Beijing reveals bottom-up approach to national carbon market

Chinese central government will set regional caps on emissions and leave distribution of permits to provincial authorities

Chinese provincial authorities will be responsible for distributing pollution permits (Pic: Flickr/Bert van Dijk)

Chinese provincial authorities will be responsible for distributing pollution permits
(Pic: Flickr/Bert van Dijk)

By Megan Darby

Beijing will give provincial governments significant control over the operation of a national carbon market to be introduced in 2016.

That was revealed in outline rules published by China’s economic planning department, the National Development and Reform Commission, last week.

Central government will set an emissions cap and divide it up between provinces and regions, but leave many decisions on distribution of allowances to regional authorities.

Jeff Swartz, international policy director at the International Emissions Trading Association, which has been involved closely in the development of China’s carbon market told RTCC: “We are looking at a very bottom-up approach.

“Everyone needs to start to home in on their Chinese geography skills and Mandarin, because this is not going to be a market that is easy to follow.”

The national carbon market will overtake Europe’s emissions trading scheme (ETS) as the biggest in the world when it starts in early 2016.

Under the scheme, factories get tradable permits to emit a given volume of greenhouse gas.

To start with, they will get free allocations, before moving to an auction system as the market matures.

The world’s largest source of carbon pollution, China has yet to reveal the level of the cap on emissions in this system, or precisely which sectors are covered.

These details are expected to come out as part of the national climate plan it submits to the UN in the first quarter of 2015.

COMMENT: Carbon markets need to matter more in Lima

Swartz predicted the bulk of cuts towards China’s goal of peaking emissions around 2030 would come from the power sector, not the carbon market.

Beijing has pledged to get 20% of energy from non-fossil fuel sources by 2030, in a major scaling up of renewable and nuclear capacity.

“I don’t think [China’s carbon market] will be as much of a flagship policy as the EU ETS is for Europe,” said Swartz.

Nonetheless, it could be a significant driver for heavy industry to use energy more efficiently.

There are seven regional emissions trading pilots, which cover around 700Mt CO2e, similar to Canada’s total output.

A municipality left out of the official pilot programme, Qingdao, has floated plans to voluntarily get in on the action.

Levels of ambition and capacity to cut emissions vary across China’s 33 provinces, municipalities and regions. Under the market plans, regional governments will be allowed to increase ambition locally but not water it down.

Top climate official Xie Zhenhua claimed at UN talks in Lima last week some Chinese cities could peak their emissions as early as next year.

He added: “Acting on climate change is not something imposed by others; it is something we want to do ourselves.”

Xie and his US counterpart, Todd Stern, were credited with breaking an impasse between rich and poor countries to get agreement in Lima.

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