China launched a nationwide carbon-trading scheme Tuesday, solidifying the country’s role as an emerging leader in the fight against climate change. The market will initially cover about 1,700 of the country’s coal- and natural-gas-based power-generating companies, accounting for about 3 billion tons of carbon dioxide emissions per year — more than a third of the country’s total, China’s powerful National Development and Reform Commission announced at a news conference.
“The power-generation industry is in the most favorable position [for the scheme] right now, with the most complete data and a relatively large scale of carbon emissions,” Zhang Yong, a vice chairman at the commission, told reporters. Later, the scheme will expand to cover seven other sectors, including petrochemicals, chemicals, building materials, and iron and steel.
Even limited to the power sector, China’s national carbon market will be the world’s biggest — about 1.5 times as large as the second-biggest, the European Union, and several times bigger than California’s (the biggest in North America). “This is an incredibly ambitious exercise,” said Nathaniel Keohane, a vice president at the Environmental Defense Fund, a New York-based nonprofit that has helped China devise the scheme. “It’s like the Pyramids of Giza.” Keohane said the scheme could enable China — the world’s biggest greenhouse gas emitter — to formulate even more ambitious climate goals in coming years, potentially reaching peak emissions before its stated target of 2030.
The Chinese government will spend a year building a nationwide registration system covering all companies participating in the scheme, the state-run China Daily reported; it will spend another year testing the system. Actual transactions will begin in about three years. “I don’t think we should be surprised that China is proceeding fairly thoroughly and methodically,” Keohane said. “I think that’s a good thing — it means they’re intent on getting it right.”
An emissions trading scheme is, essentially, a market-based incentive system to reduce greenhouse gas emissions. It involves setting a limit on total carbon emissions, and then — within that limit — allowing polluting companies to buy “carbon credits” from their less-polluting counterparts, thereby imposing a financial burden on the polluters and granting rewards to cleaner entities.
Proponents say that the system is more efficient than strict, across-the-board emissions limits, and prevents enterprises from shunting the costs of environmental pollution to the public. In 2015, Chinese President Xi Jinping promised to launch the scheme this year during a meeting with President Obama in the run-up to the historic 2015 Paris climate accord. It will build on seven regional pilot programs that were approved in 2011.
Experts say that China is assuming climate leadership from the U.S., which has been retreating on its climate advocacy since President Trump’s inauguration in January. Trump, who has repeatedly cast doubt on the existence of human-induced climate change, announced in June that the U.S. would leave the Paris climate accord; on Monday, in a wide-ranging national security speech, he dropped climate change from a list of global threats.
Several states, including California, have shunned Washington’s position on the issue; in June, Gov. Jerry Brown traveled to China and signed a nonbinding agreement with Beijing to limit greenhouse gases. Although pollution remains a serious concern across China, the government’s anti-pollution efforts — and by extension, its climate mitigation efforts — are gaining strength.
Much of it traces back to Xi’s environmental record. “Clear waters and green mountains are as valuable as mountains of gold and silver,” Xi once said, and the expression has become standard in government propaganda and state media reports. In October, the Communist Party elevated Xi to become the country’s most powerful leader since Mao Tse-tung.
Beijing’s skies have been unseasonably blue this winter, due in part to favorable weather, but also because local officials in neighboring provinces banned coal use, despite a lack of alternative energy sources. After natural gas prices spiked — and many people complained of going without heat in midwinter — officials partially rescinded the ban.
Experts say the carbon market’s success is not assured — China is beleaguered by limited monitoring and verification capabilities, a lack of transparency, and a politically-influenced legal system. “Putting a price on carbon is the right signal to send in this … blue-sky-deprived world,” said Li Shuo, senior global policy advisor at Greenpeace East Asia. “By doing so, Beijing also positions itself ahead of major industrialized countries, many of whom are still seeing climate action as a burden rather than an opportunity.”
“However, with the announced system far from as comprehensive as it originally set out to be, much work still lies ahead,” he continued. “With the system now expanded to cover the entire country, local capacity also needs to catch up.”