China’s carbon trading scheme struggles to take off
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China has over the past few years seen its plans for an emissions trading scheme delayed, although official statements on the scheme remain optimistic.
“We will strive to make a breakthrough in progress before the year-end,” Li Gao, head of the climate office at China’s Ministry of Ecology and Environment, told Reuters in January this year.
Since then, advocates of the scheme fear that the coronavirus-led slowing of the economy — which recently shrank for the first time in more than four decades — and international condemnation over Beijing’s heavy-handed approach towards Hong Kong may have pushed green policies down China’s agenda.
“Already we can see the next announcement of delays trickling in,” says Michael Mehling, a research scientist at MIT in Massachusetts, who has been working with China’s Ministry of Ecology and Environment on the trading scheme, specifically on its transparency and oversight.
“With a national emissions trading scheme of this size, there are so many moving pieces, so many complications — political, technical — I think that is what we are seeing,” he adds. “They hit various bumps and are realising they have more work to do.”
Deborah Lehr, executive director of the Paulson Institute think-tank, adds: “Everything [Beijing says] is that they are going to continue to put a major emphasis on green. [But] we have yet to see it materialise.”
Hopes for the nationwide scheme were spurred in 2015 when Xi Jinping, China’s leader, said Beijing would launch an emissions trading system in 2017 that would almost certainly become the largest of its type, eclipsing that of the EU.
The announcement was hailed by environmentalists, including former US vice-president Al Gore, as a positive step for China in its fight against climate change. The system would cover about a third of China’s national emissions, according to the International Carbon Action Partnership (Icap).
Much like the EU emissions trading system, which started in 2005, China’s scheme would allow the biggest corporate polluters to buy credits from those that do not emit as much.
However, the proposed scheme has encountered difficulties in establishing a comprehensive data collection system that would allow policymakers to set target levels and allocate carbon credits accordingly.
The plan’s scope has been pared back, with trading of carbon credits limited to the power generation sector rather than the eight industrial sectors included in the original outline.
China relies on coal for most of its energy needs; since 2011, China has consumed more coal than the rest of the world combined, according to the US Center for Strategic and International Studies.
The building blocks for a nationwide scheme are in place, with eight regional authorities, including Beijing and Guangdong, piloting their own emissions trading systems, although their scale is small. These eight pilots have raised $117m since 2014, compared with $16bn by the EU’s scheme in 2019 alone, according to Icap data.
In the short term, the pilots are expected to run alongside the national scheme because these cover more sectors than just energy generation. Longer term, these pilots are expected to be incorporated into the national programme, according to Icap.
However, questions have been raised about how much the trading scheme will actually lower China’s carbon emissions.
“It’s unclear whether the CO2 trading scheme will play an important role in limiting emissions. That will depend on the stringency of the cap, enforcement mechanisms, power sector reforms and other factors,” says David Sandalow, a fellow at Columbia University and former official in the White House and US State Department.
“When Europe started its trading scheme, there were issues in the first phase where members were kind of caving in to lobbying pressure,” adds Mr Mehling, adding that the EU system had been vulnerable to fraud and tax evasion. “We don’t know how serious China will be about making sure those things don’t happen and how bad it might get.”