Chinas Carbon Market: and Theyre Off in South China

China’s Carbon Market: and They’re Off in South China

British Embassy Beijing

June 2013

Summary

On 18 June China’s first regional emissions trading scheme (ETS) launched in Shenzhen. First emission allowances traded at a price similar to Europe. Rear Admiral Morisetti’s visit to Shenzhen in late June provides an opportunity to demonstrate continued UK engagement on the low carbon agenda in this pioneering Chinese city.

Detail

Located adjacent to Hong Kong, Shenzhen is at the heart of the Pearl River Delta. As one of China’s Special Economic Zones (SEZs), it has long operated as a testing ground for China’s policy of economic reform and opening up.  In 2011 the city was designated one of China’s national low carbon pilots.  It was subsequently included in a list of 7 pilot cities and provinces directed by the powerful National Development and Reform Commission (NDRC) to develop local emissions trading schemes. The city itself is China’s fourth largest with a population well over 10 million and a GDP considerably bigger than Vietnam’s.

 

Shenzhen, ahead of the other pilots, launched their scheme on 18 June. The ETS covers 635 industrial companies and 200 buildings with a cap of 10 billion tonnes of CO2 from 2013 – 2015. This represents 38% of Shenzhen’s total emissions.  While the scheme is broadly modelled on the EU ETS, it includes some innovative allocation methodology which has impressed the NDRC.  At the launch ceremony, Shenzhen Energy sold 21,112 allowances at a price of RMB 30 per tonne (approx €4 per tonne) to 2 companies and 5 private investors (which do not have compliance obligations). The Shenzhen Emissions Exchange, the designated trading platform, intends to develop a range of financial products to encourage more trading.

 

Hong Kong Environment Under Secretary, Christine Loh, spoke at the launch. She highlighted the importance of Hong Kong – Shenzhen collaboration on low carbon development saying that both cities face similar challenges on climate change and environmental issues.  Loh added that she would encourage Hong Kong companies to participate in the scheme. This is also in line with China’s 12th Five Year Plan to develop a ‘low carbon living zone’ in the Pearl River Delta region covering Guangdong, Hong Kong and Macau.

In parallel with the ETS launch, Shenzhen hosted a Low Carbon Summit covering urban-planning, low carbon industry and green technology and services.  Its centrepiece is a pioneering Low Carbon Zone.  The zone, located in Longgang district, covers 53 km² and currently has more than 30 green tech companies.  Shenzhen plans to establish a pilot area (1 km²) by 2015 which will be comprised solely of low carbon/green buildings, new energy vehicles and with its entire solid and water waste processed and managed. They hope that the zone will evolve to cover an area of 5 km² in the next phase.

Comment

Setting China’s first absolute emissions cap (a growing cap initially) and launching its trading activities is a significant step. It sets the example for other ETS pilots and establishes the foundations for a national trading scheme. But, it is too early to tell how effective the market will be or the impact of the carbon price – which is at a similar level to the EU ETS. Most commentators agree that Shenzhen has been able to develop ahead of the other ETS pilots because of top-level political buy-in, consensus among the key stakeholders and the autonomy enjoyed by the SEZs.  Shenzhen’s Government also recognises the need to develop its low carbon economy.

The involvement of Hong Kong SAR Government in the ETS launch is also a positive sign. Given Hong Kong’s strength in the financial sector, there is though clearly potential to play a bigger role through engaging on China’s ETS pilots.

The UK has been closely involved in the development of ETS pilots through the Prosperity Fund.  We will continue to track the development of Shenzhen’s ETS as well as the other pilots.  Rear Admiral Morisetti’s (Special representative for Climate Change) visit to Shenzhen on 25 June will provide an excellent opportunity to demonstrate our continued UK engagement and discuss where there may be opportunities for UK companies.

Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.

Countries: China and Hong Kong
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