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Business of climate change
Business

Climate change: China’s emissions market fails to live up to hopes as path finder towards cutting carbon

  • Trading is far too light given the volume of China’s emissions, and the market has so far failed to impose a realistic price on carbon pollution
  • Experts predict delays expanding the market from power generation to other sectors, and say the market must upgrade its mechanisms and data gathering

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Illustration by Perry Tse
Yujie Xue
On July 16 last year, hundreds of industry and government figures in Beijing, Shanghai, and Wuhan took part in a live-streamed ceremony to herald the launch of China’s national carbon trading market.
At the moment of its launch China’s emissions trading scheme (ETS) surpassed the European Union’s ETS to become the world’s biggest carbon market, covering one-seventh of the world’s greenhouse gas emissions. Speakers that day proclaimed the scheme as a crucial part of Beijing’s decarbonisation project, which aims to see the world’s largest carbon emitter reach peak emissions before 2030 and achieve carbon neutrality by 2060.

However, one year later the first anniversary of the national ETS passed without fanfare. The Shanghai Environment and Energy Exchange, which operates the national carbon market, cited China’s Covid-19 restrictions as the main reason for the lack of a celebration.

But in truth, there is not much to celebrate – yet.

A coal-burning power plant behind a factory in the city of Baotou, in China’s Inner Mongolia Autonomous Region, pictured on October 31, 2010. Photo: Reuters
A coal-burning power plant behind a factory in the city of Baotou, in China’s Inner Mongolia Autonomous Region, pictured on October 31, 2010. Photo: Reuters

The nascent market recorded a total trading volume of 8.49 billion yuan (US$1.25 billion) in its first year of operation, a fraction of the US$36.7 billion recorded by the EU’s ETS last year. Moreover, the market has so far failed to impose a realistic price on carbon emissions. The average price for the right to emit a tonne of carbon dioxide (or the equivalent amount in other greenhouse gases) was US$6.48 in the debut trading year, less than one-twelfth as much as the US$80 price tag in the EU and UK markets last year.

The trading volume is far too small considering the large volume of emissions covered by China’s ETS, and the low trading price also has climate experts concerned about the ability of the national ETS to support China’s decarbonisation efforts.

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