In November 2014, the United States and China issued a joint announcement recognizing that each nation had a "critical role to play" in combating global climate change—and announcing measures to be taken by each nation in that regard.
Following recommendations made in August 2014 by the Energy Research Institute (a think tank led by the National Development Resource Council ("NDRC")), China committed to "peaking" its carbon emissions by 2030 and to use its best efforts to peak before this date. China also pledged to increase the share of non-fossil fuels to 20 percent of primary energy consumption by 2030. These goals will be incorporated into China's next three "five year plans," with the current plan due to expire in 2015.
A core component of China's climate change strategy involves the establishment of a national carbon market by 2016, which will also be incorporated into the next "five year plan" and is expected to cover 40 percent of the nation's economy. Further emitting sectors will be brought within the scheme after 2020, and links to international markets may be sought within the decade.
Seven regional pilot schemes are now up and running, covering the cities of Beijing, Tianjin, Shanghai, and Shenzhen, as well as Chongqing, Guangdong, and Hubei provinces. Twenty-four million tons of carbon dioxide equivalent were traded under these schemes in 2014, and this number is predicted to rise to 40 million tons in the coming year.
The NDRC estimates that the national scheme will regulate between three billion and four billion tons of carbon dioxide and will be worth between 60 billion and 400 billion yuan (or between US$10 billion and US$64 billion) by 2020. This would create a market roughly twice the size of that in place in the European Union, currently the largest in the world.
Under outline rules released in December 2014, the State Council will establish a total emissions cap to be divided between the provinces and regions. Carbon permits will be allocated free of charge at first, with the scheme transitioning to paid allocations when appropriate. While certain provinces will be ready to join the scheme in 2016, others will be given more time to prepare.
The pilot schemes have seen a relatively high level of compliance by emitters. However, concerns have been raised in the past about a lack of transparency as to emissions levels on the part of companies and local governments. A further challenge is the existence of significant variations between the schemes, including as to allocation methods, monitoring, reporting, and verification, and whether banking or borrowing is allowed.
With the advent of a national market, China will become the focal point of carbon trading in the Asia-Pacific, overtaking South Korea, which launched its mandatory carbon trading scheme in January 2015 (currently, the second largest in the world). New Zealand and Kazakhstan also have emissions trading schemes in place, while similar schemes are being developed in Thailand, Vietnam, and Indonesia.
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