China has upped the ante in its efforts to curb greenhouse gas emissions and slow the progress of climate change. The Chinese government is launching a nationwide carbon market that should encourage power companies to cut their emissions.
China is the world鈥檚 largest polluter, responsible for more than a quarter of annual greenhouse gas emissions 鈥� although that is partly an artefact of its huge population, as it produces fewer emissions per person than the United States. Though China invests heavily in green technologies like electric cars and solar panels, its greenhouse gas emissions have tripled since 2000.
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Five cities and two provinces in China already have carbon markets, where companies trade the right to emit greenhouse gases. These are specific to different sectors, focusing on steel mills, cement factories and other energy-guzzling industries. The nationwide project will focus on power generation.
It鈥檚 hoped that the scheme will eventually extend to all industries, but China鈥檚 power generation alone is responsible for 3.3 billion tons of carbon dioxide emissions every year. In comparison, the carbon trading system in Europe, the EU Emissions Trading System, covers only around two billion tons.
The Chinese government has yet to reveal all of the details of the scheme, but if they manage to get it up and running the impact could be immense.
鈥淚n principle it鈥檚 exceptionally important,鈥� says at Harvard University. 鈥淚f they put in place a carbon market that covers 50 per cent of its emissions as they originally proposed, that would be roughly equivalent of the scope of all existing carbon markets combined.鈥�
Emission mission
The idea behind an energy market is to give companies a financial incentive to reduce their emissions. At the start of the year, permits are distributed to big energy-hungry companies, stating the total greenhouse gas emissions they can be responsible for. The allowances can then be traded between companies. A company that cuts their emissions can sell part of their allowance to a more polluting company, offsetting the cost of any investment required to clean up their act.
However, the system only works if the initial allocations are set low enough, so emissions cost enough for companies to want to reduce their footprint. The EU Emissions Trading System has tended to allocate too much, that mean there was little financial incentive to cut emissions. It is not clear if China鈥檚 system will improve on this.
The announcement by China may pile the pressure on other countries to follow suit. For instance, although there is a market in Tokyo, Japan as a whole has been opposed.
However, China鈥檚 new carbon market may not be the main reason why its emissions ultimately fall. Its electricity generation from coal and natural gas is dominated by five state-controlled companies. Prices are set centrally, so essentially these firms do what the government tells them. 鈥淭he means that we might still see a lot more renewables, but it may not be from market forces,鈥� says at American think-tank Resources for the Future.
