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China Set to Debut the World's Largest Carbon Market

December 16,2017 00:08

China is set to introduce its equivalent of U.S. EPA's Clean Power Plan next week, even as the Trump administration prepares to discard its electricity rule for the carbon sector. China will debut an emissions trading system as soon as today that will ...and more »


China is set to introduce its equivalent of U.S. EPA's Clean Power Plan next week, even as the Trump administration prepares to discard its electricity rule for the carbon sector.
China will debut an emissions trading system as soon as today that will begin by covering coal- and natural-gas-based power production. The program will eventually expand to a variety of manufacturing and industrial sectors.
"It is important to bear in mind that the first phase will be embryonic," said Li Shuo, senior global policy adviser for Greenpeace East Asia, who has been briefed on some details of the coming plan. He stressed those could change before the launch.
The plan initially will include 11 different emissions baselines for power plants based on whether they run on coal or gas, their size, and other details, Li said.
"This means gas plants would be competing with other gas plants with similar scale," he said, adding that the trading component of the program would initially be limited. It's unclear what the starting price for emissions allowances will be.
It's a slower start than the Chinese government initially promised, but environmentalists say that's prudent. The world's second-largest economy and largest global emitter of greenhouse gases has limited monitoring and verification capabilities.
"It is precisely the lack of transparency that has worried investors in other Chinese markets, and carbon markets are known for being notoriously tricky," said Paul Bledsoe, a former Clinton White House climate adviser. China must also build the legal infrastructure that will allow it to hold companies accountable for noncompliance.
So greens say it makes sense for China to focus first on the power sector, which is its largest single source of emissions, before expanding.
"China has this saying that 'We have to cross the river by feeling one stone at a time,'" said Barbara Finamore, senior attorney and Asia director for the China program at the Natural Resources Defense Council. "When the president of China announces a program like this, he's putting his personal reputation behind it."
The limited rollout "is a sign that China is taking this seriously and wants to make sure they're doing it right," she added.
"This is like the pyramids of Giza for climate policy," said Nathaniel Keohane, vice president of international climate at the Environmental Defense Fund, referring to the oldest of the Seven Wonders of the World in Egypt. A quarter of a century ago, China was still a poor country, he noted. "It will be the largest emissions trading system in the world, even if it only covers the power sector."
Chinese President Xi Jinping announced plans for the program in September 2015 during a bilateral summit with former President Obama. China's ambitions narrowed over time (Climatewire, Aug. 14). Earlier this year, officials said they planned to start with three sectors—electricity, aluminum and cement—but next week's plan is expected to include only electricity.
The announcement builds on the seven regional pilot emissions trading systems that were first approved in 2011. Those regional programs will continue for other sectors, like steel and aluminum, until those industries are deemed ready to be incorporated into the nationwide program.
It will also work in tandem with the country's cap on coal use, renewable energy targets and a nationwide efficiency standard on coal plants. That means China's entire continuing coal fleet could be more efficient than any existing U.S. coal plant, according to a report released in May by the liberal Center for American Progress.
"All of our coal-fired power plants, none of them can meet those efficiency standards," said Melanie Hart, one of the report's authors and director of China policy at CAP. "Not a one."
Hart said a key question next week would be how the program would seek to avoid advantaging provinces with substantial renewable energy resources over those that are more dependent on coal-fired power, like Liaoning in northeastern China, which is known as the country's Rust Belt.
Eventually, the program should give an advantage to provinces that ramp up their clean power, but "they don't want to do it like flipping a switch," Hart said. Some of the poorest regions of China also use the highest-emitting energy, she said, and a sudden shift could exacerbate that problem.
Reporter Debra Kahn contributed.
Reprinted from Climatewire with permission from E&E News. E&E provides daily coverage of essential energy and environmental news at www.eenews.net.

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