From The New York Times (Chris Buckley):
China, the world’s biggest source of greenhouse gas pollution, opened a national carbon emissions trading market on Friday, a long-awaited step aimed at fighting climate change.
The market turns the power to pollute into an allowance that can be bought and sold, and is part of an array of policies that the Chinese government is putting in place as it tries to demonstrate its commitment to significantly reducing carbon dioxide emissions in the coming decades…
These markets work by limiting the amount of carbon dioxide that companies can release, creating competition to encourage them to become more energy efficient and adopt clean technology.
Companies that cut their carbon output can sell their unused pollution allowances; those that exceed their emissions allowance may have to buy more permits or pay fines.
By auctioning allowances and progressively cutting the volume of pollution that companies are allowed to release, governments can push companies into a race to adopt carbon-cutting technologies.
Emissions trading can be a more efficient and flexible tool for cutting emissions than top-down administrative measures, Zhao Yingmin, a Chinese vice minister for the environment, said at a news conference in Beijing on Wednesday.
“It can place responsibility for containing greenhouse gas emissions on businesses, and can also provide an economic incentive mechanism for carbon mitigation,” he said…
To make the market work, regulators must accurately measure emissions from factories and plants, then ensure that those polluters do not cheat by hiding or manipulating emissions data…
But that can be challenging in China, with its sprawling industrial base and relatively poor regulation. A firm from Inner Mongolia, a region of northern China, that is participating in the new market was already fined this month for falsifying carbon emissions data.
The Chinese government initially said the market could cover steel making, cement and other industries, as well as power plants. But it narrowed the scope to cover only coal and gas plants that supply power and heat — a sector that has fewer players and is easier to monitor. Other industries may be brought into the market in coming years…
Even so, China’s coal and gas power sector is so large that the scheme already covers around a tenth of total global carbon dioxide emissions. Some 2,225 power plant operators — many of them subunits of China’s state-owned power conglomerates — were selected to trade on the platform run by the Shanghai Environment and Energy Exchange.
Until now, the biggest carbon emissions market has been Europe’s, followed by one in California. Eventually, these and other emissions trading initiatives may link up, creating a potential global market. For now, though, international investors or financial firms will not be allowed to buy into China’s carbon market…
most experts expect it will take years before China’s program matures into an effective tool for curbing emissions.
Participating power plants have received free pollution permits to get them used to reporting data and trading. The Ministry of Ecology and Environment, which operates the scheme, has said it may introduce auctions for permits later on.
China’s trading program does not put a fixed ceiling on the carbon dioxide that a power producer can release; instead, it sets a limit on the amount of carbon for each unit of power generated. That looser approach means companies face less pressure to cut pollution, at least to begin with.
But the scheme could grow sharper teeth over time, especially if China brings in an emissions cap and steeper fines for exceeding pollution limits.