China Is About to Have the World's Biggest Carbon Market

As the United States reverses its climate policies, the world's top greenhouse gas emitter is in the midst of setting up a national carbon-trading system.

Chinese officials are preparing to launch an emissions market later this year that will cover roughly a quarter of the country's industrial CO2. Officials and nonprofit groups from the European Union, Australia and California have been advising the Chinese on their program design.

Expectations are tempered:  details of China's national system are still murky, but enough information has emerged that observers are skeptical it will be immediately comparable to existing programs, due to design features as well as the haste with which China is rolling it out.

"Initially, it's not going to be more robust than, say, California or RGGI or even some of the pilots," said Jeremy Schreifels, a visiting fellow at Resources for the Future who has been observing the market's evolution.  He was referring to the Regional Greenhouse Gas Initiative covering nine Northeastern states.

The National Development and Reform Commission, China's macroeconomic planning agency, has said it intends to start a nationwide market in November.  But it's not clear what that exactly means — whether businesses will have to immediately start buying carbon allowances to cover their emissions, or some lesser form of regulation, like requiring companies to report their emissions.  So far, observers say the market falls short of standards set by Western jurisdictions.

Chinese officials have been working with counterparts in the European Union, Australia, Britain, Germany, and Norway as well as California on the pilots, which began in 2013 in seven provinces and cities and vary in their design. Altogether, they cover around 2,000 businesses and 1.2 billion tons of CO2 annually, according to a 2015 paper by ZhongXiang Zhang, an economics professor at Fudan University in Shanghai.  That's about one-eighth of the country's total annual CO2 emissions.

The nationwide system would quadruple the existing programs' scope.  "It'd be about four times larger in terms of the amount of CO2 emissions from the facilities that are [currently] covered, and it'd be by far the largest cap-and-trade system in the world," said Larry Goulder, an economist at Stanford University who has organized meetings of carbon market architects in both China and California.

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