China Set for Top Spot in Carbon Trading

Chinese officials say they will have the world’s biggest carbon trading scheme up and running throughout the country by the middle of next year.

With the US seen as likely to backtrack on climate change commitments when Donald Trump takes office as President, China is fast emerging as a frontrunner in the battle against global warming.

A planned nationwide carbon trading scheme set to be put in place in 2017 is likely to be more than twice the size of European Union’s Emissions Trading System (ETS), which is currently the world biggest carbon market.

Carbon trading is the system of buying and selling credits tied to the emission of greenhouse gases (GHGs).

The theory behind it is that as regulations on emissions are tightened, the price of credits will rise, discouraging power companies and other industrial concerns from pumping climate-changing GHG emissions into the atmosphere.

At present, the ETS scheme – which accounts for about 80% of the global carbon market − trades the equivalent of about two billion tonnes of carbon-related allowances each year.  But China’s trading system, when it becomes fully operational, is likely to trade between three and five billion tonnes per year.
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Secretive system
There are fears that China’s system could suffer similar problems.  Analysts point out that running an efficient carbon trading scheme is reliant on the supply of full and accurate data, which is often lacking in China’s heavily-politicised and often secretive industrial system.

Many companies and locally-based officials might also lack the expertise to monitor emissions accurately.

More generally, analysts say that although central government sees carbon trading as a central part of its plan to tackle climate change, powerful regional officials could sabotage the system by granting favours to local industries.

China’s plans to reduce GHGs are under pressure from various quarters.  A new report by Climate Tracker, a UK-based thinktank that analyses climate-related developments in the energy sector, points out that despite large-scale GHG reduction plans, massive investments are still being made in China’s coal industry.

Climate Tracker says falling energy demand, plus tighter regulations on GHG emissions, mean that China’s coal sector faces chronic overcapacity.

Their report warns that investments of billions of dollars could be lost, with serious consequences for China’s financial system.

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