China’s provinces learn how to reduce emissions with trading

As many U.S. states start to think about ways to reduce greenhouse gas emissions under the proposed Clean Power Plan, it’s eye-opening to see how Chinese provinces are taking many of the same first steps.

I recently joined state officials from Arizona and Michigan and a Georgetown University professor on a study tour of China’s climate policy and low-carbon technology use at the provincial level. In each city we visited — Beijing, Shanghai, Chengdu in Sichuan province, and Changsha in Hunan province — our meetings with government officials, academics, and nongovernmental organizations had a common theme: Environmental issues are a serious challenge for China and greenhouse gases should be addressed along with other types of pollution.

It was very encouraging to hear national, provincial, and municipal leaders all agree that something has to be done to reduce China’s emissions. But they also agreed the country faces significant challenges in reaching its goal of peaking emissions no later than 2030.

As in California and nine Northeast states, market-based mechanisms are being used to reduce greenhouse gas emissions in China. The central government’s 12th Five-Year Plan called for emission trading programs. Since 2013, seven carbon trading pilots have been established, while other jurisdictions are creating voluntary programs or scaling up their efforts in expectation of the launch of a nationwide emissions-reduction program in 2016.

Each pilot has different features and levels of ambition, but together they cover jurisdictions representing 25 percent of China’s GDP and make up the second largest emissions trading system in the world after Europe’s. Our study group got to see the diversity of approaches up close.

In Beijing and Shanghai, two of the wealthiest cities in China, carbon markets have been active since 2013. Unlike U.S. goals of reducing emissions in absolute terms, their pilots are designed to reduce emissions intensity. Beijing’s program covers 40 percent of emissions in the city, while Shanghai’s covers 57 percent. Both cities allow offsets, but Beijing requires half of all offsets be located in the city itself.

Sichuan and Hunan provinces are not part of the pilot programs. However, these provinces are preparing for the start of national carbon markets in 2016. Sichuan’s water rights exchange is providing some relevant experience for the establishment of a carbon market. Sichuan also is trying other paths to reduce greenhouse gas emissions, including incentives for alternative fuel vehicles and increased use of hydroelectric power. Additionally, the province sits atop the Sichuan Basin natural gas deposit, and provincial leaders hope hydraulic fracturing will eventually produce enough natural gas for power generation and transportation. We also visited Sichuan University, where researchers are experimenting on ways to use carbon dioxide to produce electricity.

In Hunan, experts told us of the rush to identify emission sources and improve the frameworks for emission reporting. In 2014, 800 enterprises reported emissions from sources that emit more than 13,000 tons of carbon dioxide per year. Experts from the Hunan Innovative Low-Carbon Center, a government-approved non-profit, verified the reported numbers and found that larger businesses were generally accurate, but smaller enterprises did not yet have the energy management systems to provide accurate statistics.

As the pilot and reporting programs evolve into a permanent carbon market in China in 2016, the provinces will have to make sure they run properly and with accurate reporting systems. The same holds true for U.S. states also making the leap to carbon markets, which made the lessons we learned on this study tour so valuable.