China unveils pioneering carbon trading scheme in Shenzhen
- 19 June 2013
BEIJING: On June 18, China introduced a new carbon trading scheme which will regulate between 800 million to 1 billion tons of emissions by 2015, and is expected to drive a nationwide scheme for 2015/16.
The scheme has been piloted in the Shenzhen region in China, one of the designated ’Special Economic Zones’, but will be expanded to include Beijing, Shanghai, Guangdong, Tianjin, Chongqing and Hubei in the coming months. If these markets prove successful a nationwide scheme will be introduced in 2015/2016.
CARBON TRADING SCHEME
At present China is the world’s largest carbon polluter and burns the equivalent amount of coal as the rest of the world’s countries combined. However it is currently undergoing significant actions to reduce its contribution to global warming.
The carbon trading scheme aims to reduce aggregate emissions by placing a price on pollution. Each business is given a fixed number of credits which amount to one ton of carbon emissions. These companies are then obliged to monitor their carbon emissions and to hand in one allowance for each ton of carbon they release.
If the business emits less carbon than their allowance, they can trade their credits on the market. But if they cannot keep their emission levels within the specified limit they are forced to buy fresh credits, thus incurring detrimental company costs.
China's National Development and Reform Commission (NDRC) announced that this pioneering cap-and-trade program is set to include 635 companies, who together account for 38% of Shenzhen’s total emissions. It is expected that the scheme will be adapted to incorporate construction, transportation and manufacturing companies at a later stage.
The EU operates the largest carbon market with permits in that region cost €4.70 per metric ton ($6.30). Chinese permits, by contrast, range from 28 yuan to 30 yuan (US$4.90) a metric ton. There are concerns that if the credit price is set too high, companies will suffer economically due to the increased cost of operations, however a lower price provides less incentive to reduce fossil fuel consumption.
Striking the right balance is notoriously difficult. The European Union market witnessed a drop in the price of credits from US$40 per ton a few years ago to just US$4 at present. This sharp decline is attributable to the authorities initially issuing a surplus of credits, combined with a less viable business environment on account of the recession. China has the advantage of history however, and has developed its program to take into account the failings of its European counterpart.
Our Greater China Director Changhua Wu spoke on national television about the launch. Watch the interview here. She commented: "Congratulations to Shenzhen for getting carbon trading on-line! The smooth progress of emissions trading will bring far-reaching and beneficial impacts for Chinese society. But we must make sure the design of the mechanism will address such issues as social stability.
"Although the carbon market may give some localities and enterprises challenges, local and corporate awakening and immediate action will soon deliver powerful environmental benefits. Political leadership in China is now much more serious, stronger and determined to tackle environmental problems. The other six regions trading market will soon follow!"
By Alana Ryan.