September 19th, 2014
Planned target: In 2020, CO2 emission per GDP reaches 40-45% reduction to 2005 level.
China is studying about establishing systems that control the total amount of carbon emissions, and hopes to gradually be able to control both the intensity and the quantity of carbon emissions. China wants to speed up the establishment of a nation-wide carbon emission trade market. (Xie Zhenghua, 09/2014, http://people.china.com.cn/2014-09/12/content_7199024.htm)
On August 31, 2014, China announced that it will establish a nation-wide carbon trade market in 2016. Since June 2013, China has established 7 provincial/municipal cap and trade market, and up till September 2014, 12.6 million tons of CO2 equivalents have been traded, totally nearly 500 million RMB (which means it’s super cheap.) About 2,000 companies have been involved in China’s regional cap-and-trade markets so far. Most of China’s carbon emission exchanges are in the red, with Shenzhen being the only exception.
The reason why the Shenzhen Emissions Exchange is relatively successful is that it’s small and agile. It controls the carbon emissions of 635 companies, has over 20 institutional investors and over 700 individual investors. It has the smallest carbon capacity among all the testing exchanges: 30 million tons of CO2 per year. It has the greatest liquidity coverage ratio – 5.41%, five times the other exchanges. The market is very active, and is open to foreign currency investors. In Shenzhen, the price is around 65-80 RMB per ton of carbon.
In comparison, the carbon price at Beijing Emissions Exchange is around 60.4RMB now, which is a 67.8% increase over the initial price when the exchange opened in Nov. 28, 2013. The price on European carbon markets now stands at around 3 euros.
Hurdles in China’s cap-and-trade market includes:
- Local government still prioritize GDP growth, and therefore unwilling to sell the allowances to other localities. This local protectionism fragments the carbon market, and makes the economics much less cost-efficient.
- The penalty of violating or exceeding pollution allowances is miniscule. This would require a national level climate change law. (The law is being drafted and expected to seek public opinion on October. See below)
- There’s a need for cross-regional trade.
New Climate Change Law
The draft of the new Climate Change Law is completely in July 2014, but it’s not going to be released for public input until October. This is going to be the basis for the cap-and-trade because CO2 is not a pollutant as defined in the Air Pollution Prevention and Control Law, so setting targets for CO2 and other climate warming agents would require the legal backings of this new Climate Change Law.
According to Chang Jiwen, leading expert on the drafting committee, CASS started studying about legislating climate change since 2008, and it formally started the drafting of this Law in 2010, and publicized a draft opinion in 2012. (Caixin)
It is unclear the slow progress of this law is a resulting of conflicting interests or lack of priority.
New Air Pollution Law
China is now seeking public opinion on new amendments to Air Pollution Prevention and Control Law (1987), which is going to be the legal form of the Air Pollution Action Plan (Sept 2013). The drafting of the amendments to the Air Pollution Law started in 2006. Though the law has not been finalized, there are several important changes expected in the amended law:
- Two new chapters are going to be added to the Air Pollution Law: the united prevention and control in key regions and dealing with heavily polluted weather.
- The controlled amount (target) of key air pollutants will be delegated by the provincial governments to the city and county governments, according to State Council targets for each province. Then the city and county governments have to assign the targets to each polluting entities. For districts that exceeded the controlled amount, licensing of environmental impact assessments documents will be suspended for all new major polluting projects.
- Strengthen the regime for pollution emitting licenses.
- Strengthen the control on coal fire plants, vehicles, industry, and dusts.
- Increase penalty on pollution emission without license.
- Zhang Gaoli will attend the U.N. climate meeting in the place of Xi Jinping. Zhang’s portfolio includes natural resources and the environment. He’s the Politburo Standing Committee member that oversees NDRC, Ministry of Finance, Ministry of Housing and Urban Development, Ministry of Environmental Protection, Ministry of Land and Resources, State Council Development Research Center, Tax Bureau, Statistics Bureau, Three Gorges Dam Office, South-North Water Project Office.
- The cap-and-trade system is under the authority of the NDRC. Xie Zhenhua is still China’s climate envoy.
- The new Climate Change Law is also under NDRC, with input from Ministry of Environmental Protection, Ministry of Water, China Meteorological Administration, and NEA. It’s been drafted by experts from CASS, CAS, and University of Politics and Law.
- The amended Air Pollution Prevention and Control Law is under Ministry of Environmental Protection.
Opportunity for U.S. Engagement
The biggest opportunity for U.S. engagement at this point is to help China figure out how to build up the national cap-and-trade market. Right now they can’t get the emission numbers (caps) right, and can’t figure out the most economically efficient way to set up the system nation-wide. This creates opportunity for informed input.
- Key Difficulty in Engaging with China on Climate
- The difference in political power of the executive branch is causing the greatest difficulty in U.S.-China climate talks: China can use whatever it agrees on an international platform to pressure domestic dissenting voices into complying; whereas any kind of binding commitment U.S. attempts to make internationally simply wouldn’t pass the Congress.
- The U.S. thinks it has already done about 90-95% of what is possible on dealing with climate change. (Understanding the reality that Congress is not going to pass anything.) This means going whatever executive power can take it: power plant rules for instance.
- The U.S. has no idea exactly how much China is doing compared with what it can actually do. Is China doing 10% of what it can? Is it doing 30-40% of what is feasible?
- China, on the other hand, thinks U.S. is not doing nearly enough of what is possible. As far as China is concerned, it’s the U.S.’ responsibility in getting its own politics in order, and being able to carry out stable policies that are going to make significant cuts.
U.N. and Paris Climate Summit Expectations
Jeff Goodell: The Paris agreement will largely be a “bottom up” treaty, in which each country will put forward a “contribution” for what each is willing to do to reduce carbon pollution. Those contributions will then be reviewed in the future – exactly how and by whom isn’t clear – to make sure each nation is keeping its promise. There will be no legally binding caps on emissions, no mandated “targets” that countries need to reach. In fact, it will not be a treaty at all (a treaty would need to be ratified by the U.S. Senate, which everyone knows will never happen). It will likely be an agreement “with legal force,” which means, basically, that some parts of the agreement might be legally binding in some countries.
China sees Obama’s power plant rules as a good thing, but thinks U.S. can do more. China insists on the position that regarding per-capita emissions, the average American is responsible for dumping almost three times as much CO2 into the atmosphere every year as the average Chinese. Zou Ji, the deputy director general for the National Center for Climate Change Strategy and International Cooperation and a key member of the Chinese negotiating team said: “I have lived in the U.S., where everyone has a clothes dryer and an air conditioner and a big refrigerator and a big house and a big car. In the EU and Japan, they also live well, but people there only consume half the energy Americans do. You do have the capacity to live at the same standard and consume far less – if you choose.”