[Making the trade run smoothly could take years and test Mr. Xi’s vows to let markets expand and to curtail polluting industries. Major setbacks in the nascent market could embarrass China and undermine global support for using cap-and-trade measures to reduce the greenhouse gases that are causing warming.]
By Chris Buckley
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Heavy smog over Beijing
International Airport in December. The aviation industry may
also be included in the
carbon-trading market. Credit Andy Wong/Associated Press
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BEIJING
— As other countries look to
China to take the lead in fighting global warming after President Trump’s
rejection of the Paris climate agreement, President Xi Jinping is pushing ahead
with an ambitious plan to build the world’s largest market for carbon emissions
permits.
The start of a national carbon trading market
in China by late this year has been years in the making, but is now shaping up
as Mr. Xi’s big policy retort to Mr. Trump’s decision to quit the Paris accord.
The Chinese government said in a greenhouse gas policy guide released on Wednesday
that the 2017 start was on track.
“Carbon trading on a national scale will send
a signal to the world that China is serious about this,” said Wang Yi, a
professor at the Chinese Academy of Sciences in Beijing who also belongs to the
national legislature and advises the government on climate policy.
But this is a high-visibility, high-stakes
gamble for Mr. Xi. He seems eager to take the initiative from the United States
on trade, multilateral cooperation and climate change. His record on the
environment and market reforms, though, is mixed, and China’s carbon trading
plan is not a sure bet to succeed.
Europe and California already use this
cap-and-trade approach, which sets a ceiling for greenhouse-gas emissions and
allows businesses to buy and sell emissions permits in the hope of unleashing
market competition to save energy and embrace clean technology. But no one has
tried this on the scale the government envisions for China, the world’s leading
source of carbon emissions.
Making the trade run smoothly could take
years and test Mr. Xi’s vows to let markets expand and to curtail polluting
industries. Major setbacks in the nascent market could embarrass China and
undermine global support for using cap-and-trade measures to reduce the
greenhouse gases that are causing warming.
Mr. Trump’s renunciation of the Paris
agreement could also drag on China’s expansion of emissions trading by making
powerful companies and industry associations more reluctant to accept pollution
cuts, Mr. Wang said.
“It’s a really complicated task,” he said.
“That’s precisely why China must work on this in a steady way and mustn’t fail.
If China’s carbon market fails, that will be a big blow not just to China but
also to global carbon markets.”
The idea behind cap and trade is that
companies that cut pollution are rewarded, while laggards pay a higher price.
The government sets a ceiling on the amount of pollution allowed and divides
that into emissions permits issued or sold to businesses. Participating
factories, power plants and other enterprises can use their permits to
discharge pollution; cut pollution and sell or save leftover permits; or buy
more permits, often at punishing prices, if they use up their allotment.
Governments can over time lower the allowed
emissions, making permits scarcer and magnifying price pressures on companies
to cut pollution.
“Every ton of emissions that’s going up the
stack becomes potentially money lost,” said Dan J. Dudek, vice president for
Asia of the Environmental Defense Fund, who has advised the Chinese government
on its market. “It changes people’s minds about what was once fundamentally
free.”
Before Mr. Dudek began working with China, he
spent decades advising American politicians on using cap and trade to limit
pollution, among them President George H. W. Bush, who used it to reduce the
sulfur dioxide and nitrous oxide causing the acid rain that was harming
forests.
But creating a government-mandated market has
rarely been easy. Even mature economies have encountered problems in setting
the rules for greenhouse gas markets. Chinese policy makers have studied
Europe, as well as California, which started its emissions trading program in
2013.
Moreover, China has a huge industrial sector
dominated by state conglomerates that can outgun regulators and ignore laws.
Officials habitually meddle in markets. Local protectionism often stymies
domestic competition, and pollution and energy data can be unreliable or
outright fake.
“One of the problems they have had is getting
realistic numbers,” said Deborah M. Lehr, a senior fellow at the Paulson
Institute who has advised Chinese officials on climate-friendly financial
policies. “To move to emissions trading, you need to have realistic numbers on
how to start to price these emissions.”
If China gets past these problems, it will
create the world’s biggest emissions market, overshadowing the European
Union’s, and that could deepen China’s influence over developing new energy
technology, Chinese policy advisers said.
“A successful start of a carbon market will
greatly enhance China’s international standing in responding to climate
change,” said Zhang Xiliang, a professor at Tsinghua University in Beijing who
is advising the government on the market.
For now, Chinese officials are planning a
relatively modest start and have retreated from their initially high ambitions.
After 2015, when Mr. Xi announced a national
emissions trading plan as part of a formal pledge with the Obama administration
to support a new climate agreement, policy makers in Beijing assembled plans
for a market that would at first cover eight sectors, including steel,
petrochemicals and construction materials.
But several months ago, the National
Development and Reform Commission, the government agency preparing for the
market, decided that it still lacked reliable information for many industries,
according to experts involved in the planning.
The commission abruptly reduced the number of
industries most likely to join at the start to just three: coal-fired power
plants, cement and aluminum, according to experts and preparatory remarks from
local governments. These industries have relatively simply production
processes, making it easier to collect data. Aviation may also be included.
“It’s a good idea to start with a narrow
range of sectors, even if that wasn’t the original plan,” said Stian Reklev, a
Beijing-based co-founder of Carbon Pulse, which provides information on
greenhouse gas markets and climate change policy.
“It’s still going to be a massive challenge
to make it work,” he said. “Anyone who thinks that the Chinese scheme will be
effective in making big cuts in emissions from the start is going to be
disappointed.”
Still, China is by far the world’s leading
carbon dioxide emitter — releasing about 10.4 billion metric tons of the gas
from factories and other human sources in 2015. And even in its scaled-back
form, the fledgling market will cover roughly half of those emissions, Mr.
Dudek said.
A basic challenge will be persuading
thousands of Chinese companies to put their trust and capital in a limited
market for carbon dioxide, which most have discharged without weighing the
environmental cost.
Since 2013, China has run seven pilot
carbon-trading programs, including in Beijing, Shanghai and the central
province of Hubei. (Fujian Province on the east coast announced an eighth last
year.)
Some observers said that even with this trial
run, China’s lax statistics and enforcement of rules could hobble the national
market. But others said the trade itself would amplify pressure for reliable
numbers.
“You start to create vested interests in
local government, in industry associations and in other parts of the private
sector for more accurate data,” said Huw Slater, research and projects manager
for China Carbon Forum, a group in Beijing that monitors emissions trading. “In
China, you can’t really wait until you’ve got perfect data, because it will
never happen.”
Even now, though, many company managers
outside the pilot programs have little idea how the market will work, and could
bridle at the paperwork and inspections used to monitor emissions, said Wang
Ke, a professor of environmental economics at Renmin University of China in
Beijing, who has been advising officials.
After the national market officially opens,
it will be more a test exercise until around 2020, while officials and
companies work out how to allocate permits and regulate the market. Companies
are likely to receive generous initial allocations of permits, meaning that
they will have to buy or bid for only a fraction of the allowances they need to
emit. Market purchases will expand only gradually.
Several experts advising the Chinese
government said that officials have resisted proposing a carbon tax in the face
of public resentment over current tax burdens. Last year, China’s legislature
authorized a new environmental tax that will start from 2018, but policy makers
resisted including the explicit authority for a carbon tax.
“The realities of the political process are
that a carbon tax is unlikely in the short term,” Mr. Wang said. “Politically,
this is more difficult than launching the carbon market.”