China launches first market to cap emissions

by Stian Reklev, Reuters Point Carbon | Reuters
Monday, 17 June 2013 17:24 GMT

A coal-burning power station in central Beijing, March 15, 2012. REUTERS/David Gray

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BEIJING, June 17 (Reuters Point Carbon) - China will mark a climate change policy milestone on Tuesday when the city of Shenzhen launches the nation’s first trading scheme to reduce growth in greenhouse gas emissions, although analysts expect carbon markets to initially have only a modest impact.

The Shenzhen market will regulate emissions from the city’s 635 biggest companies, forcing those that breach emission caps relative to economic growth to buy government carbon permits.

The scheme is part of Shenzhen’s efforts to cut carbon dioxide emissions per unit of GDP to 21 percent below 2010 levels by 2015.

Participating firms, including energy producers CNOOC and PetroChina and electronics manufacturer Huawei, emit around 31 million tonnes of CO2 annually versus a cap of about 100 million tonnes over the next three years.

Analysts expect the scheme to be oversupplied in the early years, although the government has said it will withdraw permits given to companies whose industrial output turns out to be lower than expected.

“Without further changes and adjustments to the program design, the Emissions Trading Scheme (ETS) will likely be overallocated during the pilot phase,” analysts at Thomson Reuters Point Carbon in Oslo said.

Prices of permits in markets in Europe, the northeastern U.S. and New Zealand, have slumped over the past three years, largely due to overallocation.

Fearing the EU's market is doing little to cut emissions, European regulators earlier this year proposed measures to tighten up supply.


Government-owned newspaper Shenzhen Special Zone Daily reported Monday that eight CO2 permit transactions would be announced Tuesday, all at 30 RMB (3.67 euros) per permit.

That price level would put the Shenzhen market just below EU prices, although observers said it was too early to say whether the market would be able to sustain that price.

“The targets for carbon intensity reduction are not too high,” said Cyril Cassisa, a visiting scholar at Tsinghua University’s Institute of Energy, Environment and Economy in Beijing.

The Shenzhen scheme is one of seven pilot programmes designed to help China meet its goal of cutting the amount of carbon dioxide emitted relative to economic growth by 40-45 percent, although absolute emissions are expected to climb.

China’s current annual greenhouse gas emissions are around 8-9 billion tonnes of CO2 equivalent, more than a quarter of the world’s total, and are expected to reach 12-14 billion before peaking towards the end of the next decade.

Although China’s total emissions will continue to rise, analysts said the country’s carbon markets would play a key role in slowing the increase.

“An emissions trading scheme provides incentives to (cut emissions) because the coal and oil producers can make more money if their product emits less GHGs,” said Dominic Meagher of consultancy China Policy.

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