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The ClimateInstitute

Climate Action in China

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“China in the last five years has very consciously moved to slow the rate of its greenhouse gas emission growth by curbing its energy intensity, becoming a world leader in renewable energy, and most recently establishing carbon trading systems in its largest provinces. These actions are driven by self-interest, not only regarding concern for climate impacts, but for strengthening energy security, developing a low carbon economy with export opportunities and showing international leadership.”

John Connor, CEO of The Climate Institute

Climate Action in China

This presentation provides a summary of the Climate Bridge report Carbon Markets and Climate Policy in China: China’s pursuit of a clean energy future. Climate Bridge is an international carbon project developer with a portfolio of more than 180 emission reduction projects which has been active in the carbon market in China since 2006.

Cover image: Michael HallAll others courtesy of Climate Bridge

October 2012

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• For self-interested reasons, China has moved to slow the growth rate of its greenhouse emissions. China has already reduced its energy intensity, become a world leader in renewable energy, and is rapidly establishing carbon trading systems. These actions not only have positive impact on the climate, they also drive economic growth, reduce fuel dependency and create export opportunities.

• China’s main exposure to the carbon market has been through the Kyoto Protocol’s Clean Development Mechanism (CDM). This positive experience with carbon markets has built capabilities in carbon measurement and auditing and contributed to China choosing to establish its own domestic carbon trading scheme.

• China’s ambitious emissions trading pilot schemes collectively represent the world’s second largest emission trading scheme and are expected to lead to a nationwide system in 2015-2016.

• China’s scheme dovetails with other global schemes, paving the way for a global climate change agreement coming into force in 2020.

Key Points

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China’s proactive climate change policy has been driven by high-level, often self-interested motivations.

China’s Recent Climate Policy

Motivations for action:• Strengthening energy security by reducing

dependency on foreign fossil fuels• Developing the low carbon economy, growing

related exports and creating jobs• Avoiding dangerous climate change. China is

particularly vulnerable with 22% of the world’s population and only 7% of its arable land.

• Showing international leadership and strengthening international negotiating position

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Historically, China’s climate policy has relied upon predominantly command-and-control mechanisms.

China’s Recent Climate Policy

Policies:• 1000 enterprises programme – Starting in 2004,

targets were set for China’s largest polluting enterprises (who account for 33% of China’s national energy use).

• Support for renewable energy – Since 2006, relatively high feed-in tariffs for renewable energy have been in place. Tax holidays and other fiscal incentives are offered to developers.

• Restrictions on fossil fuel use – Since 2010, increased resource taxes have been set on fossil fuels. In 2015 there will be a cap placed on coal production.

• Backing for strategic emerging new industries – The national Energy Agency has established a development plan that requires direct investment of 5 Trillion RMB ($750BN) in low-carbon projects.

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Historically, China’s climate policy has relied upon predominantly command-and-control mechanisms.

Achievements to date:• China reduced energy intensity of GDP by 19% between 2005 and 2010. Energy efficiency

improvements in key industries were vital to achieving this target. • 72.1GW worth of small, inefficient coal-fired power plants were closed from 2006-2010. That’s

more than the entire capacity of the Australian grid (~50GW).• Renewable energy has had exponential growth over the last 5 years. 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 also leads the world in hydropower installations.

• China has become a major exporter of clean technology, selling to both developed and developing countries. In solar energy alone, China exports $35.8 billion worth of products per year, similar to the total value of shoes China exported ($39bn) in 2011.

China’s Recent Climate Policy

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China’s main exposure to the carbon market has been through the Kyoto Protocol’s Clean Development Mechanism (CDM). This positive experience with carbon markets has contributed to China choosing to establish its own domestic carbon trading scheme.

• More than 2,000 of the 4,200 projects registered under the CDM are situated in China• The CDM has driven spectacular growth in renewable energy. More than 40GW of wind power and

30GW of hydropower capacity have been registered under the Clean Development Mechanism, which combined is larger than the entire Australian national grid.

• Emissions from highly potent industrial gases, such as HFC and N20, have been dramatically reduced with CDM finance, representing emission reductions of millions of tonnes of carbon dioxide.

• Other innovative technologies have also been supported by the CDM, including ground-breaking coal mine methane, biogas and waste management technologies.

• China has established the administrative capability to review and approve carbon offset projects. The Chinese authorities have developed essential tools for operating an emissions trading scheme.

History of Carbon Markets in China

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5 cities and 2 provinces have been chosen to host pilot emission trading schemes starting in 2013-14.

China’s Carbon Market Future

• Pilot schemes will begin in seven of the country’s most important cities and provinces

• Rules will differ between the pilot schemes to allow China to experiment with different emission trading scheme designs

• It is estimated that the programme will cover approximately 700 million tonnes of CO2e emissions

• There are likely to be price controls such as a floor price in the pilot schemes

• China is still considering a form of carbon tax, in addition to the emissions trading scheme.

In December 2009, China set a target to reduce carbon intensity of its economy by 40-45% by 2020, with one ambitious objective being the gradual establishment of a domestic a carbon market.

Measured by emissions covered, China’s pilot emissions trading schemes will represent the second largest carbon trading effort on Earth by 2014.

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China’s Carbon Market Future

Location 

Carbon intensity target

Expected Start Date

Emissions threshold for entry

Approx no. of firms covered

Offsets accepted?

Beijing 18% 2013 10,000 tonnes of CO2e annually

600 CCERs (issued by NDRC) set to be allowed

Shanghai 19% 2013 10,000 tonnes of CO2e annually

200 CCERs, and a local offset standard yet to be decided

Tianjin 19% 2013 10,000 tons of standard coal equivalent

120 Under consideration

Chongqing 17% 2013 Six most energy-intensive industries.

Unknown Forest-based offsets may be eligible

Shenzhen Unknown 2013 Design still to be determined. Five alternative plans drafted

800 Under consideration

Guangdong 19.5% 2014 20,000 tonnes of CO2e annually

~820 Forestry offsets and CCERs

Hubei 17% 2014 To include power stations and heavy industry

~100 CCERs likely to be accepted up to 15% of cap

Australia (for comparison)

N/A 2012: tax2015: trading

25,000 tonnes of CO2e annually

315 UN registered CERs up to 12.5% of total ETS coverage will be accepted. No industrial gas credits

Pilot Scheme Overview

Source: Point Carbon

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The introduction of China’s scheme is in line with other efforts in the Asia-Pacific.

The Global Perspective

• China’s pilot schemes are scheduled to be launched in 2013-14, with a nationwide ETS is expected to emerge in 2015-16. Australia’s emissions trading scheme will begin in 2015, similar to China’s.

• South Korea have legislated for a nationwide trading scheme in 2015, whilst Sao Paolo and Rio De Janeiro will begin regional pilot schemes in 2013.

• The United Nations framework on climate change (UNFCCC) process aims to finish negotiation on a global agreement by 2015, which would come into force in 2020.

• China’s emissions trading system should eventually link with other schemes, though not until after 2020.

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Global Climate Action Map

The Climate Institute has launched a new, interactive map to provide a top line summary of national actions on climate change.

The map enables users to see what actions countries have already taken, as well as those that are under development. Users can look up and compare up to three countries at a time, assessing national actions ranging from emissions trading and emissions standards to energy efficiency and land sector policies.

Explore the map:www.climateinstitute.org.au/global-climate-action-map.html

All major emitting countries are implementing policies to reduce emissions, drive clean energy investment and improve energy efficiency.

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Global Climate Action Map

www.climateinstitute.org.au/global-climate-action-map.html

“This map very clearly shows that there is significant if as yet insufficient action on climate change and clean energy policies around the world. Countries have chosen different paths, targeting different industries, depending on their economic makeup and what they perceive as an opportunity for gaining a competitive edge in an increasingly global low carbon economy.”

John Connor, CEO of The Climate Institute

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Conclusion

While China’s greenhouse emissions gases rose rapidly over the last decade, it has also been implementing ambitious policies to slow the growth of these emissions with a 19.1% emissions intensity reduction between 2005 and 2010. China has also been positioning itself to be a future leader in clean technology, and is already the world’s largest producer of renewable energy.

The establishment of an emissions trading scheme in China should be viewed in the broader context of developments in the Asia-Pacific and globally. China’s scheme aligns with other global schemes, paving the way for a global climate change agreement coming into force in 2020.

"Reducing emissions in China is critical to preventing global climate change, so it is extremely encouraging to witness the Chinese authorities setting such ambitious renewable targets. Indeed, China's pilot emissions trading schemes will cover twice the emissions of Australia's scheme in 2014. Business and politicians that assume inaction from China are taking a huge gamble on a high carbon status quo."

Alex Wyatt, CEO of Climate Bridge

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More information

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