COP 19: Emissions Trading Schemes Announced in Developing Nations

December 3, 2013

Warsaw, Poland. The 19th annual Council of Parties for the United Nations Framework on Climate Change concluded here two weeks ago under the scrutiny of approximately 10,000 non-governmental organizations (NGOs).  While hopes for progress on an international carbon-cutting treaty were largely unmet, some developing nations are independently making measurable progress in the area of emissions trading schemes (ETS), a market-based approach to emissions reduction that has struggled primarily in the USA, Europe and Australia. Carbon Dioxide Equivalents on the Chicago Climate Exchange fell from $7.50 per metric ton to a mere $0.05 in 2009, before the exchange was forced to shut in 2010. Similarly, problems of oversupply has plagued the EU ETS, with the carbon price hitting the floor twice already since its inception.

Growing energy demands compel China to mitigate emissions in order to reduce pollution and combat climate change. Consistent with China’s efforts to move away from central planning and towards market-based solutions, Zhenhua Xie,Vice Minister and Vice Chairman of the National Development and Reform Commission (NDRC) of China, announced that carbon trading would be part of the nation’s strategy to combat climate change. By year’s end, at least four pilot cities are expected to be involved in China’s new emissions trading scheme (ETS).

Market-based mechanisms such as the ETS are important pillars of China’s Third Plenum which arguably represents the most substantial change of the country’s economic policies since 1978. Interestingly, China is launching its ETS in the absence of international obligations and at a time when declining exports challenge the nation’s efforts to maintain high single-digit GDP growth.

To get a better sense of the progress of ETS in China, I interviewed Mr. Wang Jing, president of the ETS project in Tianjin, a metropolis of 12 million people and 4thlargest city of China. I asked him why China is starting with local projects, and what it will do to improve upon the implementation of a similar program in the European Union. Wang replied that his agency would better manage the number of permits available, preventing the over supply which made the EU’s ETS dysfunctional. Local authorities are also imposing more ambitious targets for emissions. Shenzhen, for example, aims to decrease emissions by 32% over the next three years – the equivalent of 100 metric tons of carbon dioxide. How much China can reduce emissions through ETS remains to be seen, but the program should help move the country away from coal-intensive operations.

A COP 19 side event explored the challenge of implementing ETS in China and other developing countries. ETS in China and South Korea will initially target manufacturing industries, the heaviest polluters, a select group who some fear could unduly influence the market. It will nevertheless be exciting to see how developing nations fare at implementing ETS, an emissions reduction strategy that has yet to prove successful in the nations that produced the majority of CO2 which threatens us all.