China's short march to carbon pricing

China’s expert community expects that the country will have a national emissions trading scheme and possibly a carbon tax by the end of the decade, and that the pilot schemes will all go ahead in the near future.

Environment Minister Greg Hunt recently said “… the Chinese and the Americans who are the central part of any agreement both have a very strong view. The most heartening development in the past two years has been China's growing commitment to action from its paramount leadership.”

He is right. And the difference is that while the United States rely on direct regulatory intervention in gas markets and power generation, China is poised to introduce carbon pricing.

In the past months we ran the inaugural China Carbon Pricing Survey. We surveyed China-based carbon market experts from the service sector, academia and government think-tanks. While by nature such a survey cannot lay claim to be representative, we think it is a good reflection of expert views on carbon pricing for the world’s largest emitter.

We found high confidence that China will have national carbon pricing mechanisms in place by 2020. More than 80 per cent believe a national emissions trading scheme will exist by 2020, and over half expect China to also have a carbon tax in place by that time. The co-existence of emissions trading and carbon tax is indeed on the policy radar: a carbon tax is being investigated along with other pollution taxes, separately from the plans for national emissions trading.

The large majority also expects that China’s seven pilot emissions trading schemes – home to over 250 million people and responsible for around a fifth of China’s energy use – will all be running by 2015. The Shenzhen scheme has already been launched. Our survey suggests that Shanghai, Beijing and Guangdong are not too far away from starting.

Expected prices

The experts’ average price expectation for the pilot schemes rises from 30 yuan ($5) per tonne of carbon dioxide in 2014 to 50 yuan ($8.50) in 2018.

The average expected price for a national ETS rises from about 30 yuan in 2018 to about 50 yuan in 2020 and 70 yuan ($12) in 2025. The average expected level for a carbon tax is much lower, about 20 yuan ($3.50) at 2020. (These national level averages include 'zero' values for respondents who expect no scheme to be in place). Unsurprisingly, there is great variance in the responses, indicating uncertainty.

The combined expected future carbon price, as an investor might take it into account, is around 70 yuan – $12 – at 2020.

Carbon pricing is, of course, only a part of the broader policy portfolio. China already has an array of policies in place, from mandated energy efficiency standards to support for renewable energy industries. These are unlikely to be ditched anytime soon. And so the combined policy effort is greater than the expected carbon prices. The same is true for the European Union and California: the prices in the carbon trading schemes are only partially an indication of their mitigation effort.

China in the overtaking lane

But putting a price tag on emissions is the best choice for long-term effective and efficient policy to cut emissions. The IMF and OECD last week issued forceful reminders of this. The OECD reckons that without an explicit price on emissions, governments are just “pushing at a piece of string” on climate policy. The IMF emphasised that carbon taxes and emissions trading schemes can raise much-needed revenue for governments.

It is ironic that China looks set to introduce comprehensive carbon pricing when the US, the home of market mechanism for pollution control, is getting nowhere with federal emissions trading – the Obama administration instead relying on emissions standards for power stations and cars and regulatory approaches to keep gas cheap. Australia, meanwhile, is poised to abolish its carbon pricing scheme.

For China this is part of a broader push for market reform. It could even help accelerate market reform in the energy sector, which is still dominated by regulation and planning.

One imagines that if China succeeds, there will be some satisfaction in Beijing at overtaking the West in an area that not so long ago was perceived as the exclusive domain of developed countries. Look back four years to pre-Copenhagen: there was hardly anyone who thought that carbon pricing was in the making in China.

Not a walk in the park

China’s policymakers have a big job on their hands, designing and implementing emissions trading. The pilots are behind their original, ambitious schedule. Data collection, scheme design and presumably stakeholder negotiations have taken longer than thought at the outset.

Designing and implementing a national scheme will not be easy. The Chinese government regards the pilots as experiments from which to learn for a national scheme. The development work for a national scheme is starting, with the visible components including an eight million dollar program to support China’s emissions trading design, under the Partnership for Readiness program.

The technical complexities are enormous, and competing stakeholder interests will need to be balanced – ideally without compromising the scheme’s effectiveness. If it works out then China will be sending a powerful signal to the world.  

The authors jointly conducted the China Carbon Pricing Survey 2013.

Frank Jotzo is director of the Centre for Climate Change Economics & Policy at the Australian National University. Dimitri de Boer is vice chairman of China Carbon Forum, a Beijing-based non-profit organisation.

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China will triple its electricity generation by 2030 according to EIA. Coal consumption will also near triple and will generate 75% of its electricity. Solar 0%.

What a clear example of the stupidity of the 50 years of anti-nuke protesting. It’s caused nuclear power to be far more expensive than it should be and greatly retarded its development and, therefore, its share of world electricity generation. Imagine where we could be now if development had not been retarded.

We can thank the ‘progressives’ (mostly) for this – i.e. the same irrational, gullible people who are also the CAGW doomsayers (mostly).

Professor Bernard Cohen – “COSTS OF NUCLEAR POWER PLANTS — WHAT WENT WRONG?”
http://www.phyast.pitt.edu/~blc/book/chapter9.html

This article presents an interesting contrast to the Coalition's obsession with destroying the work done in Australia to establish carbon pricing (see Elisa deWit's story today in Climate Spectator).

It is pretty depressing to think that Australia is heading into denial, while China is being constructive.

As for Peter Lang's comment, China is capping coal use within the next year or so. Surely it is best to start with a factual basis if you want to make a comment?

>"China is capping coal use within the next year or so."

Gee you must be gullible to believe that. Where did you read it, on 'Climate Spectator'?

The cap comes from the Chinese Government. Here is a good report of what they are saying from the Huffington Post http://www.huffingtonpost.com/barbara-a-finamore/a-five-part-strategy-to...
Only the major parties in Australia are hoping to project the line out to doubling (not tripling) coal consumption. It isn't going to happen and that is already becoming clear. The risk for Australia is that we have no plan B for when coal consumption is capped, even though this is imminent.

So you'd trust Huffington Post over EIA, eh? I'd suggest that is an excellent example of motivated belief. But anyway, to believe China is suddenly going to cap its coal given there is no viable alternative, shows how gullible you and those who readily believe such nonsense are. Per capita energy consumption has been increasing for 200,000 years. To argue it is going to stop now, is the height or irrational, motivated thinking. And to repeat, there is no viable alternative. And the reason: the stupidity of the 'progressives' and their anti-nuke protesting for the past 50 years. Well done! (sarc off).

Peter,
I trust it when the guys in China who hold the levers say what they plan to do. So far they have dramatically outperformed in the renewable energy space. Your assertion that they have 0% solar is a case in point. Expect 90-100GW solar by 2020 and 200GW wind.

They also have a populace who are literally choking in pollution (think London when it hit a crisis at the start of the industrial revolution).

Everything points to the need to act and the thing about a command and control economy is that they can and will do it.
We don't have to wait long for this, and I'm certain that coal expansion is pretty much over. That's why coal is in trouble. In most parts of the world you can't finance a new coal plant anymore (including Australia) as it will be a stranded asset very quickly.

It would be helpful if you could be more sanguine about looking at what is actually going on rather than what you think should be going on.

Abbott was told by the Chinese that he must adopt a new approach to climate change.

The Chinese are adopting an ETS. They do not want their businesses to be at a disadvantage with their competitors and are insisting Abbott fall in to line.

Paul and Keith

Ever considered that China could if they wanted to reduce emissions virtually overnight as they do not have to worry about elections. Also by far most emissions are caused by Government owned power generators and industry. As a first step they could introduce measures to clean up emissions by using existing technology to filter emissions. I remember not long ago in relative terms that Sydney had a brown smog over the city and we had pollution level warnings every day. Both have gone. Guess how? Simply by regulating emissions from motor vehicles etc. China is not a market bases economy so any suggesting that "proposed" ETS schemes will work is nonsense. I hope you are not suggesting that the Chinese Government by taxing the pollution generated by government owned enterprises would somehow result in them cleaning up existing pollution. If the government wanted to do this it would just do it. Bit like saying that the NSW Government will close down its coal power station because the Federal Government put a tax (or ETS ..same thing) on emissions from these power stations. How about if regulations on emissions from power stations were introduced like was done with motor vehicles. China could do this overnight if it wanted to..not pretend that some future ETS will make this happen

All supporters of an ETS should have a look at Europe where such a scheme has been in operation for 8 years. Funny that all we hear is that "everyone" agrees that an ETS is the only viable way to control emissions, no factual evidence is presented by the so called experts. Also Germany is building 20 new coal power stations as we speak. Is this an example of the "success" of the EU ETS?

Paul and Keith

Ever considered that China could if they wanted to reduce emissions virtually overnight as they do not have to worry about elections. Also by far most emissions are caused by Government owned power generators and industry. As a first step they could introduce measures to clean up emissions by using existing technology to filter emissions. I remember not long ago in relative terms that Sydney had a brown smog over the city and we had pollution level warnings every day. Both have gone. Guess how? Simply by regulating emissions from motor vehicles etc. China is not a market bases economy so any suggesting that "proposed" ETS schemes will work is nonsense. I hope you are not suggesting that the Chinese Government by taxing the pollution generated by government owned enterprises would somehow result in them cleaning up existing pollution. If the government wanted to do this it would just do it. Bit like saying that the NSW Government will close down its coal power station because the Federal Government put a tax (or ETS ..same thing) on emissions from these power stations. How about if regulations on emissions from power stations were introduced like was done with motor vehicles. China could do this overnight if it wanted to..not pretend that some future ETS will make this happen

All supporters of an ETS should have a look at Europe where such a scheme has been in operation for 8 years. Funny that all we hear is that "everyone" agrees that an ETS is the only viable way to control emissions, no factual evidence is presented by the so called experts. Also Germany is building 20 new coal power stations as we speak. Is this an example of the "success" of the EU ETS?