by Mitch Kokai
Senior Political Analyst, John Locke Foundation
As planned, China’s new emissions-trading scheme (ETS) is doing nothing to reduce its emissions.
Launched in July, the ETS encompasses 2,200 companies that operate coal- and natural-gas-fired power plants — facilities responsible for 40 percent of China’s total greenhouse-gas emissions. It builds upon pilot programs in seven delimited regions — including Beijing, Shanghai, and Chongqing — that began in 2013. …
… The foremost problem with China’s ETS, however, is not the price at which permits are trading. Instead, the problem is that the plan revolves around “emissions intensity” — a term of art denoting the ratio of emissions to power generation — rather than around absolute volumes of emissions.
China’s scheme allocates tradable permits free of charge to existing power entities as a function of their operations’ emissions intensity and historical power output. The plan places no firm upper bound on the sector’s emissions, nor does it set a timetable for doing so. According to the International Carbon Action Partnership, an intergovernmental climate-policy monitoring group, the nominal cap will be adjusted ex post facto based on actual power-production levels.
While the ETS does introduce an incentive for companies to generate lower-emissions electricity, climate change is precipitated by absolute volumes, not by ratios. This structure guarantees that the power sector’s cumulative emissions will continue to increase.
“Unlike other ETSs,” writes Carbon Brief’s Hongqiao Liu, “the Chinese scheme does not currently put a fixed cap on emissions, nor promises a declining cap over time. Therefore, it is not guaranteed to cut carbon.”
Whereas programs such as the Regional Greenhouse Gas Initiative and the European Union ETS have firm emissions limits for the sectors they cover and offer fewer permits over time, China’s scheme takes the “cap” out of “cap-and trade.” In so doing, it grants its sanction to the Chinese power sector’s continued emissions increases.