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September 16, 2014
China To Launch National Market for Emissions Trading
    by Robert Kropp

The emissions trading scheme, scheduled to launch in 2016, would be the world's largest and is expected to help China reach its goal of reducing emissions by 45% by 2020.

The concept of carbon markets, or emissions trading systems, does have its critics. For a variety of reasons, including the global recession that followed the financial crisis, the price of carbon on the market has been so low that it gives corporations little inducement to reduce emissions. And the practice of giving allowances away for free, rather than auctioning them off as was originally intended, has not helped either.

But carbon markets have been established as a mechanism for reducing global greenhouse gas (GHG) emissions, so news that the world's heaviest emitter of GHGs will launch an emissions trading scheme by 2016 is welcome. No, that nation is not the US; a bill intended to do just that in the US died in the Senate in 2009, and a political body whose belief systems owe more to the deep pockets of the fossil fuel industry than to established science has shown no indication of taking up the issue again.

China, on the other hand—the aforementioned world's heaviest emitter of GHGs—announced recently that it will establish a national emissions trading scheme that it intends to launch in 2016. According to an official from the National Development and Reform Commission (NDRC), “We will send over the national market regulations to the State Council for approval by the end of the year.”

Currently, China accounts for almost a third of the world's emissions, largely because coal provides about 80% of its electricity. China is also responsible for half the growth of global emissions over the past ten years. A national carbon market, which follows the previous establishment of seven regional markets, is intended to help the nation meet its goal of reducing emissions by as much as 45% over 2005 levels by 2020.

In 2012, the Chinese government produced the Five-Year Plan for Air Pollution Prevention and Control in Key Regions, a key part of which was the conversion of coal-burning plants to natural gas. The city of Beijing, where air pollution has caused widespread health problems and premature deaths, announced in 2013 that it will convert all its coal-burning plants to natural gas.

However, according to a recent annual report from the China Greentech Initiative, the development of coal-to-gas plants actually resulted in increased emissions. Furthermore, the process of converting low-quality coal to natural gas is much more water-intensive, a significant issue considering that some of the plants have been built in China's most water stressed regions.

When the national market is launched in China, it will be by far the largest carbon market in the world, a distinction currently held by the European Union emissions trading system (EU ETS). The EU ETS covers almost half of the GHG emissions from its 28 nations. Although emissions allowances under the scheme were originally given away for free, as of 2013 40% of them were sold at auction. By 2027, the EU states, all allowances will be auctioned.

Although the US has no plans at present for a national market, it does have several regional markets that are operating successfully. In August, the California Air Resources Board auctioned $332 million worth of allowances.

And the Regional Greenhouse Gas Initiative (RGGI), consisting of nine Northeastern and Mid-Atlantic states, announced this month that its most recent auction “generated $87.8 million for reinvestment by the RGGI states in a variety of consumer benefit initiatives, including energy efficiency, renewable energy, direct bill assistance, and greenhouse gas abatement programs.”


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