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Policy
| 10/01/15

China, Canada’s NDP unveil carbon trading plans

TCE

China has unveiled plans for a national carbon trading system covering half the country’s emissions—a move that will create the largest carbon trading scheme in the world.

The scheme, to be launched in 2017, scales up some seven pilot carbon trading projects in operation since 2013 at the provincial and city level. It will cover six key areas of the economy: power generation, steel, cement, paper, chemicals and nonferrous metals, and policymakers are discussing whether to expand the remit of the system beyond these six sectors.

All told, by the end of the decade, the cap and trade system is designed to be handling a market of 3-4 billion tonnes of carbon dioxide (CO2) annually.

Chinese President Xi Jinping made the announcement alongside his US counterpart at the White House on 25 September. Beijing had originally intended to launch nationwide emissions trading in 2016, but has pushed this date back a year to permit officials more time to design energy consumption and emissions verification processes in what will be a sprawling system.

Xi also announced reforms to the country’s electricity market to incorporate “green dispatch” provisions, which will prioritize acceptance of clean energy on the electricity grid ahead of fossil-fuel sourced power. Xi and US President Barack Obama outlined plans for better reporting and tracking of emissions data, as well as parallel fuel-efficiency standards for heavy-goods vehicles by 2019.

In a separate major climate announcement, Xi said his country would offer some 20 billion yuan (US$3.1 billion) in clean development funding to developing countries. The sum, slightly above what the US has committed, is the first significant climate finance pledge from an emerging country.

Until now, the largest cap and trade system has been the European Union’s flagship climate policy, its Emissions Trading Scheme (EU ETS). California, Quebec and recently Ontario have also favoured the carbon trading approach. Under such frameworks, the state sets a maximum total amount of emissions that can be released. The upper bound, or ‘cap’, is steadily reduced over time. Within that cap, polluters are allocated or sold emissions permits that they are then allowed to trade with other polluters. If an enterprise can reduce its emissions to a lower level than that represented by its store of permits, then it can sell them on for a profit to other firms who have not been as successful in emissions reduction.

However, emissions trading is not without its critics. The EU ETS has been dogged by fraud, corruption by organised crime, an excess of credit allocations leading to windfall profits in the energy sector, and overall been less successful in reducing emissions than the 2007-8 economic crisis. A ton of carbon currently trades at about €8—far lower than the generally agreed price floor of around €35 a ton that would spur widespread adoption of clean technologies.

In Canada meanwhile, New Democrat Party (NDP) leader Tom Mulcair unveiled on Sunday his party’s plan for a nation-wide cap-and-trade system if it forms the government in a few weeks’ time. The aim is to reduce greenhouse gas emissions by 80 percent compared to 1990 levels by 2050.

While the NDP has long proposed emissions trading at the federal level, the party has also faced questions over how to incorporate such a scheme with the mosaic of different approaches already undertaken by some provinces. British Columbia for example, introduced a carbon tax in 2008, while Saskatchewan is focused on commercializing carbon capture and storage (CCS) technology, to scrub coal-fired power plants and industry of their CO2 and bury it underground. Ontario and Quebec have backed carbon trading.

Mulcair said that he would work with provinces that already have existing programmes, permitting them to opt out of the national scheme, so long as their policies produce outcomes that are equivalent to or superior to those resulting from federal targets.

“I’m not going to tell the provinces to remove something that’s working,” he said.

However, the next day, Alberta’s NDP premier, Rachel Notley, distanced herself from her federal counterpart.

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