Tag Archives: carbon
Explainer: China Carbon Trading Schemes Kick Off
By Erwin Jackson on 18 June 2013 The first of the seven planned Chinese pilot emission trading schemes, in Shenzhen, is to be launched today. While China has been indirectly pricing carbon for years, this scheme will be its first mandatory carbon market. Second largest emissions trading scheme in the world Pilot emission trading schemes are planned to start this year in Beijing, Chongqing, Guangdong, Hubei, Shanghai, Shenzhen and Tianjin. These pilots are expected to cover around 700 million tonnes of CO2-e by 2014, which is a fraction of China’s total emissions, yet are still very significant. By comparison, Australia’s carbon price covers around 380 million tonnes, California’s 165 million tonnes and Europe’s 2.1 billion tonnes. (See Table 2 for comparison with Australia.) China plans to implement a national scheme around 2016 based on the lessons learned from the pilot schemes. China is implementing a range of policies to address climate change, energy security and air pollution. If projections are accurate, these policies (see list of efforts on page 2) since 2005 will deliver a reduction in emissions of 4.5 billion tonnes of CO2 in 2020. This would be the largest single absolute reduction for any country in the history of action on climate change, and would equivalent of closing 1,000 500MW coal-fired power stations for a year. Note also that China’s unabated appetite for coal is overstated. China has been the world’s largest investor in coal over the last decade but the nation’s energy use is undergoing significant change. In 2011 coal plant investment was less than half of what it was in 2005. Inefficient coal generation have been progressive closed and last year coal consumption grew only 2.5 per cent compared to nearly 12 per cent in 2011. Renewable energy accounted for over 19 per cent of generation in 2012 and combined with nuclear, accounted for over 90 per cent of all electricity generation growth last year. Spotlight on Shenzhen Shenzhen is one of the China’s Special Economic Zones, located next to Hong Kong. It is home to around 11 million permanent residents. The region is seeking too to build an advanced carbon finance centre. In 2011, its GDP was around $178 billion and per capita incomes were around $17,000. Total emissions are estimated to be around 83 million tonnes in 2010 (compared to around 570 million in Australia). Rules will differ between the pilot schemes to allow China to experiment with different emission trading scheme designs (see table 1). Shenzhen has committed to reduce the emissions intensity of its economy by 21 per cent below 2010 levels by 2015. Like the schemes in other major economics, Shenzhen’s market has an absolute emission limit. This is around 32 million tonnes. This distinguishes it and other schemes from New Zealand’s emission market or the Coalition’s Emission Reduction Fund, which do not have a regulated cap on emissions. The scheme will cover all companies with emissions over 20,000 tonnes of CO2-e and around 40 per cent of total emissions. It covers 26 sectors, including electricity and natural gas, water supply and industrial manufacturing. Initially emission permits will be allocated to companies for free but this will be progressively reduced through time and income from the carbon price to be used to support the development of new carbon reduction technologies and projects. Companies that pollute more than they are allowed will have to buy credits from those that reduce emissions below their targets. Companies will be charged three times the market price for each tonne of CO2 they emit over their cap if they fail to deliver enough credits. It is unclear at this point whether carbon prices for traded units will be public in the short-term. Reasons for action Chinese officials have cited numerous reasons for their climate action, including an effort to build energy security, reduce air pollution, foster new industries and contribute to global emission reductions. China’s significant investment in clean energy, for instance, has helped the emerging economy leapt ahead of countries like the United States in its ranking among the G20 nations in its ability to compete in a global low carbon economy. This year China ranked 3rd, up from 7th last year. If China had not increased its clean energy investments, it would be in 8th place. Renewable energy in particular has had exponential growth. From having virtually no industry in 2005, China now has the largest installed capacity of wind power in the world and is the world’s largest producer of solar modules. China is now the world’s largest investor in renewable energy with around $65 billion invested in 2012. Between 2009 and 2011, China invested more money in renewable energy than it did in coal fired generation. Is it enough? Despite China’s recent efforts under current energy projections, emissions and coal use will keep growing until at least 2020. This is not inconsistent with a world seeking to avoid a 2°C increase in global temperature as long as an emissions peak by around this time. Erwin Jackson is Deputy CEO of The Climate Institute Continue reading
Glimmer Of Hope For Carbon Markets
Eco-Business looks at the state of play in the first of a new series on the global carbon markets The UN’s Clean Development Mechanism has issued 2.4 billion carbon credits so far and generated billions of dollars in revenues for businesses in developing countries. It has supported 6,556 carbon market projects and $356 billion in investments. Image: UNFCCC Carbon markets suffered a heavy setback recently when the European Parliament rejected a plan to boost the flagging price of carbon in the region’s emissions trading scheme (ETS). But while carbon trading worldwide has been floundering, experts say carbon markets have a permanent role in combating climate change and are predicting an industry revival in the coming years. The controversial plan called ‘back-loading’ – which is now being reworked and put to the vote again on 2 July – was meant to temporarily withdraw a huge supply of carbon allowances from the ETS to prop up prices, which peaked around 30 euros per tonne in 2008 but have since plunged to new lows of 2 to 3 euros. Prices of United Nations-issued carbon credits under its Clean Development Mechanism (CDM) similarly have plunged some 98 per cent from their peak in 2008 to 39 euro cents per tonne. Carbon market players were looking to the European plan to restore confidence in the market and revive investments into carbon projects. The ailing markets in the past year or so have forced many carbon companies to consolidate or go out of business and dried up financing for further investment into clean energy projects. The underwhelming performance is the result of a combination of factors, including a lack of clarity from governments on the future of the Kyoto Protocol, a global agreement which binds developed countries to reduce their carbon emissions, and a weak global economy that has reduced demand for carbon credits. The market also suffers from a crisis of confidence stemming from questionable credits being issued by the CDM board, and its approval process that has been criticised for being bureaucratic and opaque. KPMG director for climate change and sustainability services, Rahul Kar, however, noted that despite the setbacks, carbon markets are here to stay. “It’s now in a transformational stage. We need to weed out the deficiencies, make the system more realistic in terms of affordability and eligibility criteria,” he told Eco-Business in an interview this week. “Even though the carbon markets are depressed today, chances are it will be hot again in about three years’ time,” noted Kar. This is because new regional carbon markets are emerging, such as in China, Australia and the United States, which would revive demand for carbon credits on the international markets, he added. “ The innovation, energy and farsightedness among the people developing these national and sub-national systems that convinces us at the World Bank that carbon pricing is emerging and carbon markets have a future Rachel Kyte Recent reports issued by institutions such as the World Bank and the Center for American Progress affirm the view that carbon markets have a key role to play in addressing climate change. Policymakers continue to recognise the importance of putting a price on carbon – regarded the culprit for climate change – and there are 40 national and 20 sub-national jurisdictions that are implementing carbon markets or putting a price on carbon, noted the World Bank in a report released last month, called ‘Mapping Carbon Pricing Initiatives – developments and prospects’. World Bank vice president for sustainable development, Rachel Kyte, noted it is the progress at country level that gives hope. “The innovation, energy and farsightedness among the people developing these national and sub-national systems that convinces us at the World Bank that carbon pricing is emerging and carbon markets have a future,” she said. The new initiatives build on previous experiences and valuable lessons learned, developing a range of novel design features, such as pricing stabilization mechanisms, which make them flexible and adjustable to new economic realities, the report noted. These emerging pricing schemes can make an important dent in greenhouse gas emissions. Today, countries with implemented and scheduled carbon pricing mechanisms emit the equivalent of roughly 10 gigatonnes of carbon dioxide per year, equal to about 20 per cent of global emissions. To gain efficiencies and benefits from larger markets, linkages and agreements are being put in place, such as the one between the EU ETS and Australia’s Carbon Pricing Mechanism. Team leader of the report, Alexandre Kossoy, senior financial specialist at the World Bank said: “There may not be a one-size-fits-all, but it is clear that the foundation of the first generation of market-based instruments is informing what will constitute the future landscape of carbon pricing,” Indeed, the Center for American Progress and Climate Advisers in an April report outline how, despite the rocky road for carbon markets, they have catalysed climate action in major countries. Titled ‘Carbon Market Crossroads – New Ideas for Harnessing Global Markets to Confront Climate Change’, the report noted that the sale of the 2.4 billion CDM credits issued so far has generated billions of dollars in revenues for businesses in developing countries, which has in turn spurred even more local economic activity by providing jobs and wages that benefit local businesses. The CDM has supported 6,556 carbon market projects and $356 billion in investments in emission reductions, it said. These projects have helped to create an ecosystem of climate entrepreneurs and elicited millions of dollars in government spending on climate. Each of the 10 developing nations that participated most actively in global carbon markets over the past decade are today out front experimenting with new, more ambitious climate policies, noted the report. China, South Korea, Mexico, Brazil, and India, for example, are establishing domestic carbon markets largely because of their positive experiences with the CDM. Lead author of the report and president of Climate Advisers, Nigel Purvis, noted that critics and defenders of international emissions trading have “missed the big picture”. “The developing nations that participated the most in global carbon markets are now taking the lead in adopting domestic carbon-pricing policies. The benefits of helping to spur climate policies in these major emerging economies greatly outweigh whatever environmental benefits or problems early carbon projects may have produced,” he said. The report’s authors also had a few recommendations that offered solutions for restoring global carbon markets, including: • The World Bank and International Monetary Fund convening an emergency climate summit to agree on new measures • Countries making political commitments to increase demand for global carbon-market credits, either through a new specialized fund at the World Bank or through coordinated but decentralized bilateral actions • Countries should establish a new International carbon-market coordinating body to encourage carbon markets to converge on the same high standards and help nations link their markets KPMG’s Rahul Kar says intervention by multilateral institutions such as the IFC or ADB can help lift the carbon markets by buying up credits in the short- to medium-term. In the longer term, the market will stabilise when regional trading markets give their demand projections and pricing for carbon. “ In terms of reliability and quality, the CDM is still far superior Rahul Kar, KPMG Meanwhile, carbon entrepreneurs awaiting the markets to spark back to life have either put their business and projects in cold storage, or moved into developing clean energy projects where carbon credits are a side product and not a main revenue generator. Singapore-based Blue World Carbon managing director for Southeast Asia, Joost van Acht, told Eco-Business that companies that depended on selling carbon credits for revenues have gone out of business. Projects that have multiple revenues, such as power generation, have been able to weather the storm. “Reform of the entire system is now urgently needed to make the markets work again,” he said, adding that the CDM board needed, for example, to remove controversial projects such as on air conditioning coolants known as HFC-23 or large hydropower projects to restore confidence in the process. Critics have questioned if these projects achieved the aim of cutting emissions. There is also the voluntary market, which is still thriving despite the current woes, where companies have bought carbon credits of differing standards directly from project developers as part of their social responsibility efforts. Carbon companies have also increasingly turned to consumers to generate demand. The explosion of social media and online “crowd-based” finance may prove a sustainable alternative source of demand while the regulated markets are still being reformed. Kar pointed out, however, that such credits will remain on the fringe. Besides administrative difficulties, the level of scrutiny that each project goes through under the UN’s CDM is much more rigorous than any voluntary scheme. “In terms of reliability and quality, the CDM is still far superior. So perhaps the UN may come up with a piece of legislation which allows CERs to be used for voluntary purposes, and this would put some life back into the global carbon markets.” What are carbon credits? Each carbon credit allows the holder to emit one tonne of carbon dioxide equivalent. Carbon trading is the buying and selling of these credits. The credits are created in two ways – one is based on allowances, which are given to developed countries emitters who set a quota on their pollution. The second is created under the United Nations’ Clean Development Mechanism, which verifies and approves projects in developing countries that permanently reduce greenhouse gas emissions. Owners of the project can then sell the credits to developed country buyers. The CDM was created as part of the Kyoto Protocol, the only global agreement that binds developed countries to cut their emissions. The credits are traded on exchanges and through financial institutions, which buy up credits from projects across the world and sell them on to end-buyers. There are also companies that sell carbon credits to companies and individuals on a voluntary basis. These credits may be verified by third party standards such as the Verified Carbon Standard. Continue reading
Can China Achieve Success With Carbon Trading Scheme?
By Puneet Pal Singh Business Reporter, BBC News China’s rapid industrialization has contributed to the rising pollution levels in the country Over the past few years China has earned itself quite a few crowns in the “world’s-biggest” category. It has become the world’s biggest internet market, largest car market, biggest exporter… the list goes on and on. While Beijing takes a lot of pride in some of these achievements, there is one title that it wants to let go of sooner rather than later, that of being the world’s biggest polluter. And in an attempt to do so, China has launched a pilot project of its first ever carbon trading scheme in Shenzhen. “This is definitely a big game-changer for China,” says Winnie Tang, a director with Kind Resources, an investment and deal advisory firm which focuses on carbon emission reduction. “It is a clear indication that they are serious about reducing emissions and bringing down pollution levels.” ‘Market-based policy’ Under carbon trading, firms are given credits – each equal to one tonne of carbon emissions. There is a cap on the credits issued to ensure that firms keep their emissions under control. “It is still a very new concept to the Chinese firms. They have little experience in recording their emissions and trading carbon credits” The companies are required to measure and report their carbon emissions and to hand in one allowance for each tonne of carbon they release. If companies emit less carbon than their allowance, they can trade their credits. On the other hand, if their emission levels exceed the limit, they have to buy fresh credits – thus putting a price on pollution. “It is a market-based policy. If someone emits more – they have to pay for it,” says Princeton Peng, chief executive of Climate Bridge, a firm specialising in carbon trading and offset project development. Mr Peng says this is likely to force companies to implement policies aimed at bringing down their emission levels and as a result help reduce overall pollution. China’s carbon trading scheme pilot projects Location Companies trading emissions Emissions covered SOURCE:CARBON MARKET WATCH Beijing 420 – 600 50% Shanghai 197 50% Tianjin 120 60% Chongqing NA NA Shenzhen 635 40% Guangdong 830 42% – 50% Hubei NA 35% European lesson? However, there are also concerns in China about what will happen to the price of credits when companies start to trade them. Some say that the price of these credits will rise as China looks to cut pollution levels, which may spark speculative trades. An excessive movement in the pricing of credits, on either side, could be detrimental to the overall objective of the scheme. “If the price goes too high, it will severely impact the operations of the companies,” says Mr Peng of Climate Bridge. Carbon emissions in China – key milestones 2006: Preliminary plan for nationwide emission trading scheme outlined 2008: Environment and energy exchanges established in Beijing, Shanghai and Tianjin 2010: 12th five-year plan lists carbon markets as key measure for reducing carbon and energy intensities 2011: Seven carbon trading pilots announced 2013: Shenzhen pilot starts Source: Climate Bridge “On the other hand, if the market price is too low – there is no incentive for people to reduce emission and invest in clean energy solutions.” These concerns stem in part from the developments in the European Union’s carbon trading market – currently the world’s biggest. The European Union (EU) market has seen the price of credits falling to $4 per tonne in recent weeks, from $40 per tonne a few years ago. Analysts blame the sharp decline on two key issues. They say that the rise in prices after the launch of the scheme in 2008 was triggered in part by traders who speculated that the carbon prices would keep rising. At the same time, they argue that authorities issued excessive amounts of credits which narrowed the demand-and-supply gap. That coupled with an overall slowdown in the EU economy resulted in the price of the credits falling and raised concerns about the future of the scheme. However, analysts say that Beijing has had the opportunity to learn from the developments in the EU and has fine-tuned its scheme. “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 Ms Tang. ‘Learning process’ The pilot in Shenzen is the first of seven such projects that will be launched in China over the next few months. Beijing plans to eventually launch a nationwide carbon trading scheme by 2015-16. Analysts say that by piloting the scheme across different areas, China is looking to ensure that it can tackle any teething issues and iron them out before the country-wide launch. “This will be a learning process both for the government and companies,” says Yue-tan David Tang, secretary of the board of Tianjin Climate Exchange. “The companies will have to learn how to take part in the emissions market. “The government will have the time and the opportunity to improve upon emission data infrastructure – which includes the quality of data collected and how it is collected,” he explains. Mr Tang adds that there is political will in China to get the scheme rolling and the success of the pilot programmes will only strengthen that commitment. When launched nationwide, the scheme is likely see China emerge as the world’s biggest carbon trading market. And if that helps to bring down pollution levels substantially, it will be one crown that Beijing will wear with pride. Continue reading
