Abby Schultz's Blog

Abby Schultz is a writer and consultant who looks at how companies grapple with climate change and dwindling natural resources in a global culture that expects, even demands, constant growth. Abby has written about the intersection of business and the environment from the U.S., and is fascinated to learn how companies in Asia’s fast-growing economies are confronting – or not confronting – environmental issues fundamental to their operations. She’s also interested in how innovative businesses come up with creative solutions for operating in a resource-constrained world. Abby has written about corporate social responsibility, clean tech investing and socially responsible investing, among other environmental topics. She’s also written about markets and personal finance, for major news organizations including CNBC.com, Dow Jones and The New York Times.

China's Carbon Markets

Great Potential if Risks are Overcome
February 1, 2013

The prospect of carbon markets in China is welcome not only as an incentive to address the country’s notorious air pollution, but also if the world is to have some hope of reining in the greenhouse gas emissions that are contributing to climate change.
 
Those who attended a CleanBiz Asia seminar on the status of the fledgling program this week got a good sense of what the Chinese government is doing to make seven pilot carbon-trading programs a reality beginning later this year.
 
The seminar also offered a good sense of the tremendous hurdles these markets face: first, how do you create freely trading carbon markets in China, and second, will the effort result in a meaningful price for emitting carbon dioxide?
 
The good news is the pilot programs in five cities (Beijing, Shanghai, Shenzhen, Tianjin and Chongqing) and two provinces (Guangdong and Hubei) appear to be on their way, although Hubei and Chongqing are a few beats behind in putting together their trading platforms, among other issues, according to Changhua Wu, Greater China Director of The Climate Group, a global nonprofit.
 
The pilots will allow the Chinese government to see how carbon markets perform under different economic conditions and under different emission trading scheme designs, so that by 2015 the government will be ready to roll out a national carbon trading program that may or may not utilize the trading platform and systems created through the pilot, according to an October ClimateBridge report.
 
A big question, though, is whether China can establish freely trading carbon markets. This is important, because a hopeful outcome of China’s carbon trading scheme would be to link it to trading systems around the world. As a player in the global marketplace, China would have to have measurement, reporting and verification (MRV) systems for emission reductions that mesh with international best practices, Hannah Routh, Director, Sustainability and Climate Change, at PwC, pointed out at the CleanBiz talk.
 
In addition to the question of government will, there’s the practical question of the ability of Chinese companies to handle free market trading.
 
“Other commodities have generally been price fixed in China thus far,” Routh said. “Is there capacity within Chinese companies to do hedging, and other strategies required to manage an emissions portfolio?”
 
The other obvious hurdle will be creating a market that sets a price for carbon that results in real emission reductions. That’s the whole reason for this game. Here, China’s tendency to rely on command-and-control measures may help, in that it could create some sort of hybrid system that includes a carbon tax, or a floor on the price of carbon (like Australia is doing). That could prevent the kind of carbon market collapse in Europe that’s making market participants question whether carbon markets are viable at all.
 
ClimateBridge says China is considering including a price floor as well as a cap to prevent the kind of volatility seen in Europe, and is still considering a carbon tax. Bill Barron, a visiting associate professor and environment faculty member at Hong Kong University of Science & Technology, argued for that type of structure at CleanBiz’s seminar, as I wrote here.
 
Coal-fired power plants contribute the most greenhouse gas emissions in the world, according to the World Resources Institute, and China consumes by far the most coal in the world, at 46 percent of global consumption as of 2010. Meanwhile, plans are on track to add 363 new coal-fired plants in the country, according to a November WRI report.
 
The Chinese government has said it will cap coal consumption at 3.9 billion tons by 2015, but WRI says analysts see China on track to exceed that goal. Seems like the time has come to make the costs of emitting all that carbon clear to all.
 

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