China’s Hubei province launches carbon market

NEWS: China’s sixth regional carbon market prepares further ground for a national carbon market

Source: Flickr/MaX Fulcher

Source: Flickr/MaX Fulcher

By Gerard Wynn

Hubei province launched China’s sixth regional carbon market on Wednesday, in a further step towards a national emissions trading scheme.

China is the world’s biggest carbon emitter, but has introduced ambitious targets to cut emissions growth over the course of this decade, partly through the introduction of regional carbon markets.

The country plans eventually to introduce a national scheme based on the experience of the pilots, of which China’s central Hubei province is the sixth.

The newly launched carbon market saw keener interest on its first day than any of the previously established schemes, according to the China-based investor news service, AAStocks.com Limited.

“So far, 510,000 metric tons of carbon emissions have been traded at average 21 yuan ($3.4) per metric ton, marking the highest first-day trading volume in the six carbon trading pilot areas,” the specialist outlet said mid-morning local time on Wednesday.

Among the companies participating in the scheme will be Wuhan Iron and Steel, China’s fourth-biggest steel producer.

The seventh pilot exchange is also scheduled to go into operation this year, in the south western Chinese city of Chongqing.

Flexible

The provincial government has allocated some 324 million metric tons of emission allowances to 138 enterprises from 12 sectors including power, steel, cement and chemicals.

More than 290 million of the emissions allowances would be handed to polluters for free, with the rest either auctioned or held in reserve for new enterprises, underlining the gentle introduction of the scheme.

Handing out allowances for free reduces the impact on industry profits, although the experience of the world’s biggest market in the European Union has shown that power plants still pass on the value of emissions permits to power prices, hiking industry and household energy costs.

Unlike the EU Emissions Trading System, the Hubei plan allows the government to make adjustments in allocation in hindsight, based on reported emission levels, Reuters reported.

Companies that emitted more than 120% of the level covered by the free permits could seek extra permits, while those which emitted less than 80% of their allocation may have permits withdrawn. That could help avoid the kind of glut of allowances which has plagued the European market, leading to a crash in prices.

Targets

China will draw on the experience of the pilot schemes in establishing a national cap and trade scheme, the country’s National Development and Reform Commission said last year in a submission to the World Bank.

China has committed to cut carbon dioxide (CO2) emissions per unit of GDP, called carbon intensity, by 40-45 percent by 2020 compared with 2005 levels.

By 2015, China expects to cut the carbon intensity of the economy by 17% compared with 2005 levels.

“In order to achieve these targets, the Chinese Government will explore gradually introducing market-based policy instruments into its economy, including emissions trading schemes,” the NDRC said in its World Bank submission.

“In line with this policy, pilot emissions trading schemes are now under development in seven regions in China, Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong, Shenzhen. The economic and industrial structures, as well as resources endowments, are very different in these pilots, providing valuable experience to the development of a national scheme.”

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