World’s largest polluter envisages a cleaner future with launch of seven carbon-trading schemes

SOME cheekily say last week’s announcement that China, the world’s largest polluter, will roll out the first of seven pilot carbontrading schemes is part of its “Green Leap Forward”.

The projects are part of Beijing’s ambitious target of a 40% reduction in emissions relative to its economic output by 2020 from 2005 levels. The Shenzhen Carbon Exchange, which will open on June 18, is the smallest of the seven schemes in terms of total emissions.

Exchanges in Beijing, Shanghai, Tianjin, Chongqing, Guangdong and Hubei will roll out over the course of the next few years, with the goal of eventually setting up a national trading scheme. The Shenzhen trading scheme will initially cover 635 industrial and construction companies, which accounted for 38% of Shenzhen’s total emissions in 2010. Transport companies will soon be added, followed by all major firms that consume oil, coal, gas and power.

How these schemes, which are well established in the European Union and are beginning to sprout around the world, are designed to reduce China’s emissions is quite simple. They encourage companies to curb their carbon dioxide (CO2 ) emissions by setting a limit (or cap) on the level of CO2 that can be emitted in a country or region. Permits that are equal to one ton of carbon are then distributed to each emitter.

Cleaner companies can sell their permits to firms that pollute more than the limit, who therefore need more permits to meet their individual cap. This sets a price on CO2 , which is the main culprit responsible for climate change, according to the majority of scientists.

These schemes have caused ripples outside of China. If these pilot programmes end up producing an efficient national carbon market, they could transform efforts to tackle climate change and recharge a clean-energy industry which last year attracted investment globally of more than $270bn, $68bn of which came from China.

With all the fuss about China’s slowdown, one would have thought environmental concerns would be at the bottom of China’s priorities. But the opposite is happening. China is making a concerted effort to ramp up clean energy production and trying to decrease CO2 emissions because growth is slowing.

China’s ministry of environmental protection estimated that the near irreversible environmental degradation that China has experienced in its quest for growth had actually cost it about 3.5% of gross domestic product (GDP) in 2010 alone.

On top of being the world’s largest polluter, China is also the world leader in renewable energy, and its ambitions to grow have not ceased. In January, the government said it would add 49,000MW of hydroelectric, wind and solar power to its national grid this year. This amount is more than Turkey’s annual generating capacity. Furthermore, the government also aims to have 700,000MW of installed renewable energy by 2020.

In addition to maintaining its stable growth, this push to reduce carbon emissions coincides with Beijing’s effort to tackle China’s well-documented air pollution problem. This has been a source of widespread anger among the Chinese population, of which the government is acutely aware.

A report by Deutsche Bank notes that lowering pollution will not be easy. It estimates that, assuming 5% GDP growth, by 2025 the current level of pollution will increase 70% due in large part to China’s coal consumption and increased car ownership. The latter is set to top 400-million cars by 2030 from 90-million now.

The Chinese government will essentially have to be even more aggressive than its present efforts to reduce emissions.

But it is still encouraging to see that the pilot schemes, which aim to initially cover 7% of China’s released CO2 will play their part in reducing carbon emissions and inform Beijing on how to motivate local authorities to adopt lowcarbon policies.

On the other hand, implementing much stricter pollution guidelines on coal-fired plants will be harder in the short term but not impossible in the medium to long term.

The National Energy Administration is already discussing proposals to implement higher standards for imported coal.

These requirements will lower pollution and boost the domestic coal industry in addition to potentially benefiting highergrade producers of coal such as SA and Australia.

Furthermore, Beijing has shown no signs of reducing its heavy investment in renewable energy, as well as expanding its public transport system.

These signs point to China being serious about tackling pollution. It has already taken steps to relieve the stresses placed on the country by the past growth cycle in order to achieve sustainable development.

Van der Wath is Group MD of The Beijing Axis. He can be reached at kobus@thebeijingaxis.com