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China’s New Carbon Market, the World’s Largest: What to Know

China’s New Carbon Market, the World’s Largest: What to Know
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China’s New Carbon Market, the World’s Largest: What to Know

China’s New Carbon Market, the World’s Largest: What to Know

China, the world’s largest source of greenhouse gas pollution, on Friday opened a national carbon emissions trading market, a long-awaited measure aimed at tackling climate change.

The market turns the power to pollute into an allowance that can be bought and sold, and is part of a set of policies the Chinese government is putting in place as it tries to demonstrate its commitment to dramatically reduce emissions of carbon dioxide. carbon in the decades to come. .

Here’s how the program works and what it could do.

Chinese leader Xi Jinping has sought to make his country an environmentally friendly world power and is committed to tackling climate change. The new carbon market, which is immediately the world’s largest by volume of emissions, is the latest of Beijing’s efforts.

Last year, Xi made two signature climate pledges. China’s carbon dioxide emissions will peak before 2030, he promised. It would also achieve carbon neutrality by 2060, he said, which means the amount of carbon dioxide China releases into the atmosphere would be offset by methods such as planting forests.

Xi’s promises, if fulfilled, could make a significant difference in global efforts to tackle climate change. An international pact to limit this century’s global warming to less than 2 degrees Celsius (3.6 degrees Fahrenheit) and 1.5 degrees Celsius if possible, will only be achievable if China and the other great powers act with full force. emergency to reduce greenhouse gas emissions.

China has come under intense pressure at home and abroad to cut emissions and do more to reduce global warming since it overtook the United States as the biggest polluter around 2006. In 2019, the China’s greenhouse gas production accounted for 27% of global emissions, the combined total of the next three biggest emitters – the United States, the European Union and India – according to the Rhodium Group.

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These markets operate by limiting the amount of carbon dioxide that businesses can release, thereby creating competition for them to become more energy efficient and adopt clean technologies.

Companies that reduce their carbon output can sell their unused pollution allowances; those who exceed their emission allowance may have to purchase more permits or pay fines.

By auctioning allowances and gradually reducing the amount of pollution that companies are allowed to dump, governments can push companies into a race to adopt carbon-reducing technologies.

Emissions trading may be a more efficient and flexible tool for reducing emissions than top-down administrative measures, Chinese vice environment minister Zhao Yingmin said on Wednesday at a press conference in Beijing.

“This can put the responsibility for containing greenhouse gas emissions on businesses and can also provide an economic incentive mechanism for reducing carbon emissions,” he said.

The Chinese government started local carbon trading trials more than ten years ago. During a summit with President Barack Obama in 2015, Xi made establishing a national trade agenda a cornerstone of climate cooperation with the United States.

But Chinese authorities have struggled to get the right settings for a national launch.

For the market to work, regulators need to accurately measure emissions from factories and factories and then make sure these polluters don’t cheat by hiding or manipulating emissions data.

But it can be difficult in China, with its sprawling industrial base and relatively poor regulation. A company in Inner Mongolia, a region in northern China, that participates in the new market has already been fined this month for falsifying carbon emissions data.

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The Chinese government initially said the market could cover steel, cement and other industries, as well as power plants. But he narrowed the scope to only cover coal and gas-fired power plants that provide electricity and heat – a sector that has fewer players and is easier to monitor. Other industries could be introduced to the market in the coming years.

“It now starts with the electricity sector, as it is more mature in terms of data quality and other parameters,” said Zhang Xiliang, director of the Institute of Energy, Environment and from Tsinghua University Economics, in an interview. “But I think very quickly sectors like cement, electrolytic aluminum and steel are going to join.”

Despite this, China’s coal and gas-fired electricity sector is so large that the program already covers about a tenth of total global carbon dioxide emissions. Some 2,225 power plant operators – many of which are subunits of state-owned power conglomerates – have been selected to trade on the platform managed by the Shanghai Environment and Energy Exchange.

Until now, the largest carbon emissions market has been in Europe, followed by California. Ultimately, these and other emissions trading initiatives could combine, creating a potential global market. For now, however, international investors or financial companies will not be allowed to buy in the Chinese carbon market.

In the first deal struck after the Chinese market opened on Friday morning, a company paid $ 1.2 million to emit 160,000 metric tonnes of emissions at around $ 8 per tonne. Chinese media hailed the new market as an “important step” in the fight against global warming.

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“Carbon market prices will definitely go up,” Tsinghua’s Professor Zhang said. “In my opinion, future allocations will be tighter and the price of carbon could reach $ 15. “

But most experts expect it to be years before China’s program becomes an effective tool for reducing emissions.

Participating power plants received free pollution permits to get them used to reporting data and exchanging. The Ministry of Ecology and Environment, which manages the program, said it may introduce auctions for the permits at a later date.

China’s trade agenda does not impose a hard cap on the carbon dioxide that a power producer can release; instead, it sets a limit on the amount of carbon for each unit of power generated. This more flexible approach means companies are under less pressure to reduce pollution, at least to begin with.

But the program could become sharper over time, especially if China imposes an emissions cap and higher fines for exceeding pollution limits.

“His role will not necessarily come into play right away,” Jianyu Zhang, chief representative of the Environmental Defense Fund’s program in China, said in an interview. “Its impact will mainly be felt through the planning of the entire power grid, and that will bring out the cost of carbon. “

Li you contributed research.

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