China’s Guangdong unveils ambitious carbon trading scheme

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For the future of global emissions trading, no country is more crucial than China. As the world’s biggest emitter of carbon, China’s policies will play a guiding role in shaping any possible future global trading scheme.

A key milestone was passed this week as a pilot carbon trading programme in Guangdong province released a detailed plan for how it will work.

While the details are new, the plan itself is not – policy makers in China have been researching both carbon trading schemes and a carbon tax for a while, as the country looks for way to control emissions and discourage energy-guzzling industries.

As part of these efforts, seven pilot carbon schemes around China—in Beijing, Tianjin, Shanghai, Shenzhen, Chongqing, Guangdong province and Hubei province—are working toward (hopefully) starting pilot trading next year.

The Guangdong carbon trading scheme will cover nine industries—power, cement, steel, ceramics, petrochemicals, textiles, nonferrous metals, plastics and paper-making—that together account for nearly half of the province’s power consumption.

Companies that emit more than 20,000 tonnes of carbon dioxide a year will be required to participate in the trading programme, and they will be initially be assigned a free quota of carbon credits to use or trade. Other sectors, including transportation and construction, may be added to the scheme later

According to a press release, published as an article in the Southern Daily newspaper and confirmed by a spokesman, the scheme will cover 827 companies. Those companies account for 42 per cent of all power consumed in Guangdong province and 63 per cent of industrial power consumption—a surprisingly ambitious level for a fledgling scheme.

Casting such a wide net is a bold move on the part of Guangdong, a manufacturing hub on China’s southern coast. It could also raise the pressure on other pilot exchanges to follow suit. Including power plants in the trading scheme is a big step, because electricity tariffs are fixed by the government and power plants have little ability to pass on higher costs to customers. Several pilot exchanges have indicated they will not include power in their schemes, even though the power sector is China’s biggest carbon emitter.

Other parts of Guangdong’s plan are more cautious though. The exchange plans to start full trading only after 2020, after a testing period in 2012-2015 and an “improvement” period in 2016-2020.

While this slow timetable makes sense, it raises a tough question. Beijing has very publicly promised to cut carbon intensity by 40 per cent by 2020, from 2005 levels. How will this goal be reached, if China has neither a carbon tax nor a carbon trading system? In the past, similar targets on energy intensity were achieved by government fiat, resulting in blackouts and factory closures. Hopefully the carbon targets won’t require the same draconian measures.

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