China plans national emissions trading in 2017

OREANDA-NEWS. September 28, 2015. China's President Xi Jinping today said his country would implement a national cap-and-trade program in 2017 to reduce greenhouse gas (GHG) emissions from major sectors of the economy, potentially creating the world's largest carbon market.

The national emissions trading system will cover "key industry sectors" such as iron and steel, power generation, chemicals, building materials, paper-making and nonferrous metals.

Xi announced the program while meeting with President Barack Obama at the White House.

The new program builds on an agreement forged by Obama and Xi last year that calls for the US to reduce its GHG emissions by 26-28pc from 2005 levels by 2025 and for China's emissions to peak by 2030 and for it to boost the non-fossil share of its energy mix to 20pc by 2030.

China said that in addition to the trading program it would institute a "green dispatch" system to favor low-carbon generation sources and accelerate the phase-down "high-polluting, energy intensive power." This will support China's previous commitment to boost non-fossil energy to 20pc of its total by 2030.

The move by China, the world's largest emitter of GHGs, should provide a significant boost to UN talks that aim to reach a new global climate agreement in Paris in December, International Emissions Trading Association president Dirk Forrester said.

"Today's announcement by President Xi is a welcome signal that governments around the world are taking the climate threat seriously and that market mechanisms can help," he said.

It should also help do away with a primary argument against the US reducing its emissions, which is that China is not acting. But the announcement was met with skepticism from critics of the Obama administration, who said China's "vague" announcement of a carbon market is not enough to ensure the country will do enough to cut emissions.

It is not clear yet how China will implement the program. The announcement did not include specifics beyond which sectors may be covered. But the national market is likely to build on seven pilot trading programs that have been in place since 2013, with varying results. Low allowance prices and concerns about liquidity amid oversupply in some markets have hindered trading, although the Beijing emissions trading scheme reached a record high price of 60 yuan/metric tonne (\\$9.42/t) CO2 last month after rebounding from near-record lows early this year. Allowance prices in the other pilot programs have ranged from Yn17-50/t this year. Some of the markets had put in place limits on speculative trading or participation by non-compliance entities, further hindering liquidity.

Analysts say they believe the Beijing, Shanghai and Guangdong programs are most likely to form part of the national scheme, but that the speed of the scheme's development will depend on the strength of a global deal on climate reached in the Paris talks.