Carbon trading set to curb China’s emissions

Market-based approach a model for other nations, underscores climate commitments

A national carbon trading mechanism that has been put into operation in China could help promote the country’s climate progress with market-based, cost-friendly solutions. The endeavor in the world’s largest developing country could be a model for other nations as they explore viable climate actions, experts from home and abroad said.

The Ministry of Ecology and Environment published on Jan 5 an interim regulation on the management of carbon trading. Earlier, on Dec 30, it published a document laying out the 2019-2020 allocation of carbon emission allowances for the power generation sector and a list of 2,225 companies that would be given emission allowances.

These documents were unveiled as China makes increasingly intensified efforts to reduce carbon emissions. While addressing the general debate of the 75th session of the United Nations General Assembly via video in September, President Xi Jinping announced that China aims to see carbon dioxide emissions peak before 2030 and achieve carbon neutrality before 2060.

These documents underscore the fact that China’s national carbon market has opened for business, according to the Environmental Defense Fund’s China program.

Carbon trading is the process of buying and selling permits to emit carbon dioxide or other greenhouse gases. If a company curbs its emissions significantly, it can sell surplus permits in the market. If it fails to limit its emissions, it has to buy unused allowances from other companies.

The two documents published late last year indicate that the 2,225 power generation companies that saw their carbon emissions exceed their total free emission allocation limit between Jan 1, 2019 and the end of last year may have to buy permits in the market, said Zhang Jianyu, founder and chief representative of the program.

The regulation unveiled on Jan 5 rules that companies could use China Certified Emission Reductions, which are generated within the China Greenhouse Gas Voluntary Emission Reduction Program, as offset credits. But companies are only allowed to use such reductions to offset 5 percent of the permits they need to buy.

The carbon trading program will be the first national environmental credit trading mechanism in China’s environmental progression. It has replaced the European Union’s carbon trading market, launched in 2005, as the largest such market in the world, Zhang said.

Besides the EU, the United States’ California and Canada’s Quebec also inaugurated carbon trading markets in 2013 and combined them the following year.

Zhang said the Chinese market will be the only one to be established before the nation sees its carbon emissions peak.

China started its pilot market in 2013. Considering the time taken for preparations, the Chinese market outpaces all the others.

“It has accumulated the richest experiences in exploring how to establish a carbon trading market, especially in a developing country,” he said.

Scott Vaughan, the international chief adviser to the China Council for International Cooperation on Environment and Development, an international think tank for the Chinese government, said he is optimistic that China’s national carbon trading market will play a role in driving down the trajectory of carbon dioxide emission growth in China.

The Acid Rain Program in the US, initiated in the 1990s to reduce overall atmospheric levels of sulfur dioxide and nitrogen oxides, was also launched before emissions of the two major air pollutants peaked, said Vaughan, also a senior fellow at the International Institute for Sustainable Development, an independent think tank headquartered in Canada.

The program, which introduced a system of allowance trading similar to those in carbon markets, uses marketbased incentives to reduce pollution.

The idea of the carbon emission trading system would be to help drive down emission growth by having the most efficient players in the market sell their excess credits to those companies that are not as efficient, he said.

“The aggregate impact would actually change the trajectory of the peak and move it downwards in order to get at that 2030 goal … I’m very optimistic,” Vaughan said.

At a news conference on Jan 5, Li Gao, head of climate change at the ministry, said it will make efforts to tighten emission allowance allocation as the country forges ahead to establish a carbon emission management mechanism with a national emission cap.

Setting a cap on carbon intensity — or carbon dioxide emissions per unit of GDP — as it previously did will be a major step in promoting carbon reduction in the country during the 14th Five-Year Plan period (2021-25), he said.