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Carbon Market Watch joins in partnership with Chinese NGO Green Zhejiang
As the particulate matter in the air of the Chinese city of Hangzhou climbs up to levels that can cause pulmonary distress, an escapade to the nearby lakes and forests becomes the only quick way to breathe a bit of fresher air. This will be important as we begin trying to understand how carbon markets will actually look like here in China – on location. Soon there will be carbon markets in seven regions of the country – a sudden top-down decision that has caught people by surprise An impressive set of local NGOs working throughout China have made headway in environmental activism. Nevertheless, few civil society organisations seem to actually know about China’s massive plans to introduce the biggest carbon market in the world…
Knowing this, Carbon Market Watch has decided to go Chinese. Put plainly, as Policy Officer I, Diego Martinez Schütt, have been sent to China for the next three months to work together with local NGOs and uncover what is occurring with China’s surging pilot emissions trading systems.
First impressions :
It’s not news that China, the dynamic dragon, is now suffering from environmental degradation as a direct consequence of all of its economic “miracles”. But what the “outside world” perhaps is not aware of is the impressive environmental activism happening on the ground and the pressures on local governments to deeply improve their response to environmental degradation. Young pioneers building movements through strategic alliances are fighting hard for a more environmentally friendly China. Many of the people I’ve met here are well-educated, well-travelled activists who have given up high-paying careers in corporations preferring to dedicate themselves to the environmental cause.
This is the case of the NGO Green Zhejiang, Carbon Market Watch’s new partner NGO in the city of Hangzhou (50 minutes by high-speed train from Shanghai). Our objective together, as we partake in our NGO exchange programme on climate change, is to find out how China’s seven Emissions Trading Systems (ETSs) and future national carbon market might look like if NGO scrutiny and visibility is involved in the process of their coming about.
China has voluntarily committed to a 40% reduction of emissions relative to its economic output by 2020 based on 2005 levels. But the country has not announced what means it will take to get there. This week, various news outlets reported that the National Development Reform Committee (NDRC- the government body in charge of climate change policies) intends to already set up a national emissions cap by 2016, however these are rumours still. Nothing is official yet and much is still left to speculation. China could after all be creating the biggest carbon market in the world – by far! If that’s their key decision, independent scrutiny is a must.
Nonetheless, what is known is that China is about to start experimenting with carbon trading through seven pilot ETSs covering 5 large cities (Beijing, Shanghai, Tianjin, Shenzhen and Chongqing) and two provinces (Hubei and Guangdong). Almost all of them are already in their final stages for launch. Shenzhen’s ETS will be launched on 17 June, becoming the first ETS running in China. Others will follow soon. Potential loopholes, such as double counting, problematic methodologies for domestic offsetting projects, over allocation of allowances, faulty market behaviour, monitoring, reporting and verification processes, and more absolutely must be investigated. Over the next month’s I’ll be sharing my findings through this blog, so feel free to follow me on this journey and send any comments to me by email at email@example.com
China’s Pilot Emissions Trading Systems
Being in China to follow developments around the expected launch of 7 regional pilot emissions trading systems I now have a first overview about their state of play and I’ve written an article about it for the Carbon Market Watch Newsletter (see it here). It summarises what’s happening with China’s a national Emissions Trading Scheme, their pilot schemes and their plans for domestic offsets (CCERs). It also provides a table showing the role that offsets are likely to have and why we need to keep watching out for unwanted negative affects.
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A follow up to the East Asia Forum on Climate
Last weekend, from June 15 to 17, Green Zhejiang organised and hosted the 3rd East Asia Forum on Climate here in the city of Hangzhou. The forum is an annual NGO dialogue that serves as a platform for grassroots organisations from South Korea, China and Japan to exchange ideas and agree on further cooperation. The main topic of this year’s forum was “Climate and Energy: Building a Low Carbon East Asia.” In the occasion, Carbon Market Watch helped co-organise a side event on carbon markets.
Back in 2000, in order to search for solutions to the increasing environmental problems that China, Japan and South Korea were facing as a region, the East Asia Environmental Information Centre, the Korean Federal Environment Movement and Beijing EnviroFriends Science and Technology Research Centre jointly established ENVIROASIA. This network of NGOs has since become an excellent communication’s platform for many NGOs in these regions to share their experiences and improve their environmental campaigning across the three countries.
Despite being a forum organised by and for NGOs, the process is rather open: policy-makers and progressive companies are invited to present their ideas, listen and participate in discussions. Though it may sound a bit strange to my fellow NGO friends in other parts of the world, such a tripartite process actually seems to be working pretty well. Here in China climate protection has required collaborative governance between state, market and society.
For experts analysing the increasing role of NGOs in China the model is the right way to go. Given the difficulties that Chinese NGOs still experience in influencing environmental policies in modern China, a collaborative approach in which NGOs can negotiate smaller agreements is a more promising approach. This has been exploited by local NGOs, many of which see China’s strong environmental policy formulation and regulatory power as being lost in weak implementation and lack of transparency.
Carbon Markets are not different. As ambitious as China’s upcoming seven pilot ETS may sound to some, their eventual success strongly depends on the capacity of local governments to implement regulations, of companies to catch market opportunities, and the level in which NGOs are pragmatically included as contributors for a well-functioning system free of financial and political interest. The latter was pretty clear and broadly accepted by all participants in our event during the forum, which was encouraging. Nevertheless much needs to be done and we are all need to work hard to see these good intentions become the reality and soon.
China launches its first pilot ETS – not that much to celebrate!
On 18 June, the city of Shenzhen, a special economic zone in southern China, launched its pilot emissions trading system (ETS). This is the first of a series of pilot ETS’s to be implemented in China. With a carbon intensity reduction target of 21% by 2015, Shenzhen’s ETS covers about 40% of the city’s emissions and involves 635 companies from different sectors including power, industrial manufacturing and building.
Shenzhen is part of a Chinese national plan to reduce greenhouse gas emissions per unit of GDP by 40-45% in 2020 compared to 2005 levels as pledged at COP15 in Copenhagen. The current national Five-Year-Plan (2011-2015) foresees the gradual introduction of carbon trading in the form of seven ETS pilots likely to be up and running by the end of this year in 5 cities and 2 provinces. These will serve as a testing ground for a future national carbon market planned for China’s next Five-Year-Plan (2016-2020).
With the growing pace of its economy and emissions per capita being almost as high as those of the EU, it is now broadly agreed both outside and inside China that the country needs to improve its response for mitigating GHG emissions and become a leader in fighting climate change.
It all seems to indicate that China has chosen carbon markets as the main mechanism to respond to this challenge nationally. Carbon markets can be a cost-efficient solution if properly designed and implemented. However, they also risk having serous negative environmental implications if not properly addressed. That said, Shenzhen’s ETS will need to set a good example otherwise it will show just what risks are at stake on a larger scale.
Shenzhen’s ETS closely follows the thinking behind a cap-and-trade system. Cap-and-trade mechanisms are meant to reduce emissions by setting a linear reduction cap of CO2 (or other greenhouse gases) that companies under the cap are allowed to emit. Companies participating in an ETS receive carbon permits equalling the amount of CO2 that is allowed under the cap, which they can either use or trade. Any emissions going above the cap are subject to penalties. By creating a system that entails CO2 scarcity and pricing, a cap-and-trade system (when working well) is meant to encourage companies to reduce emissions by investing in green technology and avoid penalties. Those who invest the most and exceed their reduction obligations can benefit by selling their unused carbon permits to other companies.
But Shenzhen and all other Chinese ETS pilots in the pipeline will be different. Shenzhen’s cap follows an emissions target based on energy intensity per unit of GDP instead of an absolute cap. This means that the 635 companies currently under the cap should receive enough CO2 permits for the 2013-2015 period so that they can continue growing in a less climate-damaging way. Shenzhen’s ETS companies will get allocations of about 100 million permits throughout the next three years, which already exceeds emissions predictions by about 10 million in the same period following Thomson Reuters Point Carbon analysis. In other words, there is right now an over allocation of allowances similar to the EU ETS. A further threat to a well-functioning ETS in Shenzhen is the powerful companies in Shenzhen have been very successful in pushing the government to exclude them from the cap.
Although it is encouraging to see that China is taking steps towards climate action, their ETS plans could turn very worrying if some of the many looming predictions come true. Without an ambitious cap there will not be real incentives for green investment. If governments allow powerful companies, they could end up dictating climate policies in Shenzhen and other parts of China. This trend could mean that a future national carbon market would have significant loopholes ultimately leading to fake emission reductions while possibly creating windfall profits at the expense of the environment and severely weakening international efforts to respond to climate change.
Even if Shenzhen’s ETS only covers 30 million tonnes of CO2 annually, which is almost insignificant compared to China’s 8 billion annual emissions, any systemic errors now can lead to significant loopholes in the future. That said, this is only the first of seven pilot ETS’s and Chinese NGOs need to engage in addressing all loopholes found on the way now if we’re serious about any environmental integrity of a carbon market in China that can lead to a real low-carbon development path to the soon-to-become biggest economy in the world.