Can China find a market solution to its outsize carbon emissions?
China鈥檚 emissions trading market is a first step toward its goal of听reducing carbon emissions. But it may not lead to short-term reductions.听
China鈥檚 emissions trading market is a first step toward its goal of听reducing carbon emissions. But it may not lead to short-term reductions.听
China has launched a national carbon emissions trading market to put a price on the most prevalent greenhouse gas. As the world鈥檚 largest emitter of carbon, China has drawn global attention for its long-awaited efforts to curb carbon emissions.听It has set a goal of reaching peak carbon emissions by 2030 followed by declines in subsequent decades. Its market-based approach to controlling emissions differs from that of other countries in its focus on energy efficiency.听
What are carbon trading markets?
Carbon trading markets and carbon taxes are two primary tools governments are increasingly using to reduce carbon dioxide emissions, which constitute 80% of the greenhouse gases that cause global warming. The 2015 Paris Agreement, endorsed by nearly all countries, set a goal of world carbon neutrality by the mid-21st century and limiting global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit).
On a carbon market (also known as an emission trading system, or ETS), emissions credits are bought and sold at听market prices. Governments authorize the number of credits that are available to trade.听By decreasing the number of credits, regulators push up the price of carbon and incentivize polluters to emit less.
The world鈥檚 64 carbon trading markets and carbon taxes combined cover 21.5% of global greenhouse gas emissions, up from 15.1% in 2020, according to World Bank data. Much of the increase is due to China鈥檚 launch in July of its national ETS, now the world鈥檚 largest carbon market.
How does China鈥檚 carbon market compare?
China鈥檚 ETS 鈥� nearly a decade in the making 鈥� covers about 30% of its annual greenhouse gas emissions, or 4 billion tons听of carbon, spread across more than 2,000 power companies. The market is a step forward for Chinese leader Xi Jinping鈥檚 goals of reaching peak carbon emissions in 2030 and net neutrality by 2060. China produces about 28%听of global emissions of carbon dioxide, more than any other country.
China鈥檚 ETS market differs from other countries鈥� in scope and design. It initially covers only coal- and gas-fired energy plants, with a plan to expand to other industries. More mature markets such as that in the European Union include听industries such as construction, steel, and transportation.
Crucially, it puts a price on carbon intensity 鈥撎齢ow much is emitted per unit of energy generated 鈥� not the absolute level of emissions that regulators use in Europe, Canada, and other jurisdictions. This means overall levels can still continue to rise in China.听
鈥淐hina鈥檚 market is still mostly about carbon intensity rather than a real cap,鈥� says Ma Jun, director of the Institute of Public and Environmental Affairs in Beijing. This reflects Beijing鈥檚 priority of maintaining economic growth, while laying the groundwork for future overall carbon cuts. 鈥淭his will send a clear signal that the free emission of carbon will 鈥� end,鈥� says Mr. Ma.
Are China鈥檚 goals achievable?
As with other carbon trading markets, China鈥檚 new national ETS opened in July with a relatively low trading volume and price level 鈥� only $7.4 per ton听鈥� that is not likely to have a significant impact on its short-term听emissions, say Chinese environmental experts. Prices are significantly higher in more developed ETS markets 鈥� from $57 per ton in the European Union to a high of $126 in Sweden. The Paris accord recommends a price above $40 per ton to achieve carbon reduction goals.
China鈥檚 ETS has other weaknesses. Many carbon-intensive industries are not yet covered, fines for non-compliance are low, and reporting and enforcement have been problematic in pilot programs. 鈥淎ll this needs to be improved. It鈥檚 going to take time,鈥� says Mr. Ma.
And while Mr. Xi has shown a top-down commitment to tackling climate change, 鈥渂ig power plants continue to be part of China鈥檚 development,鈥� says Yanzhong Huang, author of 鈥淭oxic Politics: China鈥檚 Environmental Health Crisis and its Challenge to the Chinese State.鈥� Still, as more extreme weather hits China, growing public awareness of the causes and impact of global warming could generate pressure for change, as it did with air pollution, he says.