Tag Archives: climate-change
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
Africa: ‘Carbon Farming’ Makes Waves At Stalled Bonn Talks
BY STEPHEN LEAHY, 12 JUNE 2013 Uxbridge — U.N. climate talks have largely stalled with the suspension of one of three negotiating tracks at a key mid-year session in Bonn, Germany. Meanwhile, civil society organisations claim the controversial issue of “carbon farming” has been pushed back onto the agenda after African nations objected to the use of their lands to absorb carbon emissions. At the Bonn Climate Change Conference this week, Russia insisted on new procedural rules. That blocked all activity in one track of negotiations called the “Subsidiary Body for Implementation” (SBI). The SBI is a technical body that was supposed to discuss finance to help developing countries cope with climate change, as well as proposals for “loss and damage” to compensate countries for damages. The SBI talks were suspended Wednesday. “This development is unfortunate,” said Christiana Figueres, executive secretary of the U.N. Framework Convention on Climate Change (UNFCCC). Figueres also said the two-week Bonn conference, which ends Friday, had made considerable progress in the two other tracks. A complex new global climate treaty is scheduled to be completed by the end of 2015 with the goal of keeping global warming to less than two degrees C. “Governments need to look up from their legal and procedural tricks and focus on the planetary emergency that is hitting Africa first and hardest,” said Mithika Mwenda of the Pan African Climate Justice Alliance (PACJA), an African-wide climate movement with over 300 organisations in 45 countries. And where there is “progress” at the climate talks it is in the wrong direction, according to civil society. “We’ve seen many governments in Bonn call for a review of the current failed carbon markets to see what went wrong, why they haven’t actually reduced emissions and why they haven’t raised finance on a significant scale,” said Kate Dooley, a consultant on market mechanisms to the Third World Network. “If we don’t learn these lessons we’ll be doomed to repeat these environmentally and financially risky schemes, at the cost of real action to reduce emissions,” Dooley said in a statement. In Bonn, two key African negotiators appear to be pushing the World Bank agenda rather than their national interests, civil society organisations claim. Those negotiators are also working for organisations receiving World Bank funding. One appears to want African nations’ mitigation actions to be based on agriculture, they said. The World Bank and the U.N. Food and Agriculture Organisation and other organisations favour what they call “climate smart” agriculture. This is defined as forms of farming that are sustainable, increase productivity and with a focus on soaking up carbon from the atmosphere. African environment ministers from 54 nations recently stated they were not obligated to use their lands to mitigate carbon emissions since Africa is not responsible for climate change. They also instructed African negotiators at the Bonn climate talks to focus on helping African agriculture adapt to a changing climate. “Are these people serving two masters?” asked Mariam Mayet of the Africa Centre for Biosafety, which works to protect farmers’ rights and biodiversity across the continent. “What is the World Bank’s level of influence over these individuals, and is there a risk that this is impacting on their actions and the outcome here?” Mayet told IPS. In December 2011, more than 100 African and international civil society organisations sent a joint letter to African ministers asking for “no soil carbon markets in Africa”. Globally, agriculture is a major source of global warming gases like carbon and methane – directly accounting for 15 percent to 30 percent of global emissions. Changes in agricultural practices such as reducing or eliminating plowing and fertiliser use can greatly reduce emissions. Agriculture can also be used to absorb or trap carbon in the soil. When a plant grows, it takes CO2 out the atmosphere and releases oxygen. The more of a crop – maize, soy or vegetable – that remains after harvest, the more carbon is returned to the soil. Civil society organisations warn that if agriculture becomes part of a carbon market, it will spur more land grabbing in Africa, with woodlands being used mainly for carbon sequestration instead of food production. “There is a profound danger to agriculture here, with real potential for more land grabbing and expansion of monocultures in order to harvest credits,” Helena Paul of EcoNexus, an environmental NGO, previously told IPS . Soils are extraordinarily variable and different climatic regimes affect how they function, said Ólafur Arnalds, a soil scientist at the Agricultural University of Iceland. While soils are a key part of the planet’s carbon cycle, we don’t know enough about soil carbon, Arnalds told IPS at a recent Soil Carbon Sequestration conference in Iceland. That complexity does not suit carbon markets well and drives up costs of accounting and verification. However, Arnalds does believe that soils and agriculture have an important role in climate change and farmers should be compensated for their efforts. Continue reading
Future Points To Carbon Trading
China Daily, June 14, 2013 Smoke billows from a factory in Dezhou, Shandong province. To reach mandatory efficiency goals, the government had to take some extreme steps, including power cuts and limits on electricity supply in 2010. [China Daily] Chinese companies that have long faced relatively low environmental costs will have to figure out efficient ways to cut carbon dioxide emissions as a market mechanism is right around the corner. The country’s first pilot carbon-trading program for cutting greenhouse gas emissions will make its formal debut on Tuesday in Shenzhen, the southern city in Guangdong province that has long been a leader in China’s reforms. The Shenzhen pilot program is expected to hasten the launch of pilots in other regions. The central government has designated four other cities, including Beijing and Shanghai, and two provinces to roll out pilot carbon-trading programs by 2014. In Shenzhen, about 635 companies accounted for about 38 percent of the city’s total emissions, and they will be included in the experimental program. Using a 2012 baseline of carbon dioxide emissions of roughly 31.73 million tons, Shenzhen will issue 100 million tons of free emissions allowances to companies complying with the program between 2013 and 2015. Rather than copy cap-and-trade programs in Europe or California, the Shenzhen pilot sets limits on carbon intensity (carbon dioxide emissions per unit of GDP) for emitters. The 635 companies must achieve an average annual carbon intensity reduction of 6.68 percent by 2015. However, regions will explore various approaches in establishing their own experimental programs. Cities such as Beijing might adopt absolute emission caps, said industrial experts. Carbon intensity “Adopting a carbon intensity index is in line with China’s commitment of reducing carbon intensity,” said Yang Fuqiang, senior adviser on energy, environment and climate change for the Natural Resources Defense Council in Beijing. China has set a target of reducing carbon intensity by 40 to 45 percent by 2020, compared with the 2005 levels. Carbon intensity reduction leaves room for growth by allowing a limited increase of carbon emissions, said Yang. “All approaches could be used, but the final target is to have a nationwide market, and some kind of top-level programs should be put in place,” said Yang. Most international carbon markets adopt absolute caps, but it still remains uncertain when China will reach an absolute peak in emissions. Before the two-week climate change talks in Bonn in early June, the peak issue was already in the limelight. Some media reports said China’s greenhouse gas emissions might peak before 2025 and the country might introduce a cap in 2016. Reports about an early cap were dismissed by Su Wei, China’s chief climate negotiator in Bonn, while he reaffirmed China’s commitment to a carbon-intensity target by 2020. The peak issue is part of the agenda for China in its sustainable development, but when it will happen requires more in-depth analysis, said Zhou Dadi, vice-chairman of the National Energy Advisory Committee. Various studies have yielded wide variations for China’s carbon emissions peak, ranging from 2025 to 2040. “The year of 2025, or the period between 2025 and 2030, each has a high probability, but a precondition is China’s energy demand for industrialization, which could peak by 2020, and the country could then enter a post-industrial era,” said Yang. Another key factor is the speed of China’s urbanization. The quicker the process is, the earlier the country’s emissions peak will come, Yang said. Many Shenzhen businesses are willing to experiment with the new mechanism since it could also generate new business opportunities, though some power plants may be reluctant to adopt the new system, said experts who were involved in the design of the program. The cost of environmental degradation has been largely ignored during China’s impressive economic development in recent decades, putting mounting pressure on the government. Environmental costs To reach China’s mandatory efficiency goals, the government had to take some extreme steps, including power cuts and limits on electricity supply in 2010. “A market-based mechanism will surely work better than administrative measures. Companies should internalize environmental costs that were previously taken by the government,” said Tang Renhu, general manager of Beijing-based Sino-Carbon Innovation and Investment Co. To avoid a low price in carbon auctions, regulators in some markets may set a floor price. Prices that are too low reduce companies’ incentive to invest in technology to cut down emissions. But according to experts, the Shenzhen pilot program has yet to set either a floor or a ceiling on carbon prices for auction. For energy-conservation projects, the central government offers a subsidy of 240 yuan ($39) for each ton of coal equivalent saved, while provincial-level governments offer about 60 yuan. Based on that, the reference carbon price is about 100 yuan per ton, said Tang. This number “could be a reference to the market, but the price needs to be decided by the market,” he said. California established its carbon market last November with quarterly auctions of carbon allowances, making it the second-largest carbon market in the world after the EU’s Emission Trading Scheme or ETS. California set a $10 price floor for its first allowance auction in November. The carbon allowances were actually sold at $10.09 a ton. In its second auction in February, the price rose to $13.62 a ton, and the price then hit a record of $14 in the third auction in May. Gary Gero, president of the California-based Climate Action Reserve, said the most affected companies are electric utilities, petroleum refineries and large manufacturing facilities. Most companies will assess the costs of implementing on-site emission reductions relative to the cost of an allowance or offset and then pursue the most cost-effective reduction opportunities. “This is the very point of a cap-and-trade program; it provides the largest amount of emission reductions at the least possible cost, thereby reducing the economic impact on businesses and consumers,” said Gero. This program will result in the shifting of energy production to cleaner fuels and technologies as the program progresses and after the least expensive reductions have been identified and implemented, he added. The problems of the EU’s ETS, the largest player in the global carbon market, are mostly due to two related issues: the excessive allocation of permits and carbon price volatility. Justin Dargin, energy and carbon markets expert at the University of Oxford, said China should not be overly concerned about the success or failure of carbon markets outside its jurisdiction. The reason that China is concerned about the development of carbon markets has mostly to do with transitioning its economy away from an energy-intensive model. The introduction of energy-efficient industrial equipment would also lower China’s aggregate energy consumption. That would help China meet its energy security goals for the medium and longer term. These goals are relatively independent of developments outside of China, said Dargin. Yet, China can learn from other jurisdictions and therefore should pay close attention to the best practices and “lessons learned” elsewhere. Dargin suggested setting a carbon price floor that is high enough to create incentives for industry to invest in clean technology, while at the same time not being too high to hinder industrial competitiveness. The price band should also attempt to minimize volatility as much as possible. Xie Zhenhua, China’s top climate change official, said in April that China will draw lessons from the EU’s ETS, the world’s biggest emissions trading system, which has had a lingering oversupply of carbon allowances and low prices. Challenges ahead Setting standards and building the capacity of China’s carbon market takes time, but the biggest hurdle might be China’s sluggish energy pricing system reform. Whether electricity rates are determined by the market will be a core concern of building a carbon market, said Dargin. “Without a market-determined price, the imposition of a carbon price on power producers would have little impact as power producers are not allowed to pass on costs to end-users and resist absorbing these costs themselves,” he said. Carbon is a product that is closely linked to energy, but China’s energy prices are still mainly controlled by the government. But this year the government has showed signs of accelerating its energy price reforms. The National Development and Reform Commission in March launched a more market-oriented fuel pricing system to better reflect costs. Economists said relatively low inflation levels have provided favorable conditions for energy pricing reform. The healthy development of the carbon market will eventually rely on reform of the energy pricing system, said Tang. “It’s difficult to (do things that) affect vested interests among energy groups, so starting the carbon market could be a force to help accelerate reform in the energy sector, but that also brings major challenges for China’s carbon market,” said Tang. Also, integration among different markets will be a challenge, he said. Local pilot projects may have some limitations such as small trading pools for suppliers and buyers, so the central government should allow them to extend trading with other regions, said experts. Also, potential fraud must be monitored by regulators to ensure that the market has adequate oversight and transparency. As carbon exchanges open in various cities, information security must be monitored and made robust, said Dargin. For instance, regulators shut down the EU’s ETS after hackers stole more than 3 million carbon credits from government and private company accounts. Furthermore, penalties for non-compliance must be clear. What are the penalties if emitters exceed their emissions caps and do not pay the levied fines? This needs to be clearly stated, said Dargin. Continue reading
