world growth

world growth

Sunday, June 15, 2014

China to open a carbon market to fight climate change

Good for the economy and good for the environment !

A senior official in China’s planning ministry announced the country would launch a national carbon market starting in 2018, based on the six regional carbon markets it launched this year as pilot programs.

China is the world’s largest emitter of greenhouse gases, just ahead of America, and setting a national cap-and-trade market would not only help slow its exponential emissions growth while directing funding toward clean energy, but it could finally make an international climate agreement go from dream to reality.

Toward The World’s Largest Carbon Market

If China were to launch a national carbon market, the world would lose its largest excuse for failing to pass international climate legislation. National cap-and-trade legislation died in the U.S. Senate in 2009 largely on concerns doing so would hamstring the U.S. economically compared to China.

Since then, the two nations, as well as the larger developed-versus-developing nations divide, have stumbled over the issue of who gets to emit while growing in every UN climate conference. But establishing a national Chinese cap-and-trade system would literally change the game and could lead to a truly global carbon market.

The seven regional pilot programs, announced in 2011, cover China’s most industrialized (and thus biggest-emitting) regions. To date, the six launched markets (the final market will start operations later this year) cover 1,115 million tonnes of carbon dioxide annually – that means combined, they’re second only to the European Union’s carbon market. In time, China intends to reduce carbon intensity 17% from 2010 to 2015, and up to 45% by 2020 compared to 2005.

“Carbon Pricing Policies Are Here To Stay”

Obviously, reducing emissions from the world’s largest polluter is a big deal, but China’s action becomes even clearer if we consider the global state of carbon markets. Earlier this week, the World Bank reported more than 60 carbon pricing systems are either in operation or in development across the world.

The cumulative value of these markets is roughly $30 billion, and China’s pilot market launches headlined a total of nine new markets opening since 2013. Combine China’s cap-and-trade action with new carbon markets in France and Mexico, and a potential linked carbon market spanning the North American West Coast, and the cause for optimism is clear.

“It is clear that carbon pricing policies are here to stay – the widespread use of these policies in all corners of the globe is striking,” said Alyssa Gilbert, lead author of the World Bank report. “The diversity of approaches will help policymakers learn what works and what doesn’t.”

Is America About To Follow Suit?

But back to why all this is relevant for U.S. emissions reduction action. America’s already home to two of the largest and best-functioning carbon markets, in California and the Northeast U.S., and  observers note the pending power plant emissions rules will likely strengthen these regional markets. U.S. can teach China how to properly set up a carbon market.

If the Obama Administration carries through and allows states to use existing emissions-reduction systems to meet their requirements instead of developing their own systems, other states would have a blueprint to work against and existing markets would be bolstered by new allowance revenue.

Under this scenario, it’s not far-fetched to see new regional markets develop and link to existing markets, expanding the cap-and-trade footprint and creating a wider footprint that can balance any price ebbs and flows – just as in the California-to-Quebec market connection that started this year. In both California and the Northeast U.S., carbon markets have pumped millions into state coffers and clean energy development, while lowering emissions and keeping economies strong.

That all means Members of Congress from fossil fuel-dependent states, who have killed previous attempts at national carbon markets, would lose their two biggest arguments against nation carbon policy – that we’d lose economic competitiveness to China, and that we’d kill our local economies in the process.

Armed with momentum in the U.S. and China, as well as a framework to move forward on additional international market linkages, the world may finally be able to reach a global climate agreement this September at the U.N.’s Climate Summit.