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China Announces It Will Launch Cap-and-Trade System

GinaMarie headshotWords by Gina-Marie Cheeseman
Energy & Environment
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China is the top emitter of greenhouse gas (GHG) emissions in the world. In a few months, world leaders will meet in Paris to hammer out a successor to the Kyoto Protocol. All eyes will be on China and the U.S., the second largest GHG emitter. China is showing signs it is going to attempt to really reduce GHG emissions.

While visiting the U.S. last week and meeting with President Obama, China’s President Xi  Jinping announced the country’s new cap-and-trade system. The system will launch in 2017 and cover heavily-polluting industries such as power generation, iron and steel, chemicals, building materials including cement, paper-making, and non-ferrous metals, according to a White House statement. Those sectors represent a “substantial percentage of China’s carbon pollution,” the statement added.

China first announced a cap-and-trade system back in October 2010. There are already cap and trade pilot schemes in place in seven Chinese cities, but this one will be a national carbon trading scheme.

How effective will such a cap-and-trade system be? A Washington Post article points out that it “will hinge on how the system is designed and implemented.” The problem is that lack of transparency “has been the major issue” in the pilot programs, according to the article.

Or as the New York Times puts it, to be effective, the cap-and-trade system “will demand big changes from a Chinese government accustomed to heavy-handed intervention and skewed statistics.” The articles goes on to say that creating an effective system for China means “regulators must develop policies and trading platforms that give companies confidence that they are being treated equally and transparently as they buy and sell emission permits.” The article added that “if China’s stock market is any guide, plenty of investors say their experience is often the opposite.”

How successful is the EU’s cap-and-trade system?

Back in 2005, the European Union created its own cap-and-trade system, called the Emissions Trading Scheme (ETS). How successful is it? According to a 2012 assessment by the Environmental Defense Fund (EDF), the EU’s ETS “has driven significant reductions in greenhouse gas emissions since the program’s inception in 2005, sparked innovation in low-carbon processes, and achieved results at an estimated cost of just 0.01% of gross domestic product—a fraction of predicted costs.”

The EDF acknowledges that there have been some problems, including EU governments basing the systems initial caps and emissions allocation on estimates of regulated emissions instead of on actual historical emissions data. As a result, over-allocation of allowances occurred, but caps are now established based on measured and verified past emissions and best-practices benchmarks. That makes over-allocation less of a problem.

By the EU’s own analysis, GHG emissions under the EU’s ETS have decreased by an average of over eight percent since 2005 when the system launched. That means that the EU’s cap-and-trade system actually reduced emissions.

With any luck China's cap-and-trade system will help it meet the stringent target it has made in advance of the COP 21 meeting in Paris.

Image credit: Ash Carter, Flickr

Gina-Marie Cheeseman headshotGina-Marie Cheeseman

Gina-Marie is a freelance writer and journalist armed with a degree in journalism, and a passion for social justice, including the environment and sustainability. She writes for various websites, and has made the 75+ Environmentalists to Follow list by Mashable.com.

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