domestic cap-and-trade system could more effectively curb emissions than
command-and-control, a new report from SEI and FORES shows, but the process is
still in its infancy.
China observers have rightfully called attention to
the country’s new interest in market-based approaches to reducing the energy-
and carbon-intensity of its economy. It is a major policy shift, and given that
China is the world’s top carbon emitter, it has potentially huge implications
for global efforts to slow climate change.
But can carbon trading succeed without a mature
free-market economy? That is a key question raised in the report, China’s Carbon
Emission Trading: An Overview of Current Development, by SEI’s
Guoyi Han, Marie Olsson and Karl Hallding, and David Lunsford, founder of the
Hong Kong-based consultancy Energy Environment Solutions. The report was
released today in Brussels at a seminar with several Members of the European
“If China’s carbon markets experiment succeeds, it
could be decisive,” says Martin Ådahl, director of FORES, which co-sponsored
the report. “Not only could it slow China’s rapid emissions growth, but it
would be an important step towards global carbon pricing. A great deal is at
Last November, the National Development and Reform Commission (NDRC) launched seven carbon trading pilots, in Beijing, Chongqing, Guangdong, Hubei, Shanghai, Shenzhen and Tianjin. The seven pilots will be the first true domestic carbon markets in the country, and their success or failure is likely to determine the future of Chinese carbon markets. Some of the pilot regions could start trading as early as 2013/2014 with the intention of establishing a national carbon trading system by 2015.
While this is a “sincere and ambitious” effort, the
report’s authors find, the plans also “are extremely bold and face considerable
difficulties”. Even after three decades of market-oriented reforms, China is
still far from a true market economy, with heavy government control and
intervention, significant state ownership of enterprises, tight price controls,
widespread corruption, and a culture of distrust in business.
In addition, carbon trading in China is still in its
infancy, with much experimentation but few results to date. By any real
measure, there is no functional carbon market in China, aside from activities
related to the Clean Development Mechanism (CDM).
effort worth supporting
Despite these concerns, the authors find that China’s carbon trading experimentation should be viewed positively.
“Carbon markets are data-hungry and require robust
legal oversight,” says Lunsford. “Thus it will take time for China to develop
markets that make a significant impact on its emissions. But the fact
that China is now taking this step is quite encouraging, as it could support
the eventual emergence of a new international climate change treaty and the
expansion of carbon markets more broadly.”
Several crucial tasks lie ahead: emission targets,
selection of the sectors to be covered, and the necessary legislation and
regulations, plus accountability systems and effective bureaucracies to enforce
“This is a critical juncture to influence the future
carbon market development in China,” says Han. “While China would no doubt
benefit from the international lessons and experiences such as EU ETS, there
should also be strong interest from the international community to support
China in this endeavour.”
Read the report, China’s Carbon
Emission Trading: An Overview of Current Development, or a policy brief summarising
2 May, 2012.