China's National Carbon Market: A Game Changer in the Making?

As 2017 drew to close, China officially approved plans for its long-awaited national Emission Trading Scheme (ETS) and the National Development and Reform Commission (NDRC) outlined some of the implementation details. Though it will be limited to the power sector (and combined heat and power, or CHP) at first, it will nevertheless be the world's largest carbon market. It is expected to cover 1,700 companies representing approximately 30% of China's total greenhouse gas (GHG) emissions. China's CO₂ emissions from fuel combustion amounted to approximately 8,796 metric tons of CO₂ equivalent (MtCO₂Eq.) in 2016, and seem to remain stable since 2014, though they appear to increase again in 2017. Shanghai should host the national market exchange, which will be jointly owned by the governments of other provinces while Hubei should host the registry[3]. The ETS aims to support China in its climate plans, with the objectives to lower its CO₂ emissions per unit of GDP by 40% to 45% by 2020 from the 2005 level, and to peak CO₂ emissions by 2030 at the latest. As often in China, the leadership chose a 'trial-and-error' approach by first experimenting new policies locally, as there are currently seven local experimentations and then broadening them to the national level. The local markets were launched in 2013 in the cities of Beijing, Shanghai, Tianjin, Shenzhen, Chongqing and the provinces of Guangdong and Hubei. These provinces and cities cover more than 25% of the national GDP, and 1,373 MtCO₂ Eq. These local markets have so far generated moderated emission trading and have had limited impacts on carbon emissions reduction. However, they remain experiments and the lessons learnt have been used to elaborate the national ETS. However, many uncertainties remain at the national level on the way the ETS will work. It seems that the government has chosen to keep a tight control over the scheme, preventing high carbon prices and using it to foster economic reforms. That being said, the announcement remains a very positive sign, with a potentially strong international impact