On Thursday China began trading in Guangdong’s carbon permit market, which is expected to be the world’s second-largest market after the European Union in terms of carbon dioxide emissions covered. It is far larger than either the Australian or Californian emissions trading schemes.
The Chinese government has approved seven pilot carbon trading exchanges in total, with Shenzhen being the first to launch in June followed by Beijing and Shanghai. However, Guangdong, which is home to over 100 million people and has an economy larger than Indonesia, far outweighs the other pilot projects launched to date. These pilot projects are working toward a national trading system that could be introduced within the next few years, the government has said.
Aside from being the largest carbon market to operate in China yet, Guangdong is also the first to use auctions to distribute emissions permits, rather than offering them all initially for free.
The Guangzhou-based China Emissions Exchange oversaw the first day of trading, in which, “price level matched expectations, following a government auction of 3 million permits sold at 60 yuan, the official price floor for auctions, on Dec. 16,” according to Reuters.
60 yuan is $9.85. For comparison, the E.U.’s carbon market closed at $6.81 on Wednesday.
The national government has requested that Guangdong reduce carbon emission intensity by 19.5 percent between 2011 and 2015.
At the U.N. climate conference last month, Xie Zhenhua, vice director of the National Development and Reform Commission, China’s economic planning agency, said the carbon markets will “play a very significant role” in China’s efforts to reduce its carbon emissions. China has vowed to reduce its carbon emissions per capita of GDP, known as emissions intensity, by 40–45 percent by 2020 compared with 2005 levels.
According to Reuters, “Guangdong’s carbon scheme caps CO2 emissions from 242 of the province’s major power generators and cement, iron and steel producers at 350 million tons per year, with a further 38 million tons set aside in reserves for new entrants and potential adjustments.”
The province will add sectors including ceramics, textiles, non-ferrous metals, plastics and paper production, according to the Reuters article, and will consider adding public buildings and transport industries as well, although no time frame was announced. For the next year, companies are responsible for paying for three percent of their emissions, which will be sold at auction, while the other 97 percent are free. This percentage will rise gradually.
The industries already included account for more than half the total carbon emissions in the province since 2010, and include China Petrochemical Corp, China National Offshore Oil Corp, China Resources (Holdings) Co Ltd, and Anhui Conch Cement Co Ltd.
“As an important manufacturing province and big energy consumer, the carbon emission trading market should help businesses develop low carbon technology and reduce emissions,” Chen Yijun of Guangdong Development and Reform Commission, told a Chinese news agency.
China is the world’s biggest emitter of greenhouse gases, a fact that has started to have major local impacts as well as the global ones associated with climate change. Photos of pollution-engulfed metropolitan areas have led to a major public outcry for reduced air pollution from coal-burning power plants.
China is making strides toward this goal and is a world leader in renewable energy, including wind and solar power. Yet last year, to meet growing demand for power, China imported the most coal that any country has ever imported in one year. In 2012 China’s demand for coal increased 164 million tons and total imports were 301 million tonnes.
China is working hard to increase hydropower and nuclear power capabilities as well in an effort to reduce reliance on coal, and is making major economic reforms that will open energy markets to natural gas development and imports that have been priced out due to coal-power subsidies.
“The government must take responsibility … but it’s a much more complex challenge than most realize,” Chris Nielsen, executive director of the Harvard China Project told The Harvard Gazette this week regarding China’s air pollution problems.
Nielson is co-editor of a new book on the subject, called, “Clearer Skies Over China: Reconciling Air Pollution, Climate, and Economic Goals.”
“The nature of the air pollution problem is changing and has more diverse causes than is portrayed in the popular media.” Nielson said. “We want to inform that discussion and help people understand that there’s a lot the government can do, but the science needs to keep advancing too.”