China has launched a 3-billion tonne carbon market for the power and heat sectors, with trading expected to commence within a year.
According to deputy director of the National Development and Reform Commission (NDRC), Zhang Yong, “China will use market mechanisms to control and reduce greenhouse gas emissions and promote major innovations and green low-carbon developments.”
Citing Chinese president Xi Jinping’s “socialism with Chinese characteristics”, Zhang said carbon market construction “is a major institutional innovation and a complicated systematic project.” The NDRC would spend the next few months “paying close attention to the reporting, accounting and verification of historical data for 2016 and 2017, promoting the quota allocation in an orderly manner, and accelerating the carbon market infrastructure construction, and strengthen our own capacity-building,” he said. Recruitment of financial professionals “familiar with national carbon trading markets” is ongoing.
According to the NDRC, the power sector offers a stable foundation for a new national market. “We choose the power generation industry, because the database is relatively good; the product is relatively simple – mainly hot and cold; its data measurement equipment is relatively complete and the industry has more standardized management,” said Zhang. “These factors make it easier for us to verify the verification and the quota allocation,” he said.
Hubei is tipped to be the functional centre of the new carbon market, responsible for construction of the registration system, and running registration operation and maintenance. Meanwhile, as an international financial centre, Shanghai will assume responsibility for the financial aspects: market trading, transaction management, custody and auditing.
Both Hubei and Shanghai have strong experience in carbon markets, running successful pilot projects over the last few years.
Hubei Province, for example, led a 236-company pilot carbon market from 2014 and successfully reduced carbon emissions by 11.3%, according to Hubei Vice Governor Tong Dao Chi. In Shanghai, a trading scheme spanning 27 industries has reduced carbon emissions by 7% and coal output by 11.7% by 2013.
“Pilot projects have focussed on mastering the basic innovation of carbon finance,” said Hubei’s Tong.
As well as reducing CO2 emissions, Hubei’s Vice Governor says carbon markets have a key role to play in poverty alleviation. “The carbon market also has a very good effect on precision poverty alleviation and can be used to sell and buy through voluntary emission reductions and [carbon credits] from poor areas. People in deprived areas have credits sold to people who need them, which will yield benefits, so we’ve also made some efforts to fight poverty.”
International agencies greeted the news with optimism.“China joins a growing number of jurisdictions, such as California, the EU and South Korea, which are using market-based measures to cut climate emissions in a cost-effective and efficient way,” says Dirk Forrister, President and CEO of International Emissions Trading Organisation.