Development and the environment
China wants to clear the air with a market-based approach to pollution
DOING something about global climate change seems to be one of the very few things that the Chinese and American governments can agree upon. Earlier this year they announced a series of environmental measures which would, in practice, bring their carbon emissions per head to roughly the same level by 2030. Now, at a time of arguments over cyber-security, the South China Sea and much else, they have done it again, with President Xi Jinping due to announce, during a summit meeting with Barack Obama in Washington, that China plans to set up a national carbon-emissions trading market in 2017. When up and running, it should be the largest in the world.
China already has seven pilot emissions-trading schemes in individual cities and provinces. The government always said that, assuming they worked, it would create a national market, too. The new announcement merely confirms that and provides a date. Such "cap-and-trade" schemes set a price on carbon. Governments or local regulators set an overall limit on carbon emissions (the cap). Within that cap, companies are given allowances to produce carbon, or they buy them. They then trade the allowances. If pollution is too high, companies must buy more allowances, pushing up the carbon price. In practice, the system depends heavily upon getting the details right: if the allowances are too generous, the market price of carbon becomes almost meaningless, as happened to the European Union’s emissions-trading scheme in early 2013.
It is too soon to draw conclusions about the results of China’s pilot trading schemes. The first began only in mid-2013, and the most recent only last year. There are signs that some of the pilot schemes suffered from excess allocations. Shanghai’s carbon market even dried up completely at one point. And as Thomson Reuters Point Carbon, a firm of analysts, has...