China Launches World’s Largest Carbon Market

Earlier this month, Xinhua, the Chinese government’s official press agency, announced the launch of the world's largest carbon emissions trading system. China’s new carbon market is expected to manage over 3 billion tons of carbon, which would make it at least 50 percent larger than the European Union’s Emissions Trading System (EU ETS).

The first phase of China’s carbon trading system will cover the country’s power generation sector, which by most accounts currently burns about half of the world’s supply of coal.

“The news further cements China’s newfound role as de facto global climate leader, and it could both put a dent in its emissions and inspire other countries to make similar moves,” said MIT Technology Review shortly after the news was made public.

Of course, that assessment will only be correct if China’s carbon market venture is a success. Questions about the viability of carbon markets worldwide reap answers all over the map. The EU ETS has attracted its share of criticism over the years, including by The Economist, a publication that in general supports a broad global climate action plan.

Carbon markets in North America, such as those in California and Quebec, tend to score more favorable reviews, though some observers question whether their success can be sustained. California tweaked its cap and trade system earlier this summer in an effort to stabilize carbon markets, but the verdict is still out. November’s latest auction sold out and also fetched high prices, but revenue projections after 2020 are highly uncertain, with estimates ranging anywhere from $2 billion to $7 billion.

China’s carbon trading system will start tackling energy-intensive industries in incremental steps. First, only companies with their power plants emitting over 26,000 tons of carbon dioxide a year will be allowed to join the system. And so far, there is no timeline for including other energy-intensive industries, such as transportation, construction or manufacturing.

Nevertheless, this plan is integral to China’s goal to slash carbon emissions per unit of GDP by 60 percent to 65 percent from 2005 levels by 2030. The Chinese government claims that based on that metric, emissions declined 6.6 percent last year, far outpacing the country's original goal of a 3.9 percent reduction.

With the United States’ withdrawal from the Paris climate agreement, China’s government is eager to step in and exert itself as the world’s climate action leader. The reality, however, is a mixed bag when it comes to environmental stewardship. China’s solar power sector is booming as the country builds more solar installations at home while exporting more components abroad. But the country’s coal producers are also increasing the amount of that fossil fuel exported to developing countries.

That conundrum opens China to criticism that its climate change agenda is about cleaning up its air at home while exporting pollution abroad – not unlike other global energy producers such as Norway, which has promoted an ambitious domestic green agenda, while simply exporting its carbon emissions to other countries.

In fairness, China's emissions have surged because it has become the world's manufacturing center. The country deserves credit for at least attempting this tactic to reduce pollution while deploying more renewables.

Image credit: Leon Kaye