Top polluter China unveils nationwide carbon market

Environmentalists praised the move as an important step in the battle against climate change as China burns more coal than any other country, giving it the ignominious title of top greenhouse gas emitter.

Although the long-delayed emissions exchange scheme will initially cover just the power generation sector, it is expected to surpass the European Union’s carbon market, currently the world’s biggest.

“The purpose of this programme is to reduce greenhouse gas emissions,” said Zhang Yong, vice chairman of China’s National Development and Reform Commission.

The country is the largest investor in renewable energy but has faced an uphill battle transitioning from coal, which is used to generate roughly three-quarters of its power according to the International Energy Agency.

China is seen as a potential leader in the fight against climate change after the US retreated from the Paris accord.

“The world has never before seen a climate programme on this scale,” said Fred Krupp, president of the Environmental Defense Fund (EDF), which provided technical assistance to pilot carbon trading programmes in China.

“China has stepped up its climate leadership dramatically in recent years, and is now increasingly seen as filling the leadership void left by the US,” Krupp said in a statement.

– Billions of tonnes of carbon –

The emission exchange outlined by the National Development and Reform Commission may slowly change the calculus for utilities and other coal-burners.

“We aim to reduce emissions through market-based mechanisms,” Zhang said, adding that the immediate focus for establishing the carbon credits exchange is on the power generation industry.

“Some 1,700 electric companies emitted more than three billion tonnes of carbon,” Zhang said.

“This is where we will get to it,” he said, without giving more details, including the programme’s timeline.

The project expands on the lessons learned from seven provincial and city carbon exchanges.

“With just emissions trading in the power generation industry, the scale will exceed that of every country in the world,” said Li Gao, an official in the commission’s climate change department.

Coal generates most of the nation’s power but the country has moved rapidly this winter to limit the dirty fuel’s use in northern China, though it had to reauthorise it in some areas due to natural gas shortages.

EDF said China’s power sector represents 39 percent of the nation’s total emissions.

– Lessons from EU shortcomings? –

The EU Emissions Trading System puts a cap on the amount of carbon dioxide allowed to be emitted by large factories and other companies.

The firms can trade in quotas of these emissions — the idea being to provide a carrot to improve energy efficiency or switch to cleaner sources so that they keep within the ceiling.

But the EU last month agreed to reform the ETS as critics said the market, which covers about 40 percent of Europe’s industrial emissions, has proven ineffective.

Carbon allowances were too generous, resulting in a carbon price too low to encourage savings.

Carbon Market Watch, which scrutinises such trading schemes, said a “number of uncertainties remain” around China’s plan, including concerns over the quality of emissions data and the measuring, verification and reporting systems in many Chinese provinces.

Nevertheless, Femke de Jong, policy director at Carbon Market Watch, said: “The launch of the Chinese carbon market shows that there is increased commitment around the world to price pollution and direct investments into clean technologies.”