The Announcement of China’s Emissions Trading Scheme: Reasons for Skepticism and Prospects for Success

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Barak Obama and Xi Jinping

U.S. President Barack Obama and Chinese President Xi Jinping Announce Monumental Climate Change Agreement (Source: PRI)

The United States of America and the People’s Republic of China are the two largest emitters of greenhouse gases (GHG) in the world, China having surpassed the United States in 2006. Between the two, the U.S. and China are responsible for one third of the globes’ greenhouse gases. In total, China’s cumulative emissions since 1990 will overtake those of the United States’ in 2016. According to the World Resources Institute (WRI), China’s 1990-2016 emissions will balloon to 151 billion tons in 2016, while the U.S. will reach 147 billion. These numbers may seem staggering, even insurmountable, but the two countries took steps in November of 2014 to try to reverse these trends. A year later, the U.S. and China have reaffirmed their commitments and expanded on the road-map on how to achieve them. On September 25th, the U.S. and China released the U.S.-China Joint Presidential Statement on Climate Change – the most definitive outline for realizing their climate goals to date. In this announcement, was a key commitment by China, the announcement of a nationwide emissions trading scheme (ETS) by 2017. The viability of such a scheme is debatable, but there is reason to believe that it is possible.

In preparation for the United Nations Framework Convention on Climate Change (UNFCCC) Conference of Parties (COP), the United States formally submitted its plans in March of 2015 and released its “Clean Power Plan” in August of 2015 (which will reduce CO2 emissions from the power sector to 32% below 2005 levels by 2030); however China missed the March 31 deadline to do so – an early troubling indicator. This worry has since been tempered by the joint statement that the two countries have released. China’s goals proved to be rather ambitions, highlighted by the announcement of a nationwide emissions trading scheme by 2017. The ETS will cover a number of sectors including, “iron and steel, power generation, chemicals, building materials, paper-making, and nonferrous metals.” The inclusion of power generation, which has been tremendously carbon intensive in China due to its reliance on coal, will be an ambitious undertaking.

Skeptics may dismiss China’s ETS as unrealistic in the face of the staggering challenges of its implementation, though it does come on the back of 7 pilot schemes in Shenzhen, Guangdong Province, Beijing, Shanghai, Tianjin, Chongqing and central province of Hubei. The existence of the pilots and their relative success does not paper over the cracks of inconsistent and unreliable emissions data, nor lack of real enforcement (a real issue on many of China’s environmental fronts), the persistence of graft and corruption and the weakness of market institutions in the once planned economy.  Lucy Hornby of the Financial Times casts doubt on the transparency and market function of the scheme. She says, “The extent to which the system would function as a true market, as opposed to a top-down quota system, remains in doubt. The existing pilots lack transparency over the amount of quotas allocated, among other issues, making it hard to determine how the prices are derived.” The more substantive details of the scheme remain to be seen, but in the two years before the scheme is implemented there is reason for optimism that lessons from the pilots can be learned.

In the joint statement on climate change, it is clear that there are political pressures from the very top of the Chinese government to fast track the ETS, but this is not the sole reason that it may be successful. According to Edward A. Cunningham, the Director of China Programs at the Harvard Kennedy School’s Ash Center for Democratic Governance and Innovation, in the past, “fear of grid instability, price volatility, and more dynamic demand curves hindered the scaling of many of the previous demand-side energy reforms, conservation efforts, emissions trading schemes, and other initiatives.” In other words, when approaching the energy trilemma (cost, infrastructure reliability, and the environment), China prioritized reliability and cost in order to stoke its tremendous growth, at the expense of the environment and rampant carbon emissions. This high demand of energy and the high price of producing it left little room for true command and control mechanisms. However, more recently there has been an economic slowdown (estimates of seven percent growth, down significantly in comparison to the double digit growth rates of the 90s and early 2000s). This is paired with falling fuel costs, as a result of China’s more efficient power plants, investment in renewables and a move away from energy intensive steel, iron and coal plants. The result is the prospect that the China ETS may be launched in a climate that is favorable for its success.

ThreeGorgesDam-China2009

Three Gorges Dam (Source: Wikpedia)

There is another, less quantifiable, reason to believe that China’s ETS can work. The Chinese government has a track record for taking on big and complex projects. Although their success is varied, they can be fearless in tackling such challenges, no matter how insurmountable they seem. They built the Three-Gorges Dam; they have diverted vast quantities of water from China’s south to its arid north. The merits of these enormous projects can be questioned, but China’s (or more accurately, China’s ruling party’s) reticence to implement them cannot. If the ETS is executed with similar verve, its success should be guaranteed, most likely at any cost.

Author: Nicholas Bihun

Nicholas Bihun joined the U.S.-Asia Partnerships for Environmental Law at Vermont Law School as Program Coordinator in December 2013. Nicholas combines his knowledge of China’s language, culture, and energy policy with a passion for the environment and renewable energy. He studied Mandarin and international affairs as an undergraduate before moving to China in 2007. While in China he worked for a number of international organizations and think-tanks including the United Nations Development Program. He studied Mandarin at East China Normal University in Shanghai before receiving a Master’s degree from the Department of International Relations at Tsinghua University in Beijing. At this time his research focused on U.S.-China joint energy policy and cooperation on renewable energy policies and projects.

3 Comments

  1. Excellent article

  2. Well researched.

  3. Excellent data on important topic. Hope for success – our planet depends on it!

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