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Operating details of China’s first pilot carbon-trading scheme, in Shenzhen, have been released as it gets ready to launch next month, and as the country prepares to roll out seven pilot schemes by 2014.
The world’s biggest carbon emitter, China is planning to experiment with carbon trading schemes during the next three years as it seeks to cut emissions. Beijing is targeting a 40 per cent reduction in emissions relative to economic output by 2020, from 2005 levels, but hasn’t identified what means it will use to reach that goal.
The Shenzhen Carbon Exchange, the smallest of the seven in terms of total emissions, announced on Tuesday that its trading scheme would cover 635 industrial and construction companies, accounting for 38 per cent of Shenzhen’s total emissions in 2010. The exchange will launch on June 18.
“Shenzhen, with it being the first exchange to officially launch, is going to be looked at very closely,” said Richard Chatterton, analyst at Bloomberg New Energy Finance.
The exchange said it will add transportation to its scheme soon, and eventually include all major companies that consume oil, coal, gas and power.
Emissions trading schemes encourage companies to curb their carbon dioxide emissions by setting a limit, or cap, on the level of carbon dioxide that can be emitted in a country or region, and then distributing permits equal to one tonne of carbon to each emitter. Cleaner companies can sell their permits to firms that pollute more, and therefore need more permits to meet their individual cap. This sets a price on carbon dioxide, the main manmade greenhouse gas scientists say is responsible for climate change.
Although carbon trading schemes elsewhere have faltered, most recently with the near collapse of the carbon market in the EU, Beijing’s plans to test out carbon trading are still forging ahead. South Korea is also planning to implement a trading scheme that will be tested next year and go into force in 2015.
Despite the setbacks in the EU, whose carbon trading scheme is by far the world’s largest, California launched an emissions trading scheme at the start of this year and is due to link it with a similar system in Quebec, Canada.
Australia passed legislation in 2011 for an emissions trading scheme, which the government says will be linked with the EU scheme in 2015.
China’s seven pilot schemes – in the cities of Shenzhen, Beijing, Shanghai, Tianjin and Chongqing, and the provinces of Guangdong and Hubei – represent the first step towards what might become a nationwide carbon trading scheme after 2015.
By 2015, trading schemes will cover around seven per cent of China’s total carbon emissions, according to estimates from Bloomberg New Energy Finance. Beijing hasn’t clearly identified its plans for the exchanges after 2015.
The Shenzhen exchange took pains to describe how it would avoid corruption and human error during the quota allocation process by using automatic calculations to assign the quotas. It also said the initial quota allocation will be flexible, varying each year according to a company’s revenue growth and that the overall quota can be raised if need be.
One of the most thorny issues for China’s exchanges is that prices for electricity – which accounts for the bulk of carbon emissions – are tightly controlled by the state. Without freely floating electricity prices, imposing a carbon price on electricity producers becomes meaningless.
A press officer for the Shenzhen exchange said that coal-fired power plants would be included in its trading scheme but this was not detailed in Tuesday’s press conference. Shenzhen, a manufacturing hub, draws much of its power from nearby nuclear plants on the coast and has fewer coal-fired power plants than cities such as Beijing or Shanghai.
China’s new leaders, who took the helm in March, have promised to try to clean up the toxic pollution that has become a growing social issue across the country. Beijing also issued carbon emissions targets to every province under the 2011–2015 five-year plan. It is unclear how these provincial goals will be monitored or met. China’s biggest source of carbon emissions is coal-burning power plants, which account for more than 60 per cent of its electricity supply.
The Shanghai pilot exchange is expected to launch before the end of June and Beijing shortly thereafter. David Tang, board secretary of the Tianjin Carbon Exchange, told the FT the exchange there would start trading before the end of the year, without identifying a date.