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China gets ready for national carbon market


12-01-2015 16:58 BJT

Full coverage: Xi Attends Paris Climate Talks, Visits Zimbabwe, S. Africa

China is striving to cut its carbon density by 17 percent or more by the end of 2015 from that in 2010 and carbon trading will help. Where is China's carbon trading market at?  

Carbon trading came about in response to the Kyoto Protocol, signed in Japan in 1997, aimed at slowing climate change.

The protocol calls for 38 industrialized countries to reduce their greenhouse gas emissions.

China as the world's biggest emitter of greenhouse gases, is also betting on carbon trading as a key measure to cut its emissions.

"If we view GHG emission space as one type of natural resource, I mean it is very natural that we should also let the market play a critical role in the allocation of GHG emission space," said PhD. Duan Maosheng, professor of China Carbon Market Center, Tsinghua University.

Already, seven regional carbon markets are up and running in four municipalities, one city and two industrial provinces. China's National Development and Reform Commission or NDRC plans to launch a national market in 2017. 

"Carbon trading is to ask the heavy emitter to pay for the cost of their emissions. But this market should have the characteristic of resilience and flexibility. Because of the market tool of control, companies will pay more attention to energy saving and try their best to promote self-innovation to effectively control carbon emissions," said Mei Dewen, president of China Beijing Environment Exchange.

Another name for carbon emissions trading is cap and trade. 

A cap means the maximum pollution output at a set level that can provide each entity an carbon "currency" that can be traded. If an entity pollutes less, it can sell its credits to another that pollutes more.

China's NDRC determines the cap based on an energy reduction target and on government allowances for pollution permitted.

The question, then, is can the trading be transparent?

Professor Duan says there are three aspects needed to ensure the transparency of the trading. First, is that the government requires the exchanges to publish transaction information, including trade volume and price. Secondly, a newly introduced third-party verification system would check on the yearly report of each entity's emissions. Meanwhile, the allocation approach would be published, letting the entity calculate the free allowance it receives from the government.

"If they think the government has made some mistakes in the calculation process, they can go to the government and negotiate with them to debate with them," Professor Duan said.

The China Beijing environment exchange in just two years has traded more than 5 million tons of carbon dioxide with a volume of  about 240 million yuan, or less than 40 million US dollars. Many experts believe those numbers will only grow as the trading continues.

Carbon trading reflects a win-win conception. The trading is intended to reduce greenhouse gas emissions while offering economic benefits. However, critics say that without a cap on emissions, carbon trading will not achieve its initial goal to reduce greenhouse gases. So to find a compromise between profits, quality and ecological concerns... it seems there is still a long way to go.

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