When one thinks of environmentally advanced and proactive countries, China isn’t among the first to jump to mind. In fact, many associate the nation with poor air quality, lax regulation and gargantuan amounts of carbon dioxide emissions from numerous coal fired power stations. However, all of this may change soon.
China’s National Carbon Market, which is set to roll out in 2016, will become the world’s largest by far, a giant compared to the European emissions trading system. China’s commitment to reduce its carbon emissions per of GDP to 40 to 45% below 2005 levels only four years after the launch of its program is an extraordinary goal that will require no small amount of effort. If it is successful in achieving its ambitious goal, the effect on the global environment will be noticeable.
The potential for mitigating climate change is real and significant with this new carbon market. China currently emits roughly 30% of the world’s greenhouse gas emissions. This cap and trade market would not only slow or stop the increase in emissions from the country, but also have the potential to decrease emissions slowly over time.
How will the carbon market work?
The Chinese government will dictate carbon dioxide emissions caps for different sources (such as electricity generators, manufacturers, etc.) and give businesses permits to emit their allocated amount of pollution. Polluters pay for the privilege of polluting in excess of what their permits allow by trading with other companies who do not require all of the permits they are allocated. This second group of companies are typically those who have invested in clean technology and showed reduction in their emissions.
Therefore environmentally avant-garde companies can trade their unused pollution permits with firms who would rather pollute and make a healthy profit. It’s a system that motivates firms to find creative ways to reduce their carbon emissions. When a carbon trading market is established, it suddenly makes business sense to become more environmentally responsible.
China has already implemented 5 pilot markets around the country to test compliance and effectiveness of the system. Since 2013, these pilots have produced good compliance results, although data secrecy and the tendency of allocating too large a number of permits made them not very effective in reducing carbon emissions.
In Shanghai alone, there are over 200 companies participating in the carbon trading scheme and these companies include steel mill Baosteel and hotel operator Jin Jang.
China isn’t the only Asian country rolling out an emissions trading market. South Korea’s carbon market is set to launch in January of 2015, while other nations such as Indonesia, Thailand and Vietnam are making plans of their own for similar national schemes.
Carbon markets, if planned and enforced correctly, are proving to be an effective tool in combating climate change. Already we are seeing success from pilots projects around the world as well as established markets such as the European emissions trading system.