China launched the world’s largest carbon market on Friday to help reduce its emissions, but observers are skeptical about the impact of the new system.
China launched the world’s largest carbon market on Friday to help reduce its emissions, but observers are skeptical about the impact of the new system.
The Asian giant is the world’s largest emitter of greenhouse gases and also the largest investor in new energy. Beijing has pledged to be carbon neutral by 2060.
Here is what you need to know about this new system.
How does it work?
The system puts a price on carbon emissions.
For the first time, it allows provincial authorities to set quotas for thermal power plants and lets companies buy pollution rights from others with a smaller carbon footprint.
In its first phase, however, the system only covers the power sector: it involves 2,225 producers across the country, responsible for 30% of China’s total emissions.
Cement factories and some aluminum producers could be added to the list next year.
In practice, the authorities issue a certificate for every ton of carbon dioxide (or other greenhouse gases) that a company is authorized to emit.
If a company fails to comply, it must pay fines.
Companies can reduce their emissions or pay to pollute. But this will become more expensive over time, as governments will grant fewer pollution permits,” says Zhang Jianyu, vice president for China of the U.S. environmental group Environmental Defense Fund.
For the sake of transparency, companies will have to make their pollution data public and have it verified by third parties.
Surprise inspections by the Ministry of the Environment last month already revealed that one in three companies was emitting more CO2 than it declared.
For some analysts, the fines for non-compliance are not a sufficient deterrent.
Will it reduce emissions?
Not as much or as fast as expected.
The original plan was to cover 70-80% of China’s emissions, as well as major polluters in seven other sectors, including aviation, steel, and petrochemicals. But that is not the case for now.
Moreover, pollution permits are distributed free of charge rather than auctioned. As a result, companies have less incentive to reduce their emissions quickly.
In addition, the carbon price is expected to be very low under the Chinese system (about 6 dollars per ton), compared with 36 dollars in the European Union and 17 in California last year.
Amounts that “are not enough to deter companies from staying less green,” says Li Shuo of Greenpeace China.
According to economists Nicholas Stern and Joseph Stiglitz, the price per ton of carbon will need to reach between 50 and 100 dollars worldwide by 2030 to limit the temperature increase to +2ºC.
How are emission limits set?
The Ministry of the Environment encourages companies to reduce their carbon intensity—the amount of pollution produced per unit of GDP—but not their total greenhouse gas emissions.
This is a “subtle but important difference,” according to Lauri Myllyvirta of the Centre for Research on Energy and Clean Air (CREA), who believes the measure could have the perverse effect of making new coal-fired power plants more economically attractive.
Experts also expect the powerful coal lobby to push for comfortable quotas, and therefore a favorable carbon price.
China relies on coal for 60% of its energy needs and, since 2011, has burned more coal each year than the rest of the world combined, according to the Center for Strategic and International Studies (CSIS) in Washington.
What comes next?
A new climate change law is being prepared that could remedy some of the shortcomings of the current system, according to environmentalists, who hope the carbon market will cover more industries in the future, with tougher penalties.
President Xi Jinping was praised in late 2020 when he announced that his country would begin reducing its polluting emissions by 2030 and would achieve carbon neutrality (absorbing as much as it emits) by 2060.
But in its current form, “the carbon market is not going to play a major role in achieving these goals,” warns Myllyvirta, who calls on Beijing to give “more teeth” to its trading system.
Source: El Economista
