A chef in China's Shandong province removes chicken from a solar cooker. Backers of emissions trading say the spread of solar use in China will accelerate once traders begin buying and selling offsets. Image: Flickr/Tom O'Malley
SHANGHAI -- China will soon begin its grand experiment to rein in climate change, using the nation's regionwide carbon markets as the building blocks for what could become the world's second-largest emissions trading market.
Four out of seven Chinese pilot regions -- Shanghai, Guangdong, Tianjin and Hubei -- have issued their versions of cap-and-trade plans for greenhouse gas emissions. While Beijing and Shenzhen have yet to unveil their final plans, major parts of them were drafted and discussed in news conferences last year.
Chongqing has been the slowest mover in developing its carbon market, but it will still be able to start trading by the end of this year, local media have reported.
China's emerging regional carbon markets are designed to accommodate local characteristics. For instance, Guangdong, a manufacturing hub, only charges factories for carbon dioxide they emit, while Shanghai's system charges airports, office buildings and others. But they follow the same criteria in many other aspects.
For one, seven pilot regions all set an overall ceiling on carbon emissions based on their carbon intensity goals. China has pledged a 17 percent cut in its emissions per unit of economic output by 2015, compared with 2010 levels, and has assigned emissions reduction targets to each region. The pilot regions have translated that target to specific quotas that limit what individual polluters can emit.
Polluters that emit beyond these limits are required to buy more carbon allowances; those that become more efficient can sell leftover allowances. Polluters can also secure offset credits, known as Chinese Certified Emission Reductions (CCERs), by financing projects that remove carbon dioxide from the atmosphere.
This is expected to boost China's renewable energy capacity because financing from polluters can support more wind farms, hydroelectric dams and solar power plants. The ambitious goal of those Chinese regionwide carbon trading pilots is to prove that the mechanisms work and can be deployed on a larger scale.
But for now, there is still a long list of missing elements in those regional schemes. Except Shenzhen, none of the Chinese pilot regions have clarified under which legal framework their cap-and-trade schemes will be enforced. It is also unclear what penalties, if any, will be imposed when polluters exceed their emissions caps but refuse to pay the fee. Another unknown is how the Chinese government will influence carbon trading in order to avoid prices swinging wildly.
First market opens next month
Those missing elements are expected to come out soon, as China is set to start its regional carbon trading this year. Many believe the timeline will not be delayed due to strong international pressure on China to reduce emissions and a strong domestic desire to seek market forces against global warming. Already, Shenzhen reportedly said it will begin trading June 17, the first announced start date.
It isn't officially announced whether nonpolluters can trade allowances on the Chinese carbon market, but they will certainly be allowed to take part as offset credit suppliers. And they want to do so.
GreenStream Network PLC, a Finnish firm that develops and manages carbon assets, recently signed contracts to buy 1.2 million tons of annual offset credits generated by eight renewable energy projects in China. The company plans to increase that volume tenfold by the end of this year, said Karl Upston-Hooper, Greenstream's general counsel.
"Carbon prices in China might not be attractive in coming years, but we see this as a step to strengthen our position and get ready for the emerging Chinese carbon market," Upston-Hooper added.
According to a report published last year by the Climate Institute, a Sydney-based nongovernment think tank, China will become the second largest carbon market in the world in terms of regulated emissions, covering 700 million tons of emissions by 2014. By contrast, the report notes, figures for the carbon markets in California, Australia and the European Union will be 165 million tons, 382 million tons and 2.1 billion tons, respectively.