China’s carbon-trading pledge signals new world order

New initiatives from biggest polluter will have knock-on effect for European efforts to go green
Tricia Holly Davis

CHINA is ready to police its greenhouse gas emissions for the first time by giving its official blessing to a domestic emissions-trading scheme.
The blueprint for the programme will be published by the National Development and Reform Commission early next year. Details of the proposal emerged after President Hu Jintao’s declaration at the United Nations climate change meeting last week that China would achieve a “notable” reduction in emissions over the next decade.
Hu’s move, revealed last week by The Sunday Times, fell short of hopes that China would cap the emissions of energyintensive industries, as Europe has done. However, the creation of a voluntary emissions-trading policy, alongside the carbon reduction plans, signals that China is taking the first steps towards tackling its enormous quantity of emissions.
The emissions-trading scheme could bring significant changes to the world’s existing carbon markets. Until now, China has been a seller of carbon credits, allowing western companies and nations to offset their emissions by buying up the credits generated by environmental schemes in China. Now the world’s largest emitter of greenhouse gases is likely to emerge as a big buyer of the credits, with the price of carbon expected to leap as a result.
The market in China is virtually nonexistent at the moment. Only one company, Shanghai-based Tianping Auto Insurance, is known to have purchased credits to offset its emissions. Demand is expected to increase thanks to the initiatives announced by Jintao at the UN conference in New York last week.
“If experimenting with this sort of scheme convinces China they have less to fear from an emissions reduction target or cap, it will be easier to do a global deal with them,” said Henry Derwent of the International Emissions Trading Association.
Carbon credits are earned through the creation of projects that help to reduce a nation’s greenhouse gas pollution. These range from small-scale energy-efficiency initiatives to larger-scale renewable power generation. Companies buy and sell credits as a way to offset their own environmental impact.
China is a dominant global supplier of credits to nations that are subject to emissions caps under the 1997 Kyoto climate change protocol. New Energy Finance, a clean-energy consultancy, estimates that China earns about £2.75 billion a year from the sale of offsets to the EU and Japan.
The potential value for a domestic trading market in China is about £125 billion a year, nearly twice that of the entire global carbon trading market, according to Standard & Poor’s, the credit rating agency. This is because the country’s rapid economic expansion means it will continue to produce large amounts of emissions. China is currently on track to account for a third of global emissions by 2030.
The China Beijing Environmental Exchange, a government-licensed carbon-trading platform, last week launched China’s first voluntary emissions trading standard. The “Panda” standard will certify domestic environmental projects across a variety of industries, including forestry and agriculture. This is likely to lead to the creation of a number of offsetting projects and new projects mean new investment opportunities.
“For international business, it is absolutely clear that China is where the opportunities lie,” said Guy Drury at the CBI’s office in Beijing. His enthusiasm was shared by Sir Andrew Cahn, chief executive of UK Trade & Investment, who said: “All British businesses need to be aware of the scale of these opportunities.”
Michael Wilkins, of Standard & Poor’s observed that if China’s role as a big supplier for carbon projects were substantially redirected to satisfy domestic demand, this could lead to a shortage and increase their price in Europe.
That would be good news for the environment, because a higher carbon price would make firms more likely to invest in greening their own operations at home rather than buying offsets abroad.