Ciara Shannon's Blog

Ciara loves following the 'rubik cube' nature of sustainability (social, economic and environmental) as it twists and turns the world. Ciara is the Founding Director of Eden Ventures that specialises in sustainability/ climate change issues and has been working under Planet Eden a registered society to bring to Hong Kong an environmental edu-inspiring park. Prior to setting up Eden Ventures, Ciara initiated and ran the Climate Change Business Forum (CCBF) for the Business Environment Council (BEC). Ciara has been a sustainability professional since 2000 and is Hong Kong born.

Carbon Trading Goes East

China key player
February 7, 2013

Last week the Chinese government announced in its five year energy plan that it would set a non binding limit on carbon emissions at 4 billion tons of coal equivalent by 2015. This follows on the heels of promises to cut energy intensity -- the amount used per unit of GDP growth -- by 16 percent over the 2011-2015 period  to address crucial issues such as pollution, waste and a growing dependence on overseas oil and gas supplies.    
 
The Chinese government is also exploring 'market mechanisms' and by 2015-2016, the Chinese government expects to develop a national carbon trading system. As a first step, the National Development and Reform Commission (NDRC) has initiated carbon trading pilots including the cities of Beijing, Shanghai,Tianjing, Chongqin, Shenzhen, and Guangdong and Hubei provinces and together they account for 27.4% of China’s national GDP and 18.4% of its population.  If the Chinese ETS works, other Asian national economies will follow suit - South Korea and Vietnam have already approved plans for implementing a national emissions trading scheme.
 

It will be interesting to see how this all unfolds and how binding and non binding targets will work alongside each other. It is also highly likely that China will also initiate a carbon tax within some pilot testing projects in a similar vein to Australia, where a carbon tax has been introduced initially, but there will be tradable permits in the long term. China is also looking at the potential for sectoral pilots.  The primary motivation for a carbon trading scheme in China is to continue to improve energy efficiency while pursuing economic growth and to gain a competitive advantage in the energy markets of the future. 
 
China has the opportunity to learn from all of the complex problems of the EU ETS such as the generation of massive windfall profits because of free allowances, the over allocation of allowances that includes a surplus of some two billion carbon permits which resulted in the carbon prices sliding from a record high €32, €30 (April 2006 and in 2008) to €1.43 (September 2012) and €2.81(on Jan 24th 2013) and losing €34 billion in 2012.
 
What is unclear is how the carbon price will work when the wholesale and retail prices of electricity in China is currently set by the NDRC, which is good for reliability but offers little market incentive to drive efficiency and emission reductions. Perhaps lessons can be learned from China’s pseudo market experiments with SO2 emission trading that delivered few effective trades mainly due to a lack of  competition between state-owned enterprises (SOEs) whose emissions were not regularly monitored.
 
A majority of the participating companies in China’s carbon trading pilot projects will be state owned enterprises covering a range of industries such as electricity, cement, iron and steel, chemicals and large public buildings. All tightly controlled by the heavy hand of policy where transparency isn’t a forte and the credibility of China’s statistics on energy use and carbon emissions has long been questioned. Another huge challenge will be in the monitoring, reporting and verification of emissions data and the fact that there isn’t enough third-party verification companies or experienced carbon practitioners and traders to take the lead in this area. 

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