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
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
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
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
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