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China's carbon trading debut defies doubters|
October 12, 2012
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China’s first steps to build what is destined to be the world’s second-biggest emissions market are boosting the prospects for fledgling programs from Australia to California.
Four cement makers in China, the world’s biggest emitter, bought 1.3 million pollution permits for 60 yuan ($9) a metric ton last month in Guangdong. The province plans the largest of seven pilot programs for a proposed national market within three years. Exchanges will trade permits to emit an estimated 1 billion metric tons of greenhouse gases a year by 2015, close to half the volume in the European Union system.
By setting its own emission limits and allowing polluters to buy and sell permits, China’s domestic market is set to dwarf its own participation in the UN market, Bloomberg New Energy Finance forecasts.
The country’s commitment may also help break a logjam in global-treaty negotiations and support trade in Australia and the US, where opposition to carbon pricing is unwavering, according to Climate Bridge, which has developed projects in China since 2006.
“What China is doing with its pilot scheme and ultimately with a national scheme sets a terrific example for the rest of the world,” said Alex Wyatt, the Melbourne-based chief executive officer of Climate Bridge and author of a report released yesterday with the Sydney-based Climate Institute. “Any suggestions by people in the West that China is not acting on climate change aren’t true.”
Global climate summit
Negotiators from China, the US, the EU and about 200 other nations are scheduled to meet next month in Doha, Qatar, for a global summit on climate. The discussions are expected to culminate in 2015 with a treaty to reduce greenhouse gases linked to climate change by imposing cuts on the richest nations and requiring poorer ones to slow increases in emissions, said Luiz Alberto Figueiredo Machado, Brazil’s undersecretary general for environment in the foreign ministry.
UN envoys agreed last year in Durban, South Africa, to work toward a treaty taking effect in 2020 that includes legally binding targets for all nations, including China and the US Under the current pact negotiated in 1997 in Kyoto, Japan, emission limits apply only to industrialised nations. The US has declined to sign the treaty, citing China’s refusal to commit to binding reductions.
Until now, China’s main role in the global emissions arena has been hosting the world’s largest stream of projects earning credits under the United Nation’s Clean Development Mechanism.
From windfarms in Inner Mongolia to hydropower plants in Yunnan, China is home to almost half of the 4,200 projects worldwide that are registered in the CDM, according to Climate Bridge. The projects have generated almost 600 million credits known as offsets, according to figures compiled by Bloomberg.
The offset market, in which richer nations pay for projects in developing countries in exchange for tradable credits known as Certified Emission Reductions, is struggling with record-low prices. CERs for December delivery rose 1.7 percent yesterday to 1.77 euros ($2.20) on the ICE Futures Europe exchange, near the all-time low of 1.43 euros on Sept. 18.
UN credits traded at their biggest-ever discount to EU permits this week. The spread, which trades as a separate contract on the ICE Futures Europe, widened to as much as 6.05 euros on Oct. 9, a 75 percent increase from a year ago.
The collapse in UN carbon prices hasn’t dissuaded China from using the so-called cap-and-trade system to meet a target of reducing emissions intensity by as much as 45 percent by 2020, according to John Connor, CEO of the Climate Institute. After initial skepticism, China’s government has seen the benefits of the CDM, he said.
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