Speaker Prof. Yifei Zhang

China’s Carbon Market: Accelerating a Green Economy in China and Reducing Global Emissions Yifei Zhang, Jonathan Harris, and Jin Li September 2018 Global Development And Environment Institute Tufts University 2

Notice on Pilot Work on Carbon Emissions Trading 1.1 The Progress and Performance of the Carbon Emission Trading System Pilot Notice on Pilot Work on Carbon Emissions Trading issued Carbon trading markets in Beijing, Shanghai, Tianjin, Chongqing, Hubei, Guangdong and Shenzhen were all opened A total of 197 million tons of carbon dioxide, equivalent with a total value of 4.5 billion yuan （≈＄666.5 million ） 2011 2014 Sept, 2017

1.1 The Progress and Performance of the Carbon Emission Trading System Pilot Figure 1: Number of emission control enterprises Source: Carbon trading website

1.1 The Progress and Performance of the Carbon Emission Trading System Pilot May reduces the incentive of some enterprises for emissions reductions Industry Benchmark Historical Intensity Method Three primary methods used to allocate Currently, most carbon emission quotas in China are allocated for free by using the historical emission method Historical Emission Method

Historical Intensity Method Historical Emission Method Table 1: Allocation of quotas in various industries in the pilot areas Method Shanghai Guangdong Hubei Fujian Industry Benchmark electricity generation, power grid and heat supply and other electric heating industries cement, electricity, steel cement, electrical power, thermal power, the thermoelectric coupling power generation, cement, electrolytic aluminum, flat glass Historical Intensity Method aviation, port, water transportation, tap water production and other industries comprehensive utilization of power industry resources generating units and heating boilers Others power grid, copper smelting, steel, chemicals, crude oil processing Historical Emission Method product complex enterprises Comprehensive utilization of resources in the power industry with generating units and mining industry, glass, building materials, ceramics ceramics for daily use Source: Carbon Allowance Allocation Policy issued by the pilot areas

1.1 The Progress and Performance of the Carbon Emission Trading System Pilot Figure 2: Carbon prices in emission trading market pilot Figure 3: Volume of carbon trading (RMB) Source: http://k.tanjiaoyi.com/ Source: http://k.tanjiaoyi.com/

1.2 Carbon Trading Pilot Assessment Beijing Tianjin (1) In the years from 2013 to 2015, Beijing ETS achieved respectively 0.41 million tons, 1.55 million tons and 2.9 million tons of CO2 emission reductions, accounting for 0.60%, 2.25% and 4.19% of the baseline CO2 emissions respectively. (2) The total reduction was 4.87 million tons in three years (1) The pilot carbon trading project in Tianjin would reduce carbon emissions by 0.62% (1.03 million tons) started from 2014. (2) Several problems A. the initial pricing is too high B. incomplete quota policy creates a large trading risk C. Mostly are state-owned enterprises which had less incetive D. Marginal reduction costs are lower than the high carbon prices In terms of overall operating efficiency, Yongwei Cheng (2017) used the DEA model to evaluate the operating efficiency of China's pilot carbon market. The results show that The carbon price level in Shenzhen is the highest and the most stable, while Guangdong and Hubei have the fastest growth in trading activity.

1.2 Carbon Trading Pilot Assessment CARBON PRICE LEVEL The carbon price level in Shenzhen is the highest and the most stable, while Guangdong and Hubei have the fastest growth in trading activity DEA-EFFCIENT The carbon markets in Shenzhen, Hubei and Tianjin are DEA-efficient with the market efficiency of Shanghai, Beijing, Guangdong and Chongqing following in descending order. DEA MODEL

2.1 China’s Contribution to Global Carbon Emission Reduction China's carbon market makes global carbon emssion trading more optimistic The Kyoto Protocol initiated the concept of Emission Trading Scheme (ETS) The European Union formally implemented an ETS in 2005 California, Quebec, Switzerland, New Zealand and South Korea have also initiated carbon-trading schemes China's carbon market expected trading volume will still be larger than the existing carbon market in the EU

Emission Trading Systems 2.2 Carbon Trading: Deepening China's Supply-side Structural Reform Emission Trading Systems (ETS) Giving enterprises greater autonomy to choose between reducing their emissions or purchasing permits from participants involved in emissions reduction. Expanded from the initially covered enterprises to other firms, non-governmental organizations, and financial institutions.

2.3 Carbon Market: Extending the Process of Market Allocation of Ecological Factors The low or even zero price of ecological functions and services in the economic system are the fundamental cause of the imbalance between ecological conservation and economic development. 1.A significant economic policy tool for China to fulfill its responsibilities in responding to climate change 2.An important step towards China fully implementing market mechanisms in ecological environmental management. A national carbon market has been fully launched in China after the 19th Party Congress of China and the Bonn Climate Summit (COP23)

2.4 Promoting Targeted Poverty Alleviation and Balanced Development The 19th session of the national congress of the Communist Party of China (CPC) stressed ‘winning the fight against poverty’ as an important goal to improve livelihoods. 01 Forest Take advantage of the trading system to develop low-carbon and green agriculture farming patterns 02

3. Suggestions on Improving the Performance of China's Carbon Market ③ Differences in the costs of carbon trading ① The world's largest carbon trading market (1) Production heterogeneity of similar power generation enterprises (2) Heterogeneity of various enterprises’ energy structures (3) Emission reduction costs differ in different industries (4) Differences in the environmental costs of industrial emissions (5) Cost variability in reducing emissions between regions Design the carbon trading market in terms of its economic characteristics, industrial development and regional differences ② Seven pilot projects trading volume is still small (1) Divided areas (2)Small generator exited the market (3)Implementation in pilot areas has led to insufficient liquidity of carbon markets ④ Differing regional emission costs in the electric power industry. (1) Promoted further (3) Align with mature markets (2) Integrated overall markets (4) Response to The Belt and Road Initiative