EXPERTS WATCH AS CHINA MOVES TO IMPLEMENT CAP-AND-TRADE IN 2013

Lindsay Kalter
GHG Monitor
1/4/13

Despite being the world’s largest carbon dioxide emitter, China is entering 2013 on a greener note as it prepares to gradually roll out cap-and-trade pilot programs in seven major cities and provinces beginning this year. Energy analysts say they will be watching closely to see how the program may affect decisions among policymakers, especially in a country like the U.S. that lacks a carbon price and has been reluctant to accept binding emissions reduction agreements in the past when countries like China did not do the same. “The whole climate change policy community is looking at China and trying to support China in making effective progress on this pilot; entities like the World Bank and the European Commission,” Richard Baron, head of the Environment and Climate Change Unit at the International Energy Agency, said in an interview with GHG Monitor. “A lot of countries have complained that because a lot of China has not taken action, there was concern of industrial relocation, and that’s why it’s so significant.” 

The Chinese government in November 2011 decided to implement cap-and-trade pilots in two provinces and five cities, including Shanghai, Beijing and Shenzhen, beginning in 2013 with the final goal of implementing a nationwide exchange program by 2016. Bloomberg New Energy Finance previously estimated that the regional pilots would cumulatively cover 800 million to 1 billion tonnes of emissions in China by 2015, meaning that the market would become the world’s second largest after the European Union’s. At least at first, the regional and city-wide markets would remain separate with unique rules and criteria, reports indicated. While some of the markets would cover factories and industrial operations exclusively, other would focus on power generation or non-industrial sectors.

The commitment is part of a larger goal to reduce carbon emissions by 40 to 45 percent below 2005 levels by 2020. The plan is seen by some energy experts as unexpected and significant progress in China’s energy sector given the country’s status as a primary emitter and its historical lack of governmental action in emission-curbing measures, according to Baron. “Because it’s the largest CO2 emitter, this is seen, on paper, as a big development,” Baron said. “It shows some willingness to test something quite radical from a country that has not shown interest in curbing emissions.”

China Cap-and-Trade Could Prompt U.S. Action

China’s cap-and-trade plans have piqued the interest of many energy experts outside of the country, who are waiting to see if China’s scheme will galvanize domestic policymakers in countries like the U.S. to move in a similar direction. At many recent international climate change summits, U.S. delegates have declined to make binding greenhouse gas emissions reductions unless rapidly industrializing emitters like China and India do the same. In late 2011, the three nations tentatively agreed to enter a binding international emissions reduction plan beginning in 2020 at the United Nation’s climate change summit in Durban, South Africa, but some smaller developing nations have since indicated their fear that the countries could walk back their commitments if one of the others pulls out.

Meanwhile, many American opponents to carbon trading in Congress have argued that cutting down on emissions and production in the U.S. would lead to carbon leakage and allow countries like China to benefit off the businesses looking to outsource from the U.S. “Carbon caps, according to reams of independent analyses, will severely damage America’s global economic competitiveness, principally by raising the cost of doing business here relative to other countries that have no mandatory carbon policies. So jobs and businesses will move overseas, most likely to China,” Sen. James Inhofe (R-Okla.), one of the Senate’s most prominent climate change skeptics, said in a in a June 2009 floor speech as Congress considered cap-and-trade legislation.

If the Chinese pilot program evolves into a national policy in the coming years, though, the U.S. could lose some traction in the global energy dialogue if it does not adopt a similar carbon pricing policy, according to Resources for the Future Senior Fellow Dallas Burtraw. Although he said the Environmental Protection Agency’s Clean Air Act will likely serve as a significant foundation in meeting U.S. emissions reduction goals before 2020, it maintains low visibility in the global community. “The problem is the regulations under the Clean Air Act appear, to some extent, to not be calibrated or coordinated across sectors of economy,” he said. “There’s continuing improvement, but there’s not a goal that can be transmitted internationally. So what happens is the U.S. surrenders a leadership role. The U.S. continues to take part in international negotiations, but don’t get credit for it.”

Burtraw added that even though a successful trading system in China would be “noted in the U.S.,” it wouldn’t necessarily directly lead to a change in the U.S.’ approach to mitigating emissions. “If it actually leads to trading on a national level [in China], then it could help establish a precondition for political change and bolster things that are already going on in the U.S. But it won’t change the chemistry,” he said.