by Peter Castellas, Chief Executive Officer of the Carbon Market Institute.
The impending start of the Chinese Emissions Trading Scheme (ETS) will transform the dynamics of the international climate change battle.
The Chinese national carbon market will officially launch in a few months’ time. It will be a game changing event, bringing the economic centre of gravity of the low carbon transition to our region.
Building on the seven cap-and-trade pilot projects in two provinces and five cities that have been running since 2013, the national Chinese ETS could cover emissions ten times the total annual volume of Australian greenhouse gases.
As China is Australia’s biggest trading partner and many of our emissions intensive exports sit directly in the supply chain of facilities that will be covered under the Chinese carbon price, it is in the interests of Australian business and government to be aware and informed of the potential impact of the Chinese market juggernaut.
I met recently with a senior official from the Chinese National Development and Reform Commission (NDRC) an agency that has administrative control over Chinese climate policy and he informed me the launch is likely to happen prior to the next Conference of Parties (COP23) in Bonn in November.
It is expected that the program will cover eight industries, including power generation, petrochemicals, aviation, paper making, construction materials, non-ferrous metals and steel. However, the design details will ultimately determine the effectiveness of the national ETS.
China is yet to release information about how permits will be allocated; the use of offsets; whether there will be a price floor; or how stringent the emissions cap will be, which will determine the level of the carbon price and the amount of climate change mitigation that the policy is intended to deliver.
It is, however, somewhat surprising the lack of attention that this major reform is receiving in Australia. Other countries like Japan and Korea and even New Zealand are establishing direct engagement with China through MoUs to work on options for linking of markets. Economic theory says the bigger the carbon-trading market, the more efficient and low-cost is the price per tonne of emissions reductions.
If Australia is going to effectively meet international targets, manage trade impacts and open up new opportunities as the global low-carbon transition kicks in, then we need to be connected diplomatically and economically with the world’s largest carbon market.
This is a critical time to understand international developments in climate policy and markets and how these developments may impact Australian business and climate policy. At CMI we have deep knowledge, expertise and international networks in our membership and as such we have established a new Working Group on ‘International Climate Policy and Markets’, which will help Australian business share vital market insights, navigate the new global trading environment and inform the national policy discussion.
We aim to play a leading role in how Australia and Australian business can optimise its position and benefit from new opportunities in international carbon markets. We welcome inquires to get involved with CMI as these rapid developments unfold.