Over the summer, you may have missed the announcement that China's carbon trading scheme launched. The article in the url below makes the case that this is the most important attempt so far by the human race to address climate change. If countries like China (and the U.S.) do not act quickly, things might get out of hand. Given that we are finally seeing some activity in the U.S. (however belated and incremental), China (and India, and Brazil, and …..) needs to start acting, too:
"While the world has been focused on spacefaring billionaires over the past week, a big development for planet Earth has only merited moderate attention: On Friday, China's long awaited national carbon market started trading. How well that market functions could go a long way toward deciding how much chance the world really has to reduce the probability of worst-case climate scenarios. It also could end up being a key issue between China and the West. If the U.S. and the European Union conclude China is serious about tackling emissions, that could help spur more aggressive climate action in the developed world—and open up more space for a less zero-sum approach to relations in general."
This trading scheme is the potential answer to a carbon price in China, which should stimulate action, even if this opening salvo still leaves a lot of progress to go:
"So far, cautious optimism is probably warranted. But the price of carbon in China is still clearly too low, and the market itself still excludes key energy users like steel. Both need to change soon."
The article contained some interesting comparisons to make the point that the current price is way too low:
"The carbon market closed at 51.23 yuan, equivalent to $7.91, per metric ton on Friday according to Thomson Reuters. That is still well below prices in Europe, where a metric ton will cost you around $60, and probably below levels needed to really change behavior. For instance, ANZ Bank estimates that a 36 yuan per metric ton carbon price would only represent around an extra 5% operational cost for Chinese coal plants. And a 2016 World Bank paper found that reducing Chinese emissions in 2030 by 16% from their baseline estimate would require carbon prices rising to 157 yuan per metric ton by that date."
There is also an issue with the penalties for noncompliance that have so far been discussed:
"Draft regulations released in January set a maximum penalty of only 30,000 yuan ($4,630) for not buying enough offsets. A more recent proposal from the Ministry of Ecology and Environment in March suggests a 500,000 yuan maximum."
Ultimately, the article is hopeful, for a very pragmatic reason:
"In the end the biggest reason for optimism is that Beijing needs the system to work. Policy makers have been trying for years to direct investment out of energy-consuming industries such as steel and into high-tech sectors—including green technologies—with mixed success. A real price on carbon is one obvious solution."
Take care
David
David Chandler
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China's Carbon Trading is Up and Running, but it is a Mixed Bag
By Nathaniel Taplin
July 20, 2021
The Wall Street Journal
Late Edition – Final
B12
