China steps up fight against climate change with carbon emissions trading scheme

China on Friday launched its long-awaited emissions trading system, a key tool in its drive to reduce the greenhouse gases that cause climate change and become carbon neutral by 2060.

The plan was launched in partnership with China, the world’s largest carbon emitter, who aims to take a global leadership role in the climate crisis ahead of a pivotal UN summit in November.

China has hailed it as laying the groundwork for what would become the world’s largest carbon trading market, forcing thousands of Chinese companies to cut pollution or deal deep economic blows.

The program was launched just days after the European Union unveiled its detailed plan to achieve carbon neutrality by 2050.

However, deep questions remain about the limited scale and effectiveness of China’s original emissions trading system, including the low cost of pollution.

More broadly, analysts and experts say much more needs to be done if China is to meet its environmental targets, including reaching peak emissions by 2030.

China first announced plans for a nationwide carbon market a decade ago, but progress has been slowed by influential coal industry lobbying and policies that prioritized economic growth over the environment.

The scheme sets pollution limits for large companies for the first time and allows companies to buy the right to pollute from others with a lower carbon footprint.

The market will initially include 2,225 major energy producers who generate about one-seventh of global carbon emissions from burning fossil fuels, according to data from the International Energy Agency.

Those power producers account for 30 percent of the 13.92 billion tons of global warming gases spewed out by Chinese factories in 2019.

Citigroup estimates that $800 million in credit will be purchased this year, rising to $25 billion by the end of the decade.

That would make China’s trading system about a third the size of the European market, which is currently the largest in the world.

The scheme was originally expected to have a much wider reach, covering seven sectors, including aerospace and petrochemicals.

Low ambition

But according to Lauri Myllyvirta, chief analyst at the Center for Research on Energy and Clean Air, the government has “lowered ambitions” as economic growth took precedence amid the slowdown caused by the pandemic.

“China’s coal, cement and steel production have all soared as the government pours billions of dollars into energy-intensive sectors to boost post-pandemic growth,” Myllyvirta said.

“Rules to limit emissions will disrupt this growth model.”

Another concern for environmentalists is the low price China places on pollution.

The opening of trading in the Shanghai market started Friday morning at 52.7 yuan ($8) per tonne of carbon.

The average carbon price in China is expected to hover just around $4.60 this year — well below the EU average price of $49.40 per tonne, Citic Securities said in a recent research paper.

Free pollution permits handed out at the outset and token fines for non-compliance would keep prices low, according to analytics firm TransitionZero.

However, China has characterized Friday’s launch as just the first step.

The scheme will be extended to cement and aluminum producers from next year, Zhang Xiliang, chief designer of the scheme, said last week.

“The goal is to expand the market to as many as 10,000 emitters responsible for about 5 billion tons of carbon per year,” Zhang said.

Chinese state media has also pointed out that the current version is already the world’s largest market measured by the amount of greenhouse gas emissions covered, rather than by trade value.

Other concerns about the scheme include a lack of technical know-how and continued pressure from powerful coal and steel lobbies could slow progress.

Local officials and companies know little about accounting for emissions or even the basics of climate science, said Huw Slater of the China Carbon Forum.

And regions that rely on coal and carbon-intensive industries for growth have been slow to join the scheme.

“Officials fear that curbing pollution too quickly could cut jobs and lead to social unrest,” Slater said.


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