such as steel, power, chemicals, construction
materials, papermaking and nonferrous metals.
After national carbon exchanges are created,
China will become an integral part of the international carbon trading market. The pressure on
China to reduce carbon emissions will be largely
alleviated by means of the market. Launch of
China’s carbon exchanges will drive the transformation and modernisation of traditional
industries and sharpen the international competitive edge of China’s low-carbon sectors.
27
The Notice on Carrying out Pilot Carbon
Emissions Permit Trading issued by the National
Development and Reform Commission (NDRC)
in October 2011 approved the launch of pilot
carbon emissions permit trading in Beijing,
Tianjin, Shanghai, Chongqing, Hubei, Guangdong and Shenzhen. The pilot carbon exchanges
in the seven provinces and municipalities were
opened between June 2013 and June 2014.
The NDRC released the Notice on Key Points for
the Launch of a National Carbon Trading Market
in January 2016, according to which Phase 1 of
the national carbon market should cover petrochemicals, chemicals, construction materials,
steel, nonferrous metals, papermaking, power,
aviation and other high-emitting industries.
However, China’s carbon market uses a baseline
method to set the carbon quota, which is stricter
than the historical method and more demanding
in terms of technologies and data.
Given the progress of current pilot carbon
markets, when building the carbon market, China
should: improve the system of laws and regulations; coordinate allowance allocation; establish
a unified trading platform and pricing mechanism; and optimise the design of the national
carbon market to include guidance and benchmarks for its creation and improvement.
8.1 Summary
Carbon markets are a key instrument for delivering cost-effective mitigation. Mitigation of
carbon emissions is in the best interest of all
nations, because the cost is less than that of
unconstrained climate change. The cost of mitigation can be minimised via carbon markets,
especially if carbon markets are the primary
driver of mitigation in an economy, if the carbon
price is robust to shocks, and if the price provides
incentives for long-term investment.
However, competing objectives often require
trade-offs that are reflected in carbon policy.
Carbon markets, such as an emissions trading
system (ETS), can help deliver benefits that are
in line with other policy goals, for example
improved air quality or resource efficiency.
However, carbon markets can also adversely
affect some policy goals, like industrial competitiveness, or be undermined by shocks, such as
when a recession leads to an oversupply of permits that undermines the ability of the carbon
price to incentivise long-term investment. These
competing objectives are often legitimate, and
shocks should be expected. The challenge to
policymakers is, therefore, how to take these into
account when designing carbon markets, without
reducing the cost-effectiveness of mitigation.
We call carbon markets that accommodate
competing objectives and shocks while maintaining cost-effectiveness robust markets, while
those that fail to do so are fragile. Unfortunately,
most carbon markets in international experience
are fragile, having become stuck in a transition
trap of managing competing objectives and
shocks via countervailing policies that further
undermine the markets. As China’s ETS will
double the quantity of emissions covered by a
carbon price globally, when it is fully implemented, it is imperative that it is robust, or else
carbon markets may lose support, which would
seriously undermine decarbonisation efforts.
International experience suggests that carbon
markets can be robust if certain design features
are incorporated. Carbon markets have four sets
of design options. These are options around:
(i) the creation of carbon units, such as targets
27
Liu Junyan and Fu Jingyan, Lessons from Guangdong’s
Carbon Market Practice for Building a National Unified
Carbon Market, in Science and Technology Management
Research, 2016, 36 (13): pp. 237–242 and 254; Xue Rui,
China’s Carbon Market Response in the Context of the
Paris Agreement, in Ecological Economy, 2017, 33(02):
pp. 45–48 and 128; Peng Sizhen, Chang Ying and Zhang
Jiutian, Reflections on Major Problems in the Development of China’s Carbon Market, in China Population,
Resources and Environment, 2014, 24(09): pp. 1–5.
Special Report 4: China’s Energy System Revolution
519
materials, papermaking and nonferrous metals.
After national carbon exchanges are created,
China will become an integral part of the international carbon trading market. The pressure on
China to reduce carbon emissions will be largely
alleviated by means of the market. Launch of
China’s carbon exchanges will drive the transformation and modernisation of traditional
industries and sharpen the international competitive edge of China’s low-carbon sectors.
27
The Notice on Carrying out Pilot Carbon
Emissions Permit Trading issued by the National
Development and Reform Commission (NDRC)
in October 2011 approved the launch of pilot
carbon emissions permit trading in Beijing,
Tianjin, Shanghai, Chongqing, Hubei, Guangdong and Shenzhen. The pilot carbon exchanges
in the seven provinces and municipalities were
opened between June 2013 and June 2014.
The NDRC released the Notice on Key Points for
the Launch of a National Carbon Trading Market
in January 2016, according to which Phase 1 of
the national carbon market should cover petrochemicals, chemicals, construction materials,
steel, nonferrous metals, papermaking, power,
aviation and other high-emitting industries.
However, China’s carbon market uses a baseline
method to set the carbon quota, which is stricter
than the historical method and more demanding
in terms of technologies and data.
Given the progress of current pilot carbon
markets, when building the carbon market, China
should: improve the system of laws and regulations; coordinate allowance allocation; establish
a unified trading platform and pricing mechanism; and optimise the design of the national
carbon market to include guidance and benchmarks for its creation and improvement.
8.1 Summary
Carbon markets are a key instrument for delivering cost-effective mitigation. Mitigation of
carbon emissions is in the best interest of all
nations, because the cost is less than that of
unconstrained climate change. The cost of mitigation can be minimised via carbon markets,
especially if carbon markets are the primary
driver of mitigation in an economy, if the carbon
price is robust to shocks, and if the price provides
incentives for long-term investment.
However, competing objectives often require
trade-offs that are reflected in carbon policy.
Carbon markets, such as an emissions trading
system (ETS), can help deliver benefits that are
in line with other policy goals, for example
improved air quality or resource efficiency.
However, carbon markets can also adversely
affect some policy goals, like industrial competitiveness, or be undermined by shocks, such as
when a recession leads to an oversupply of permits that undermines the ability of the carbon
price to incentivise long-term investment. These
competing objectives are often legitimate, and
shocks should be expected. The challenge to
policymakers is, therefore, how to take these into
account when designing carbon markets, without
reducing the cost-effectiveness of mitigation.
We call carbon markets that accommodate
competing objectives and shocks while maintaining cost-effectiveness robust markets, while
those that fail to do so are fragile. Unfortunately,
most carbon markets in international experience
are fragile, having become stuck in a transition
trap of managing competing objectives and
shocks via countervailing policies that further
undermine the markets. As China’s ETS will
double the quantity of emissions covered by a
carbon price globally, when it is fully implemented, it is imperative that it is robust, or else
carbon markets may lose support, which would
seriously undermine decarbonisation efforts.
International experience suggests that carbon
markets can be robust if certain design features
are incorporated. Carbon markets have four sets
of design options. These are options around:
(i) the creation of carbon units, such as targets
27
Liu Junyan and Fu Jingyan, Lessons from Guangdong’s
Carbon Market Practice for Building a National Unified
Carbon Market, in Science and Technology Management
Research, 2016, 36 (13): pp. 237–242 and 254; Xue Rui,
China’s Carbon Market Response in the Context of the
Paris Agreement, in Ecological Economy, 2017, 33(02):
pp. 45–48 and 128; Peng Sizhen, Chang Ying and Zhang
Jiutian, Reflections on Major Problems in the Development of China’s Carbon Market, in China Population,
Resources and Environment, 2014, 24(09): pp. 1–5.
Special Report 4: China’s Energy System Revolution
519