China took a first step toward creating a domestic carbon trading system in September with the creation of a voluntary carbon standard. The standard is the work of the China Beijing Environmental Exchange (CBEEX) and its joint venture with Bluenext, Europe’s largest carbon credit exchange.
Further details on the design and methodologies used will be made public at the Copenhagen climate change summit in December.
"If you want people to have confidence in the mechanism you need precise rules, and these will be fixed by the government. After that you need technical implementation and that is where we are the experts," Serge Harry, CEO of Bluenext, told CHINA ECONOMIC REVIEW.
A voluntary cap-and-trade system can only achieve so much. Until Chinese firms are obliged by law to mitigate their emissions, demand will be weak and trading slow. In Europe, where there is a mandatory cap-and-trade scheme, carbon emissions reduction credits (CERs) sell for around €14 (US$21); in the US, where participation is voluntary, CERs cost less than US$3.
Nevertheless, China’s first step could kick-start and ultimately lucrative market. The country already supplies 58% of the CERs generated by clean energy projects set up under the clean development mechanism (CDM). The CERs are purchased by companies (mostly European) that are subject to carbon caps so they can offset their emissions. A Chinese version of CDM will start with agriculture and forestry projects, Harry said.
Several climate exchanges have sprung up throughout the country, and foreign players are keen to form partnerships with them. In addition to CBEEX’s agreement with Bluenext, the Chicago Climate Exchange is working with China National Petroleum Corp to develop an exchange in Tianjin.
At present the exchanges are just doing small, individual deals, but under a fully functioning system they might offer anything from carbon futures to exchange-traded funds.
Andrew Aldridge, director for Greater China at Climate Change Capital, which operates the world’s largest private carbon fund, warns that this is a long way off. "If China is going to continue to grow at 6-8%, any compulsory cap-and-trade would have a significant impact."