China launches national carbon market: Promises – but also pitfalls
On Tuesday 19 December China formally announced the launch of its nation-wide carbon market. However, several questions are still left unanswered.
The plan was put forth by the National Development and Reform Commission (NDRC), which is in charge of developing the Chinese nation-wide carbon trading market. According to the plan (in Chinese) a test period will most likely run until 2020, before the real market begins; the national carbon emissions trading system scheme initiates with one sector only – the power generation industry.
Related read: ‘Just testing’: China waters down start of national emissions trading
Although the launch of China’s carbon market has been long-awaited, no new information was released on Tuesday. Consequently, several questions remain unanswered, such as when other sectors will be included, and when allowance trading between power generators will begin (an overview can be found here). As already expected, the first operating years of the national market will be considered a national pilot period, which indicates a cautious approach by China. This, however, is not an unwise decision, taking the complexities of developing such a scheme into consideration and the time necessary to develop an effective system.
Some additional issues to look out for in the development of China’s carbon market is policy coherence and synergies between the ETS and other climate and energy policies such as the recently initiated energy trading in four pilot provinces, and the quota system for provincial renewable energy generation. Moreover, the nascent carbon market developments in the Northeast Asia region make an interesting case, with potential future carbon market cooperation among China, Korea and Japan. The potential such cooperation holds should not be underestimated. Connectivity among countries in the region could potentially contribute positively to mitigation efforts with global impact.
Related read: Northeast Asia and the next generation of carbon market cooperation
More research needed
According to Senior Research Fellow, Gørild Heggelund, current developments give grounds for optimism.
‘The launch of the carbon market in China is a positive move as much effort has gone into preparations since the pilots were initiated in 2013 and it has the potential to play an important role in China’s efforts to address its GHG emissions. China’s energy mix is still largely coal based, 62% of the energy mix in 2016, and starting with the power sector emissions makes sense. Evidently, there are other coal consuming sectors such as the cement sector that will hopefully be included soon. It will be exciting to follow the carbon market as it unfolds in the next few years’, says Heggelund.
However, remaining uncertainties call for more research.
‘Though with the uncertainties surrounding the ETS developments, we believe more research is needed to better understand developments and potential barriers for effective implementation of the system, as well as linkages with other related policies. Also, carbon markets are established or emerging in other Asian countries and it may be beneficial to look into possible collaboration and future linkage among the markets, including China’s market’, concludes Heggelund.