Swamp Stomp
Volume 18, Issue 3
Premier Xi Jinping of China announced on December 19th that his country was opening the largest carbon trading market in the world, fulfilling China’s pledge to do just that in two years’ time at the 2015 Paris climate summit. This comes after US president Donald Trump rescinded the United States’ commitment to reduce greenhouse gas emissions under the Paris accords earlier this year, leaving a vacuum in global climate change leadership that many expect China to fill. “The launching of China’s national emissions trading system is a significant step in a long march toward a clean energy economy,” president of Energy Foundation China, Zou Ji, told HuffPost. “By launching, China sends a strong political signal internationally that China is keeping its global commitments, and is committed to the Paris Agreement.” China’s carbon trading market would function as a “cap and trade” system, wherein the central government puts a price on carbon by instituting a “cap” on the total amount of greenhouse gases a given industry is allowed to produce within a given time frame. Companies that produce less carbon dioxide than the cap allows for can then sell “carbon credits” to companies that exceeded the emissions cap, incentivizing companies to produce less greenhouse gases. As caps are reduced each year, so too are the country’s total emissions over the course of several years. Although the scheme only covers power plants producing more than 26,000 tons of carbon per year, which collectively produce 33% of the country’s carbon dioxide emissions, the government plans to extend the program to other industries in the future if it proves successful, such as the petrochemical, aviation, and steel industries. Due to the sheer size of China’s power sector, however, the 3.3 billion tons of carbon that are expected to be traded annually on the new market dwarfs the emissions covered by the world’s next biggest carbon market, that of the European Union, which covers only 2 billion tons of carbon annually. The high emissions are due in part to China’s massive population, which at 1.3 billion people makes it the world’s most populous country, as well as the world’s number one emitter of greenhouse gases. Yet China’s per capita emissions still lag behind that of the United States, which are more than double that of China. Ambitious as China’s cap and trade scheme is, official trading will probably not begin until 2019, according to Energy Foundation China, as the Chinese government has yet to fully plan out the regulations under which the market would operate. Of particular concern is determining how to get the price of carbon high enough to be effective at actually limiting emissions, an objective the European Union market struggled with in the wake of the 2008 financial crises when the price for carbon credits dipped from 25 Euros per ton to 5 Euros per ton, eventually stabilizing at around 7 Euros per ton. According to economists, every ton of carbon dioxide released into the atmosphere today will do $125 worth of damage to society at a global scale in the future, a number commonly referred to as the social cost of carbon. In order for the scheme to actually reduce emissions and have a mitigating effect on climate change, the price of carbon needs to be as close to this number as possible. If all goes well, the program could help China achieve its goal of reaching peak carbon dioxide production by 2030.
Sources:
- Bradsher, Keith and Lisa Friedman. “China Unveils an Ambitious Plan to Curb Climate Change Emissions.” The New York Times. The New York Times, 19 December 2017. Web. 23 December 2017.
- Mosbergen, Dominique. “China Unveils World’s Largest Carbon Market.” HuffPost. Huffington Post, 19 December 2017. Web. 23 December 2017.
- Rathi, Akshat and Echo Huang. “The complete guide to the world’s largest carbon market that just launched in China.” Quartz. Quartz Media LLC, 18 December 2017. Web. 22 December 2017.