Can China’s new carbon market take off?

A decade in the making, its emissions-trading system is now live

3/1/2021 3:18:00 AM

New benchmarks based on the type of fuel burned will influence efficiency within existing technologies, but it will not encourage a shift to greener ones

A decade in the making, its emissions-trading system is now live

.On February 1st China’s carbon-trading market went live, a decade after it was first mooted, offering a glimpse of hope that the severe pollution the country generates might be curbed. The general principles of the emissions-trading system (ETS) reflect global standards, and slow implementation has been par for the course in other places. But there are two reasons to worry that Beijing may not get carbon trading right.

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The first is theETS’s scope. The expectation was that the market would cover at least 70% of the country’s carbon-emitting industries, including power generation, aviation and petrochemicals. It may eventually do that. But its first phase covers just 2,225 power generators, representing a small fraction of emissions (the generation sector as a whole produces about 30% of China’s emissions). Instead of employing an absolute emissions cap, as Europe does, it will rate polluters by four benchmarks, including size, fuel type and carbon intensity, to determine caps on emissions. Gas-powered plants, for example, will get a larger allowance than dirtier coal-burners. Companies need pay for only 20% of the emissions that exceed their cap. Maximum fines for breaches are a paltry 30,000 yuan ($4,644), according to Fitch, a rating agency.

Benchmarks based on the type of fuel burned will influence efficiency within existing technologies, but it will not encourage a shift to greener ones. Such a system, says Mervyn Tang of Fitch, accommodates the energy needs of China’s high rate of economic growth. But policymakers have yet to say when they will move to an absolute emissions cap—a step considered necessary to clear China’s smoggiest cities. Nor have they indicated when the headtopics.com

ETSwill bring in the entire power sector and other polluting industries. Construction and transport may never be included.Second, the programme faces legal ambiguity. TheETShas been set up by the ministry of ecology. But the framework for enforcing a carbon-trading market is untested. Many of the worst polluters will look for loopholes. To gain acceptance from companies and local enforcers, and to set out guidelines for participation from third-party investors, the State Council (the country’s cabinet) itself must issue rules, says Chen Zhibin of Sinocarbon, a think-tank.

The council has already consulted the country’s powerful manufacturing and energy lobby, but there is no word on when a final set of rules will be produced. Until then, full backing for the carbon market will remain elusive. Read more: The Economist »

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