1. A Grand Chinese Climate Scheme
Dr. Soren E. Lütken
UNEP/Risoe Center
26 May 2011, Beijing

2. Something happened in Copenhagen...
Top-down to bottom-up
pledges to the Accord
China minus 40-45% emission intensity
India minus 25% emission intensity
40 non-Annex I countries have submitted pledges – NAMAs – 18 with quantitative emission limitations
only 20% or 10Gt CO2 without limitation

3. Objective no. 1: Benefit Chinese economy
China Constructive...
Objective no. 1: Benefit Chinese economy
technology development and deployment
Objective no. 2: Benefit the Chinese
environment
China’s National Climate Change Programme 2007: “blaze a new path to industrialization” (Ma Kai)

4. So where do emissions fit in...?
A driver of new global technology markets
China wants to be a major supplier
A driver of international politics
China wants to play its role
A market in itself
China is already leading in CDM

6. Hence China in full control of the post-2012 carbon market
China’s CDM history
Cautious approach
only Chinese ownership of projects
regulation based on a Chinese version of the PDD
No CERs approved post 2012
Hence China in full control of the post-2012 carbon market

7. EU ETS the only game in town
Is there any market...?
EU ETS the only game in town
becoming restrictive
prioritizing LDCs
history of ‘raids’ against Chinese CERs and/or industrial gasses
Japan, US, Australia, New Zeeland, Canada....

8. Market estimates (2010) ...

9. The Chinese choice Surplus supply = falling prices option 1: sell at 0
option 2: not sell – also at 0
Option 1 helps Europe out, no gain for China
Option 2 brings several advantages

10. The climate scheme chapter 1
Precautionary measures come in handy:
Projects approved on the basis of a Chinese PDD
No CER approvals in Chinese LoAs post 2012
CDM projects must be in Chinese majority ownership – large majority in state ownership

11. The climate scheme chapter 2
Holding back the credits may jump-start a domestic Chinese carbon market
the carbon exchanges are ready
the 12th 5-year plan endorses it
It will help meeting the 40-45% intensity target
340 million CERs/y ~ 15% of the target
(but ~ 50% of a European 30% reduction)

12. The climate scheme chapter 3
Holding back the credits will create credit shortage in EU ETS
LDCs may deliver 50 million CERs/y
Increased domestic reductions necessary =
Increased investments in renewable energy technology

13. The climate scheme chapter 4
Holding back the credits will create a larger demand for renewable energy technology
from China...
Thus China can exchange a low cost European carbon market for a larger market for Chinese renewable energy technology

14. Any downsides?
No legal issues – all projects are Chinese owned and no contracts are violated
From one state pocket to another
The loss from CERs may partly be regained in the domestic market (if CER prices tumble anyway - at current prices about 250 million €/month)
China may just as well take the reputational bonus from withdrawing now than suffering from a European exclusion later

15. Chapter 5 with a twist
Now the CER price suddenly went up – thanks to Chinese withdrawal.
LDCs (Africa) benefit – thanks to China
100 Chinese projects in Africa by 2012 (Sharm-el-Sheikh 2009)
Chinese technology to Africa for CDM projects, regaining part of the lost CER revenue at much higher prices

16. And a happy ending too Chinese withdrawal from CDM
Leads to major additional emissions reductions
Helps China meet its own intensity target
Creates a market for Chinese technology
Accelerates investment and technological development in Europe, and
Increases project development in Africa

17. And even more intriguing...
China can make this happen all by itself
The world can only congratulate China stepping up to the plate
The global climate will be the true winner

18. You can imagine why this story line was not popular with the carbon traders...
So for tomorrow ...

19. When regulating for energy investments in a carbon constrained world: Choosing among stakeholders
Power utilities
Technology suppliers
Consumers
Carbon traders
Industry
International climate negotiation partners
International trading partners (e.g. oil and coal suppliers)
Forestry
Transporters
REVENUE PRESERVATION – the finance minister
And timing ...