensity reduction objective….The initial plan is to establish carbon emissions trading schemes in some pilot regions, and try to establish a unified national system in 2015.”
The pilots will be carried out in Beijing, Chongqing, Shanghai, Tianjin, Hubei and Guangdong. Only Chinese companies are likely to be allowed to trade during their initial phase. Central government still needs to set its overall carbon discharge reduction targets, which are a prerequisite for establishing the national carbon-trading market. The global carbon market was valued at $124 billion last year.
If China can have state guided capitalism and state-owned corporations there wouldn’t seem to be any reason that it can’t have state-guided markets, too. Its proposed carbon trading market due to start in 2014 would seem to fall squarely into that category. Feng Shengbo, deputy director of the China Clean Development Mechanism Project Management Center of the Energy Research Insititute of the National Development and Reform Commission (NDRC), told Bloomberg that authorities are drawing up rules for a market to be run by “associations” overseen by government. “The government will not directly control the market,” Feng said, “but if the associations make misleading policy it’s for the government to guide them.” Not exactly Adam Smith’s invisible hand.
Filed under Economy, Markets
The Copenhagen Accord struck by China, the U.S., Brazil, India and South Africa on climate change smacks of declaring victory and going home. It is not legally binding. It does no more than recognize the need to limit global temperatures rising to no more than 2℃ above pre-industrial levels. It sets collective goals for rich nations to fund poor nations’ adjustment to going greener that are so broad as to be meaningless. It puts the monitoring of developing nations’ progress in their own hands. It does nothing of substance on promoting carbon markets beyond saying “various approaches” will be pursued. Even then the accord hasn’t got the backing of the all the participants in the UN’s Copenhagen climate conference and the meeting as a whole did no more than ‘note’ it.
From Beijing’s point of view, it is job done. It has not had to accept a binding treaty, and the verification process for whatever voluntary steps its takes to control greenhouse gas emissions will be in its own hands. (It has set itself a target of cutting the amount of carbon dioxide emitted for every unit of GDP by up to 45%.) Beijing will also have taken note of how effective its alliance with India has been in dealing with the U.S. But while the accord serves both countries interests the criticism from developing nations that China and India have sought to portray themselves as championing must have stung, whatever spin the propaganda bosses put on it.
The UN now has a year to salvage something from the rubble of Copenhagen that can turn the five-way accord in to a U.N-wide binding treaty before the climate conference reconvenes in Mexico City in December 2010. Whether anyone in Beijing or Washington for that matter really cares is another matter.
If the U.N.’s Copenhagen Climate Summit does only one thing, it will have been to get China to commit to its first firm target to curb greenhouse gas emissions. Unfortunately, the goal that Prime Minister Wen Jiabao will take to Copenhagen doesn’t amount to much — to achieve by 2020 a 40%-50% cut in the 2005 levels of the amount of carbon dioxide emitted for each unit of GDP produced.
Carbon intensity goals are open-ended in as much as the volume of greenhouse gas emissions is a function of growth and energy efficiency. Beijing plans to have more of both, so its total emissions will likely rise. Also the goal is in line with what is already happening in China after a five-year drive to become more energy efficient. It is already almost half way to hitting it.
That is not to say that any target isn’t welcome; it certainly is to the organizers of the flagging Copenhagen conference, who in the past 48 hours have now got the world’s two biggest polluting nations, the U.S. and China, to agree to at least nominal targets. China’s announcement is also a shot in the arm for carbon trading markets, another area where Beijing thinks it can steal a march over Washington.