China first carbon market kicks off in Shenzhen

China , CSR in purchasing , Greening the Supply Chain Jun 19, 2013 No Comments

China carbon marketThe city of Shenzhen became yesterday the first region in China to introduce a mandatory emissions trading scheme (ETS).”It is a clear indication that they are serious about reducing emissions and bringing down pollution levels.”

The new markets are set to regulate 800 million to 1 billion tons of emissions by 2015 in the world’s biggest cap-and-trade program after Europe’s, according to Bloomberg New Energy Finance.

Under the rules of the scheme, China’s National Development and Reform Commission has said that the surrounding region of Guangdong will have to meet an emissions intensity reduction target of 19.5 per cent between 2010 and 2015, while Shenzhen faces a more demanding target of 21 per cent. The 635 local companies covered directly by the new emissions cap were responsible for 31.7 million tons of carbon emissions in 2010, equivalent to 38 per cent of the city’s total emissions. Rules will differ between the pilot schemes to allow China to experiment with different emission trading scheme designs.

Balancing the need for economic growth with carbon control is a challenge. Emissions in China are expected to rise for years, given the importance China’s political elite continue to place on economic growth. Some observers question how much pressure China’s planners are prepared to put on its big emitters. The pilots set emission limits from January 2013 through the end of 2015. “I think the emissions caps will be relatively lenient,” said Hongliang Chai, analyst at Thomson Reuters Point Carbon.

China had planned to start all seven pilot programs this year, with Shenzhen’s market followed by Beijing, Shanghai, Guangdong, Tianjin, Chongqing and Hubei. Some of the markets may start in 2014, Xie Zhenhua, vice president of the National Development and Reform Commission, said at yesterday’s ceremony in Shenzhen. He didn’t disclose which exchanges are behind their original schedule.

Analysts remain concerned that China‘s embryonic carbon markets could repeat the mistakes made by the EU ETS and find themselves facing an oversupply of carbon allowances that dilutes the carbon price, resulting in a negligible impact of green investment.

Most observers—including from the environmental movement—are prepared to give China’s regulators time to get things right. “It is our view that the first step for Chinese ETS is to get the system right from the beginning—the trading platform; the monitoring, reporting and verification system; [emissions] inventories; getting companies informed and cooperative—and gradually shift toward more stringent caps,” says Li Shuo, a climate and energy campaigner for Greenpeace East Asia. Plenty of studies see China’s emissions peaking by 2030. Some are more optimistic: recent ones predict 2025 to 2030.

“No one really knows what is going to happen with the China market, but they have done their research on what the EU got wrong and are less likely to make those mistakes,” says Winnie Tang, a director with Kind Resources, an investment and deal advisory firm which focuses on carbon emission reduction.


Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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