China recently announced that its national market for carbon permit trading will begin in 2016, only six years after the introduction of its national plan for seven regional pilot markets (for more information about the efficiency of these regional schemes please visit our previous blog post on the topic dated March 13 available here).
With its total CO2 emissions having increased from over 2.5 gigatons in 1990 to almost 10 gigatons in 2012, China is today a nation that accounts for nearly 30 percent of global greenhouse gas emissions. As a result, its political leaders now understand that they have a special responsibility for implementing national legislation that will support a transition away from carbon intensive industries and alleviate the ongoing air pollution crisis endured by the residents of its cities.
Indeed, having pledged to reduce the amount of carbon it emits per unit of its gross domestic product (GDP) to 45 percent below its 2005 levels by 2020, China has no time to relax and is therefore planning for a national scheme. According to the New York Times, this scheme will dwarf the European emissions trading system, which is currently the world’s biggest, becoming the main carbon trading hub in Asia and the Pacific, and capping carbon dioxide emissions from sources like electricity generators and manufacturers.
What is an emissions trading scheme?
Emissions trading is a market-based approach to controlling pollution. By creating tradable pollution permits, these markets attempt to add the profit motive as an incentive for good performance by polluting industries. Unlike traditional environmental regulation, the system is not solely based on the threat of penalties.
For more information about Emissions Trading please view this informational video: https://www.youtube.com/watch?v=ReOj12UAus4.
Risks of the National Scheme
There are of course risks involved in introducing a national scheme in China at this early stage. As forewarned by The Climate Group, if the central authority regulating the scheme overestimates the emission cap, then the market price of the carbon credits could become too low and the incentive for carbon industries to pollute less would disappear ( this was an issue that happened in the EU in 2007).
Setting up a Framework that will Effectively Tackle Climate Change:
Putting an effective price on carbon, through this national scheme, and achieving a binding agreement on climate change in Paris in 2015 will be key to forcing industry to embrace clean energy technologies.
As Yvo de Boer, the former Executive Secretary of the United Nations Framework Convention on Climate Change, said during the Climate Summit, the opportunity of reaching a binding agreement will ride on an effective interim meeting in Lima, Peru in December 2014.
In the meantime, the biggest industrialized nations (such as India, Russia and Brazil) can lay down the framework for the future implementation of their country’s GHG reduction objectives under this new agreement by following China’s lead and implementing carbon markets that will steer major polluting industries towards clean technology and a greener future.