Will Chinese emissions trading schemes gather momentum?

China and India won’t agree to reduce their total emissions, but both countries are showing some interest in trading schemes to facilitate their ‘curbing’ targets. Last month we looked at India’s plans to introduce tradeable efficiency certificates which is touted as potentially being a $16bn market by 2015.

A different sort of exercise is under way in China. Like India, China will not commit to reducing its greenhouse gas emissions. Instead it is reducing its emissions per unit of GDP by 45 per cent of 2005 levels, by 2020. A pilot scheme launched in Tianjin allows certain companies to earn and buy credits, based on their performance relative to those intensity targets. Its first three sales – albeit a tiny amount – 500,000 yuan or $73,250 – were bought by Citigroup Global Markets and Gazprom Marketing & Trading.

How does it work? From Reuters:

“The traded unit is carbon emission credits, but it comes from the energy intensity target,” clean energy firm Arreon, which has helped define the scheme’s structure, told Reuters in a written answer to questions about how it works.

“Participating entities out-performance of the energy intensity cap is ‘energy saving’, which can be converted to carbon reduction by applying a factor equivalent to the carbon intensity of the energy source.”

This year the scheme, run by the Tianjin Carbon Exchange, will cover only some heat supply firms and hospitals, trading under targets set as part of an overall energy intensity goal handed down to Tianjin by the central government.

As the Wall Street Journal reports, other Chinese cities have launched carbon trading schemes; but getting big international companies to buy-in appears to be a first. Tianjin also plans to expand the scheme city-wide next year, according to Arreon’s chief executive, John Shi.

Reuters reports that it could be the first step towards a national scheme. But the Journal notes that other attempts at emissions trading schemes in China appear to have had mixed results; with direct regulation sometimes having more effect, in cases such as coal-plant scrubbers for sulphur dioxide.

Despite this, Tianjin has been pushing hard for emissions trading, as part of its plans to become a low-carbon hub. It had plans to launch a greenhouse emissions trading scheme back in May 2008, according to this Forbes report, but the scheme was postponed over disagreement about an American company, Chicago Climate Exchange, becoming a partner in the exchange.

China Daily reported late last year quoted Gao Zhengqi, general manager of the Tianjin Climate Exchange, saying that ‘real emissions trading businesses’ would commence in 2010.

Meanwhile as some of the early experience with efficiency certificate trading schemes show, just because a scheme is tradeable, doesn’t mean participants will take up the opportunity.

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