Abstract
As China has become the largest greenhouse gas (GHG) emitter in terms of total annual emissions, to promote GHG emissions reduction in China turns out to be crucial to the success of the global efforts to address climate change. This paper explores the development of the Chinese Domestic Voluntary Carbon Market (DVCM) in order to understand how carbon trading institutions have emerged and developed in China. To do this, it traces and analyzes the roles of the Chinese government and other key actors. Through process tracing and literature review, it argues that the pre-legislation and territorially fragmented development pattern of the Chinese DVCM has resulted from the activities of Chinese local governments and non-state actors under the policy experimentation approach adopted by the Chinese central government. It concludes with brief comments on the Chinese policy experimentation approach, and suggests that some measures can be taken to promote voluntary emissions reduction and policy learning.
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Notes
See World Resource Institute: China’s State Council Unveils 40-45 % Carbon Intensity Target. http://www.wri.org/stories/2009/11/chinas-state-council-unveils-40-45-carbon-intensity-target .
A VER is one metric ton of CO2 equivalent (tCO2e).
The CDM is a market established under the global climate regime, in which buyers from developed countries can buy CERs from developing countries to fulfill their mitigation obligations. See http://cdm.unfccc.int/ .
From 2006 to 2010, the highest total volume of annual VER trading was 131 Million tCO2e (MtCO2e) in 2010, while in the same year 5529 MtCO2e of emissions reduction was traded through the European Union Emissions Trading System (EU-ETS), the EU’s official cap-and-trade mechanism.
The additionality of mitigation activities requires that the emissions reduction effect and relevant investment should be “additional to any that would otherwise occur”. See Article 6, 11, and 12 of the Kyoto Protocol.
“Pre-CDM” is a jargon term used by market insiders to refer to those CDM projects which are in a development process, but have not been registered with the United Nations Executive Board.
A report on VER transactions in China issued by Beijing Environmental Exchange records 41 transactions involving institutional buyers by 2010. 38 transactions were brokered by the three exchanges in Beijing, Tianjin, and Shanghai, 1 by an NGO, and two by carbon assets management companies. See http://www.cbeex.com.cn/images/2010top.pdf .
There is no precise definition of what “state-controlled” or “state-owned” means. In this paper state-controlled exchanges would refer to those which are controlled or owned by Chinese governmental agencies, public service units, state-owned enterprises (SOEs), or companies which are controlled by state-owned capital. Holz and Lin divide Chinese “state-controlled” companies into two types: 1) absolute state control, which means that more than 50 % capital is state-owned; 2) relative state control, which implies that despite holding less than 50 % of the total capital stock the state either remains the largest shareholder or controls the company by agreement. See [24], pp.303-316.
There are two conflicting views on whether policy experimentation or gradualism has been the reason why China has achieved fast economic growth. The other view is that that the pre-reform economic structure and the market-oriented reform have led to the economic development in China. For a detailed comparison of the two views, see [61].
Controversies exist around whether the achievements of the economic reform in China should be ascribed to decentralization. See [5]. Despite the controversies, decentralization does not substantially undermine the importance of government authority in China’s economic reform.
http://www.pandastandard.org/ . The Panda Standard was co-developed by CBEEX, China Forestry Exchange, Bluenext—a French exchange, and Winrock International—an international environmental NGO.
http://www.chinalowcarbonindex.org/ . CLCI was co-developed by CBEEX, China Securities Index, and VantagePoint Partners.
EXPO Voluntary Emission Reduction: http://www.2010expover.org/ .
There are two initiatives focusing on energy-efficiency in TCX: the “Tianjin Energy Efficiency Market” (TEEM) and the EMC (energy management contracting) Comprehensive Service. TEEM is a mandatory trading mechanism for civilian buildings energy-efficiency in Tianjin. The regulations for trading in the Tianjin civilian buildings energy-efficiency market came into force on September 2010. Its participants are required to register and trade through TCX. The EMC (energy management contracting) Comprehensive Service provided by TCX enables companies to match supply and demand for energy-saving services and technologies.
The newspaper Economic Information, managed by the state-owned Xinhua News Agency reports that Dalian Environmental Exchange and Single County Carbon Exchange were established by private companies. The two exchanges in Wuhan and Jiaxing were established in 2006 and 2007 respectively, but carbon trading was explicitly included in their business until after 2008.
OVUPRE brokered a domestic transaction of 20,000 tons of VERs in September 2011. CERX brokered a transaction of 700 tons of VERs in May 2011. The volume of the VERs traded through CERX’s online trading platform was around 30,000 tons.
Supra note 11.
The Gold Standard is a global VER trading standard: http://www.cdmgoldstandard.org/ . Inner Mongolia Mengniu Diary Group, the second largest domestic diary corporation, has become the first Chinese participant in the “Climate Savers” project.
The CCB Standards: http://www.climate-standards.org/standards/index.html . In 2008 the Forbidden City Concert Hall bought 99 tons of VERs generated under the CCB Standards. The price is $12 per ton, which is much higher than the prices of the VERs traded through commercial exchanges, which are around $5 per ton.
Hamilton et al.’s [16] report notes that TCX and CBEEX each accounts for less than 1 % of the 52.3 Mt CO2e that were not trade through the CCX in 2009. The majority of the VER buyers were from developed countries. The contribution of other brokers and facilitators in China was not discussed in their market survey. See [17]. Although some carbon assets management companies have traded a relatively large volume of VERs in China, their customers were probably non-Chinese. For instance, in a transaction of 0.22 Mt CO2e facilitated by Hengyuan carbon assets management company in 2009 in Guizhou Province, the buyer was a Japanese company. CBEEX’s report only includes one transaction of this type, the volume of which is 40,000 tons. See supra note 7.
Source: the author’s communication with a manager at SouthPole Carbon.
People’s Daily: Conditions for China to launch emission rights trading scheme premature: official. http://english.people.com.cn/90001/90778/90862/7154903.html.
See supra note 7.
See supra note 14.
An example which relates to energy-saving is that in late 2010 some provinces and cities resorted to power-rationing for achieving energy-saving targets. Foxbusiness: China NDRC: Won't Ration Power to Achieve Energy Intensity Target. http://www.foxbusiness.com/industries/2011/03/06/china-ndrc-wont-ration-power-achieve-energy-intensity-target/ . Though being not in a policy experimentation scenario, the power-rationing in some industrial sectors shows that local governments can be motivated to impose undesirable measures when there is a tension between the targets of economic development and environmental protection. As traced in Part 4, the Chinese financial industry provides active support for domestic carbon trading experiments because of the prospect of profiting from carbon finance. However, it has been reported that due to concerns about the economic burden that can be incurred by emissions reduction, the Chinese power generation industry tends to oppose sector-specific cap-and-trade experiments, which are suggested to cover electricity generation companies.
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Huang, Y. Policy Experimentation and the Emergence of Domestic Voluntary Carbon Trading in China. East Asia 30, 67–89 (2013). https://doi.org/10.1007/s12140-013-9188-5
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DOI: https://doi.org/10.1007/s12140-013-9188-5