Carbon market will initially cover China’s energy sector before expanding over the coming years, but it is still not yet know when trading will actually begin
In a move that campaigners hailed as a «monumental» step in the global fight against climate change, the Chinese government confirmed the long-awaited ETS – which was trailed last week at the One Planet Summit in Paris – will create the world’s largest carbon market once it comes into operation, dwarfing Europe’s ETS in size and scope.
The cap and trade scheme will sees high emitting companies buy and sell emissions credits below a defined, gradually declining limit. The market is set to initially cover around 3.5 billion metric tonnes of carbon from 1,700 stationary sources across China’s power sector, including the country’s coal plants.
The scope means the ETS will initially account for around 34-39 per cent of China’s total emissions, before gradually expanding to also include other high emitting industries such as aluminium and cement in the coming years. The scheme is also expected to grow to include the heating sector, with China having on Sunday announced a five-year plan to convert northern cities to clean heating during the winter through to 2021 in order to avert a deepening heating crisis, according to Reuters.
Green NGO the Environment Defense Fund said that by the time the program is fully implemented from 2020 it is expected to cover some five billion metric tonnes of CO2, which would account for a sizeable chunk – roughly 15 per cent – of total global emissions.
Initially nine regions and cities, including Jiangsu, Fujian and seven regions where pilot schemes have been operating, will coordinate to establish the ETS system, Reuters reports. The intention is that the market will become the primary mechanism for ensuring China remains on course to peak its total emissions by 2030 at the latest, in line with the country’s Paris Agreement pledges.
However, there are still no firm details as to precisely when trading in the long-awaited carbon market will actually begin, nor a timetable for the phase-in of other industries. Chinese media site Shoudian reported that is «probable» that formal trading will not start until 2019, but officials are yet to provide an official start date.
Some commentators have suggested the lack of clarity is because China is still not ready to launch the ETS. Having begun piloting emissions trading programmes four years’ ago, China’s President Xi Jinping had promised to launch the cap and trade programme before the end of 2017. But analysts have warned much of the technical infrastructure required for a national roll out is still not in place.
However, in a statement EDF president Krupp said it was «smart» for China to take its time over developing and gradually phasing in the scheme. «Chinese leaders have drawn lessons from the experience of other countries, and they’re moving in a gradual and sure-footed way to make sure they get this right,» added Krupp. «I think that’s smart.»
It is also not yet known what price will be placed on carbon emissions to start with, although some have estimated the initial price could be 50 yuan ($7.50) per tonne of emissions, with a longer term aim for the figure to rise to around 300 yuan ($45) per tonne.
Critics of the EU ETS have long argued that it has failed to deliver on its early promise because a glut of emissions credits has led to low carbon prices. However, supporters of the scheme have countered that it has normalised the practice of carbon pricing and has encouraged investment in energy efficiency mneasures and the switch away from carbon intensive coal power.
Commentators said China’s new market will form part of a global trend. Once China’s system launches there will be 19 carbon trading systems operating globally, covering almost half of the world’s economic output.
Jonathan Grant, director of the climate change team at PWC UK, welcomed today’s news as a «massive step forward in China’s efforts to tackle emissions – and one that could have global ramifications», but he stressed the importance of ambitious policy to ensure the ETS is effective.
«China’s action could reduce concerns about competitiveness which is often a barrier to implementing climate policy in other countries,» said Grant in a statement. «For the trading system to be effective, the NDRC [China’s state planning commission] will need to set an ambitious emissions cap, roll-out the trading system to other sectors and allow the price to flow through to consumers. Carbon pricing regulation has been implemented in many countries around the world, but to reduce emissions, prices need to be high enough to prompt companies to change their investment decisions and operations.»
The launch of China’s scheme will fuel hopes it could in future link up with other markets operating elsewhere, such as in the EU and California.
Moreover, a new €10m, three-year EU-China cooperation project on emissions trading started just a few weeks ago.
Miguel Arias Cañete, EU Commissioner for Energy and Climate Action, also welcomed China’s announcement today. «As the US government turns its back on the fight against climate change, China, the EU and many others are forging ahead with strong climate policies and measures,» he said in a statement. «This major announcement sends a very strong signal: the world is changing with new, broad climate leadership. With both the EU and China committed to emissions trading, two major international players are championing carbon markets as a key policy tool to curb emissions and put a price on carbon.»
With specific details of China’s ETS and rollout timetable still unknown, it remains to be seen just how ambitious or rapid the decarbonisation of the world’s second largest economy will be over the coming years. Nevertheless, China has sent a strong signal that carbon is a pollutant that industrial emitters must pay for, and many will hope the move could prompt other governments to move in the same direction.