Friday, April 17, 2015

Carbon emissions trading in China

Greetings from the Australian National University in Canberra, where Professor Zhong Xiang Zhang (张中祥), School of Economics, Fudan University is speaking on "Carbon emissions trading in China". His paper "Carbon Emissions Trading in China: The Evolution from Pilots to a Nationwide Scheme" is also available.

China currently has seven regional pilot carbon trading schemes running (Beijing, Tianjin, Shanghai, Hubei, Guangzhou, Shenzhen and Chongqing). Professor Zhong Xiang Zhang indicated that the government would not have a national scheme before 2017. The Chinese schemes are targeted at enterprises and include indirect emissions from electricity from outside the region. No forward or futures trading is allowed (it would be interesting to see, I suggest, if it is happening anyway, informally).

Professor Zhong Xiang Zhang notd with some amusement, that some government entities and well known companies had failed to comply with the requirements of the Beijing scheme, most notably Microsoft.

The previous Australian government was planning to link its trading scheme to that of Europe. But this was abandoned by the incoming government. government. This may have been fortunate as the European scheme has had problems. Perhaps Australia should instead join the Chinese scheme. Given the level of trade between the countries this could be workable and could be done without contradicting the Australian government anti-carbon tax rhetoric.

The Chinese central government has approved the seven pilot carbon trading schemes. These seven pilot regions are deliberately selected to be at varying stages of development and are given considerable leeway to design their own schemes. These pilot trading schemes have features in common, but vary considerably in their approach to issues such as the coverage of sectors, allocation of allowances, price uncertainty and market stabilization, potential market power of dominated players, use of offsets, and enforcement and compliance. This article explains why China opts for emissions trading, rather than carbon or environmental taxes at least initially, discusses the key common and varying features of these carbon trading pilots and their first-year performance, draws the lessons learned, discusses the potential pathways for evolution of regional pilot carbon trading schemes into a nationwide carbon trading scheme, and raises fundamental issues that must be addressed in order to make such an emissions trading scheme to work reliably and effectively and with an increasingly expanded coverage and scope.

From: Zhang, ZhongXiang (2015), Carbon Emissions Trading in China: The Evolution from Pilots to a Nationwide Scheme, CCEP Working Paper 1503, April 2015. School of Economics, Fudan University

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