I do not expect this to succeed:
China injects vigour into carbon debate
By Pilita Clark in London and Leslie Hook in Beijing
Financial Times
May 16, 2012 5:57 pm
This year is not turning out well for the climate change business.
The pace of global climate talks is sluggish. Prices have collapsed in the world’s biggest carbon market. Eurozone woes have shoved environmental concerns well down the list of priorities for leaders worldwide.
Yet the outlook is far from hopeless, say some green businesses and campaigners, because of one, somewhat unlikely, part of the world: China.
The world’s second-largest economy is home to some notable examples of environmental delinquency and produces more of the carbon dioxide emissions linked to climate change than any other country.
But its fledgling plans to start seven pilot carbon emissions trading schemes have injected vigour into the global environment debate.
If these pilot programmes end up producing an efficient national carbon market, they could have a transforming impact on efforts to tackle climate change and recharge a clean energy industry that attracted more than $260bn of investment last year.
If they fail, which is by no means impossible, they will set back hopes for a global carbon trading scheme, not least in the four economies to have approved such a system in the past six months: Australia, South Korea, California and Quebec.
Either way, the pilot schemes have become a focus of interest outside China.
“These schemes are the big news in the emissions trading world and indeed in the climate world,” says Henry Derwent, retiring president of the International Emissions Trading Association, the carbon market lobbying group.
They could unleash “a huge international market” driving investment in green technologies across the world for decades, says Sir Nicholas Stern, the British economist who wrote a 2006 review on the economics of climate change.
China’s size and growth mean the fate of the pilots is “one of the most important questions of environmental policy of our time”, says a Stockholm Environment Institute study, one of two European reports on the Chinese pilot schemes published last month.
That may sound like an exaggeration but China accounts for nearly a quarter of global carbon pollution and about half the annual growth of energy-related emissions forecast for the next 20 years. That makes it indispensable to any effort to stem emissions.
More significantly, some analysts think if the pilot schemes eventually produce a national trading system, it could link to others and push the rest of the world toward the green holy grail of a global carbon price.
Setting a price on carbon, through measures such as a carbon tax or trading scheme, is one tool that policy makers can use to discourage emissions.
Many economists and businesses prefer it to the blunter approach of regulation, which was a feature of China’s previous five-year plan, which ended in 2010, that led to occasional power cuts.
Emissions trading, or cap-and-trade as it is also known, is the policy of choice in the European Union, whose seven-year-old carbon market is easily the world’s largest.
California and Quebec are looking at linking their schemes in what would be the first international connection since the EU market started. But substantial emission cuts require action in the US, the world’s second biggest carbon polluter. US lawmakers have resisted doing anything before their biggest economic rival, China.
That stand-off could change if Beijing implements a meaningful national emissions system.
“If the Chinese end up with a national scheme that is compatible with the EU’s emissions trading system, it’s game over for the rest of the world,” says Tim Yeo, a British Conservative party MP who chairs the UK parliament’s energy committee. He is one of many European legislators to visit China this year to inspect progress on the pilot schemes. “Everyone will have to do it, including the US.”
But uncertainties abound, not least about how China will ever get its own scheme working, let alone join up with others.
China’s past efforts in this area – such as sulphur dioxide emission trading – have suffered design and regulation problems.
Details of the size and nature of emissions reduction being planned are sparse, but Beijing has said it wants to cover companies emitting as little as 10,000 tonnes of carbon annually - a much lower limit than what California is planning.
Nick Mabey, chief executive of the E3G environmental think-tank, says connecting a Chinese carbon trading scheme to others is not “wise or necessary at this point”.
“Making sure your own system is working first is probably more important,” he says.
Terry Townshend, Beijing-based director of policy for Globe, the international legislators’ group, thinks 2020 is probably the “earliest realistic date” for any linkages.
Beijing’s economic planning ministry is setting a challenging timetable for the pilot schemes.
They are due to start in 2013 in five cities – Beijing, Shanghai, Tianjin, Shenzhen and Chongqing – and two provinces, Guangdong and Hubei, with a national scheme expected after 2015 if all goes well.
That would be ambitious enough in a well-developed free market economy teeming with experienced carbon business professionals – which China is not – and officials say the timetable could be pushed back.
Local officials in each area are getting help to design their schemes from university researchers and carbon exchanges such as the China Beijing Environmental Exchange, where the size of the task is evident.
“For us to finish this in two years is a huge amount of work,” sighs Mei Dewen, chief executive of the Beijing exchange. “A carbon trading market is a very complex system. ”
Rachel Kyte, vice-president of sustainable development at the World Bank, one of several international bodies helping to foster the Chinese schemes, says: “There’s determined leadership around it.
“Once they have proof of concept and have ironed out any kinks, they will go far.”
Additional reporting by Gwen Chen in Beijing
Copyright The Financial Times Limited 2012.
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