China launches incentive system to cut carbon emissions

BEIJING — China launched a nationwide carbon-trading scheme last week, solidifying the country’s role as an emerging leader in the fight against climate change.

The market will initially cover about 1,700 of the country’s coal- and natural-gasbased power-generating companies, accounting for about 3 billion tons of carbon dioxide emissions per year — more than a third of the country’s total, China’s powerful National Development and Reform Commission announced at a news conference.

“The power-generation industry is in the most favorable position (for the scheme) right now, with the most complete data and a relatively large scale of carbon emissions,” Zhang Yong, a vice chairman at the commission, told reporters. Later, the scheme will expand to cover seven other sectors, including petrochemicals, chemicals, building materials, and iron and steel.

Even limited to the power sector, China’s national carbon market will be the world’s biggest — about 1.5 times as large as the second-biggest, the European Union, and several times bigger than California’s (the biggest in North America).

“This is an incredibly ambitious exercise,” said Nathaniel Keohane, a vice president at the Environmental Defense Fund, a New York-based nonprofit that has helped China devise the scheme. “It’s like the pyramids of Giza.”

Keohane said the scheme could enable China — the world’s biggest greenhouse gas emitter — to formulate even more ambitious climate goals in coming years, potentially reaching peak emissions before its stated target of 2030.

The Chinese government will spend a year building a nationwide registration system covering all companies participating in the scheme, the state-run China Daily reported; it will spend another year testing the system. Transactions will begin in about three years.

An emissions trading scheme is, essentially, a market-based incentive system to reduce greenhouse gas emissions. It involves setting a limit on total carbon emissions, and then — within that limit — allowing polluting companies to buy “carbon credits” from their lesspolluting counterparts, thereby imposing a financial burden on the polluters and granting rewards to cleaner entities.

Nicole Liu in Beijing contributed.