Snapshot: Guangdong’s Emissions Trading Scheme

Tim Lindenmayer looks at the pros of China’s trial emission trading scheme in Guangdong province.

The launch of Guangdong’s Emissions Trading Scheme (ETS) in September was an important achievement for the region, and for China.  As the world’s largest emitter of carbon dioxide, China’s progress on emissions trading is of fundamental importance to global climate change policy. The successful development and implementation of Guangdong’s ETS would not only boost China’s progress towards developing a nation-wide scheme, but may also help build momentum for the global effort to combat climate change.
China has made steady progress on climate change mitigation in recent years. According to China’s 12th Five-Year Plan, China’s energy intensity of GDP fell by 19 percent between 2005 and 2010 and today it is the world’s largest producer of renewable energy. The launch of pilot carbon trading schemes around China (including in Beijing, Chongqing, Shanghai, Shenzhen, Tianjin, Guangdong and Hubei) has attracted global attention and support. Reports in both the Chinese and foreign press assert that these seven pilot schemes, once integrated into a national scheme in 2015, would potentially cover carbon pollution from 2000 businesses – around 700 million tonnes of CO² – making China the second largest carbon market in the world.
Guangdong’s Pilot ETS
Guangdong province – one of China’s main economic powerhouses – is the largest of China’s seven pilot ETS regions. With a population of over 100 million, a GDP in excess of RMB5300 billion (roughly equal to Indonesia), and 25 percent of China’s total international trade, a successful emissions trading scheme in Guangdong would provide an encouraging example for developing and industrialised countries around the world to develop their own ETS. As such, the release of Guangdong’s draft implementation plan for an ETS on September 11, 2012, and the purchase of 1.3 billion permits by four Guangdong cement companies shortly after, has been acknowledged by some climate change analysts as a significant step forward. The implementation plan outlines a commitment to commence emissions trading in mid-2013.
The Guangdong pilot ETS will cover 827 companies or around 42 percent of the province’s CO² emissions and will include nine industrial sectors in Guangdong’s economy: power, iron and steel, ceramics, petrochemicals, textiles, non-ferrous metals, plastic and paper production.  According to Reuters Point Carbon, by 2015 Guangdong will regulate some 277 million tonnes CO², making it the fifth largest global carbon market after Europe, California, South Korea and Australia. Importantly, Guangdong’s decision to include the power sector (i.e. power generators within Guangdong’s borders only), despite substantial price pass-through and trade competitiveness challenges, is being interpreted as an indicator of China’s commitment to trialling emissions trading.
Fitting into a global framework
As the world’s largest emitter, China’s domestic climate actions are central to any global response.  How soon China can peak and decline its emissions, and the rate of that decline, will be critical not only for our capacity to reach an effective global outcome, but also for its demonstrative effect on the mitigation ambition of other countries.
Australia’s long-term vision for international carbon markets is for an integrated global carbon market that provides all countries with access to a range of credible low-cost abatement options. This is required to achieve the emissions reductions necessary to limit global warming to below 2 degrees Celsius (Global Goal) because through trading emissions can be reduced faster and at a greater scale than would occur through national or sub national programs.
With the potential to develop the largest carbon market in the world, China is central to this vision.  A credible and robust Chinese carbon market that could eventually link to other international markets, including Australia’s, would help reduce market price fluctuations by increasing the liquidity of the global carbon market.  As an expected net-supplier of units, China’s participation would generate greater supply of lower-cost abatement.
For Australia, carbon pricing in China would also help ameliorate trade competitiveness issues as enterprises in our largest trading partner would also face a carbon liability.
China still has a long way to go environmentally. Guangdong province, like most of China, continues to rely on emissions-intensive, coal-fired power stations to generate its energy. As such, it is likely that China’s per-capita CO² emissions will soon reach the level of industrialised countries like Australia. Nevertheless, Guangdong’s progress on emissions trading so far sends a strong signal to the international community that China wants to be seen as being ready to tackle the important issue of climate change.
Australia-China bilateral climate change cooperation
In implementing its pilot ETSs, China has been drawing on the experiences of other countries, including Australia, which have established ETS programs. Australian officials have been working closely with China over the last year, sharing Australia’s experiences in developing an ETS, and discussing the policy and technical challenges of developing an ETS.
There have been numerous two-way policy and technical visits on emissions trading policy in the past twelve months. In June 2012 a Chinese delegation of national and provincial government officials visited Australia for in-depth discussions with experts and stakeholders involved in the design and implementation of Australia’s emissions trading system. In July 2012, Australia and China held the first Australia-China Emissions Trading Experts’ Dialogue in Beijing, which brought together national and provincial officials and academics to discuss emissions trading.  The workshop focused on the measurement, reporting and regulatory systems needed to underpin emissions trading.
Australia is also funding joint Australia-China research on the design and evaluation of policy options for the development of a cost-effective carbon market mechanism in China.  These bring together policy experts and leading Australian researchers, including from the Garnaut Climate Change Review team.
Guangdong has developed a reputation over the past three decades as China’s centre of reform and innovation.  With the launch of its emissions trading scheme, Guangdong has the potential to show national leadership in the important area of climate change mitigation, and help build momentum towards a successful, globally integrated carbon market. 

*Tim Lindenmayer is the Vice Consul, Australian Consulate-General Guangzhou.
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