China launches the world’s largest emissions market

The world’s largest greenhouse gas emissions market, China,” is already underway. At 9.30 (local time; 3.30, Spanish peninsular time) on Friday, the first exchange operations have begun on the Shanghai Environmental and Energy Exchange, as reported by the Xinhua news agency. The launch represents an important step forward in the global fight against climate change: it is one of the first, and fundamental, steps for this country, the largest emitter in the world (it is responsible for almost 30% on the planet), to meet its goal of reaching carbon neutrality by 2060.

In its first operations, the price of emissions has been set at 48 yuan (6.3 euros) per ton of carbon, or five times less than the price it reaches in the European system, around 33 euros.

These markets are considered, since the European pioneer in these lides, one of the fundamental tools to cut emissions, since 2005. In them, the participating companies are imposed certain emission quotas. Those that do not exceed their allocations can sell their surplus quota to other companies that do exceed them. The result is that companies thus have an incentive to reduce their carbon footprint.

In the first phase of the Chinese domestic market, 2,225 companies from the electricity sector will participate. Together, these companies emit 40% of Chinese gases. According to the consultancy Rhodium Group, in 2019 Chinese greenhouse gas emissions were equivalent to 14.09 billion tons of carbon dioxide.

Gradually, the market will expand to other sectors where there is a high number of emissions, from aeronautics and petrochemicals to steel and the paper industry. The system will include companies that emit greenhouse gases equivalent to more than 26,000 tons of carbon dioxide per year. Once it is fully developed and all the polluting sectors integrated into it, it could cover 11% of global emissions, calculates the consultancy Trivium.

China had announced plans to create a domestic carbon market a decade ago. From 2013, and with great fanfare, the first seven regional pilot markets were established, in locations such as Shenzhen, Shanghai or Beijing. But the initial enthusiasm stalled. Plans to expand and integrate them into a nationwide system were delayed, due to pressures on the coal industry and economic policies that for years prioritized growth at the expense of the environment.

Things seem to have taken a definitive turn. After years in which China made headlines for its high levels of air pollution, and the deterioration of its environment, Chinese President Xi Jinping has enthusiastically embraced the cause of ecological defense and the fight against climate change. Its announcement to the UN General Assembly in September last year, in which it set carbon neutrality targets for 2060 and reaching the maximum level of emissions by 2030, dragged other countries, such as Japan, to launch their own commitments. And it made market launch a national priority. Vice Environment Minister Zhao Yiming told a news conference this week that the initiative represents “a key tool” to meet both goals.

The Chinese authorities, says analyst Cory Combs of Trivium, “have realized that to achieve that goal they need a mechanism that structurally incentivizes innovation in companies to reduce emissions.”

The first phase, Combs points out, will be mostly experimental. Emissions trading itself will not be so important, but “making the process work” properly, with operations that can be tracked, verified and audited. “The goal is to develop it well,” insists the analyst, and “establish a long-term quotation mechanism that works.”

The world’s top emitter has begun to take other steps to meet the goals announced by Xi, which with slogans such as “green mountains and blue skies equal riches of gold and silver” has made rescuing the environment one of the political priorities for the coming decades. In December, Chinese authorities promised that by 2030 non-fossil fuels will account for 25% of the country’s energy basket, an increase of five percentage points from the target announced in 2015. The new five-year plan, which will govern the Chinese economy until 2025, foresees a reduction in energy intensity of 13.5%. And the next five-year plan (2026-2030) will see peak consumption of coal, China’s main source of energy.

Source: The Country