Tag Archives: Carbon trading

COP21: Follow The Money

Paris skyline

THE PARIS CLIMATE talks — formally the United Nations 21st Conference of the Parties (COP21) — starting on November 30 will be a political bun fight in which China as the world’s biggest polluter will be at the centre. But the how, who and who pays arguments over environmentally sustainable development are only another front in the wider competitive-cooperative struggle between North and South for global influence.

Whatever the outcome of the Paris meeting, China will come off a winner.

The goal of COP21 is for more than 190 countries to agree a global and legally binding treaty that will let the world avoid the worst impacts of climate change. In practice, this means an enforceable plan to keep global warming below 2℃ by cutting greenhouse gas emissions.

The countries that account for 80% of the world’s emissions, three-quarters of which are accounted for by China, the United States, the 28 European Union members and India, have submitted plans for how they will play their part. However, these Intended Nationally Determined Contributions in aggregate fall short of what is needed to meet the 2℃ target.

China’s INDC’s are conventional enough: a speeding up of the transformation of energy production and consumption to mitigate increasing greenhouse gas emissions; continuing improvements in energy efficiency as the economy is rebalanced in a sustainable way; and increases in forest carbon sinks.

In hard numbers:

  • Peak CO2 emissions to be reached by 2030 at the latest;
  • Cut carbon intensity by 60-65% from 2005 levels;
  • 20% of energy produced by renewables by 2030 (10% in 2013); and
  • Increase forest coverage by 4.5 billion cubic meters compared to 2005.

These targets build on ones set out in 2009. That year, Beijing said that by 2020 it would lower carbon dioxide emissions per unit of GDP by 40-45% from 2005’s levels, increase the share of non-fossil fuels in primary energy consumption to around 15%, and increase forests by 40 million hectares and the forest stock volume by 1.3 billion cubic meters compared to 2005 levels.

In its INDC, Beijing claimed that by 2014, it had achieved:

  • 33.8% lower carbon dioxide emissions per unit of GDP than the 2005 level;
  • 11.2% non-fossil fuels share in primary energy consumption;
  • Forested area and forest stock volume increased by 21.6 million hectares and 2.188 billion cubic meters respectively compared to the 2005 levels;
  • 300 gigawatts of installed hydropower capacity — 2.57 times of that in 2005;
  • 95.81 gigawatts of on-grid wind power capacity — 90 times of that of 2005);
  • 28.05 gigawatts of solar power installed capacity of — 400 times of that of 2005; and
  • 19.88 gigawatts of nuclear power installed capacity — 2.9 times of that for 2005.
  • Also, China has initiated pilot carbon-trading markets in seven provinces and cities and low-carbon development pilots in 42 provinces and cities, with a goal of having a nationwide cap-and-trade market in place by 2017.

All of which is real progress, though not sufficient to have kept up fully with the growing economy, as the skies over Beijing bear daily witness.

China’s COP21 targets still look ambitious, unlikely to be achieved without either technological advances both to improve energy intensity (units of energy required per unit of GDP created) and to help nuclear energy replace coal-fired power generation, or a slowdown in the economy to reduce power demand. On some estimates, the later would mean China’s GDP growth rate slowing to at least 4.5% a year for a sustained period in the decade to 2030.

All of which helps to explain why the politics of climate control will be so confrontational at COP21 behind the feel-good words the politicians will spout.

As de facto spokesnation for developing economies, China wants the rich nations to carry the much more of the burden of reducing emissions than poor ones. Its argues that historically the developed countries have gone through their industrial revolutions and so should not expect developing economies to have artificial constraints put on them as they now go through theirs.

The motives for such a position fall along a spectrum running from fairness — developed nations shouldn’t get a ‘free ride’ on pollution just because it occurred centuries ago — to nefariousness — the old world powers are using climate change to hold back the development of new rivals arising in the East and South.

Thus, China wants ‘ambitious economy-wide absolute quantified emissions reductions targets’ for developed countries, while calling only for ‘enhanced mitigation actions’ on the part of developing economies such as itself. Furthermore, it wants developed countries to provide the finance, technology and capacity-building for developing nations to do so.

The proposed financing is scarcely chump change. Beijing wants it to start at $100 billion in 2020 and then increase yearly, with the monies coming from the West’s public purses, not private sources. It proposes that this financing is channeled through the UN’s Green Climate Fund, a somewhat misbegotten five-year-old UN agency that would be made directly accountable to COP21.

So far, the fund has barely raised more money than needed to cover its set-up costs and is wracked by internal disagreements over what it should be funding and how. As of May this year it had received pledges of only $10.2 billion towards its own $100 billion-by-2020 target.

Developing nations don’t like the fund’s focus on private investment, which in practice means Western investing institutions. Environmentalists don’t like its acceptance of fossil-fuel investments, and no one likes the fund’s governance, hence Beijing’s effort to switch it to public funding and put it under COP21’s authority.

The third area of contention at Paris beyond targets and where the money is coming from will be technology. Beijing wants COP21 to impose a clear requirement on developed nations to transfer technologies and R&D to developing countries ‘based on their technology needs’. That would give developing economies, including China, carte blanche to demand virtually any technologies from the developed nations that it wants.

China has need of such technologies, given the challenges of its COP21 proposals. It will not be able to displace coal from the central place it now occupies in the energy mix without a significant increase in nuclear power generation. China is developing an indigenous nuclear industry apace, but its third-generation technology remains unproven, its capacity for making key components for reactors is uneven, and it has limited abilities in spent fuel reprocessing and storage.

Free licence to demand technology transfers from Washington and Paris to tackle any and all of those problems so its nuclear industry can make itself internationally competitive is not going to be acceptable to the West.

However, COP21 will likely yield an agreement, not the vague promises of previous UN climate summits. China will, of course, not get everything it is calling for going in. Binding hard 2030 targets on developed nations are unlikely, as are commitments by the West to any significant public funding of the Global Climate Fund or carte blanche technology transfers.

A mechanism for strengthening national carbon reduction targets every five years is likely. Presidents Xi Jinping and Barack Obama agreed when they met in September to support such an approach, calling for COP21 to establish reporting and accountability that would strengthen emission reduction targets over time.

That, along with some concrete steps towards mobilizing financial and technical resources to assist the power countries to develop sustainable low-carbon and climate resilient economies would be achievement enough in Paris.

These outcomes would give Beijing plenty of advantages. It would get flexibility in recalibrating its tough 2030 domestic emissions targets and constrain Western efforts to impose a World Bank IFC-type private-sector financing model on climate mitigation.

At the same time, it would be free to expand its bilateral climate lending channels such as its South-South Climate Fund. Through its other burgeoning channels such as the Asian Infrastructure Investment Bank, the BRICS’ development bank, and its Silk Road Fund, it can position itself as a key player in global low-carbon investment through its overseas infrastructure and project finance.

With that would come another broad, long-term ratcheting up of Beijing’s global clout, and especially if the next U.S. administration is a more isolationist and climate-change-rejecting Republican one.

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Carbon Trading Starts In Guangdong

guangzhou_dusk_panoramaWHAT 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.


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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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China Aims For National Carbon-Trading Market By 2015

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.

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Market Guidance Chinese-Style

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.

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China and U.S. Take Their Climate Accord And Go Home

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.

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