Carbon trading scheme may reduce China’s emissions by 30 to 60%

China’s national emissions trading scheme (ETS) could play an important role in the country’s carbon-neutrality drive by potentially reducing carbon emissions by 30 per cent to 60 per cent of current levels by 2060, according to a report released on Tuesday.

China to Launch Emissions Trading Scheme in February

The report is by the Asia Investor Group on Climate Change (AIGCC), a network of asset owners and financial institutions representing more than US$26 trillion in assets under management, and global asset management company Schroders.

“The launch of the national ETS could be one of the most significant drivers of carbon abatement in Asia and, with the right settings, will be instrumental in delivering China’s goals of peak emissions before 2030 and carbon neutrality by 2060,” said Wong Dan Chi, the AIGCC’s vice-chair and Schroders’ head of Environment, Sustainability and Governance (ESG) integration APAC.

The ETS, which started trading on July 16 under the management of the Shanghai Environment and Energy Exchange, is the world’s largest carbon market in terms of the volume covered.

The AIGCC report studied the potential for emissions reduction created by the ETS in different sectors, including utilities, steel, cement, chemicals and aluminium. It estimates that the scheme could reduce China’s total carbon emissions in 2060 by 3 billion to 6 billion tonnes per year, or 30 per cent to 60 per cent of the country’s total carbon emissions in 2020, depending on the rate of reduction in intensity caps, expansion of industry coverage and carbon inhibition.

The ETS currently regulates more than 2,000 companies from China’s power sector, each emitting more than 26,000 tonnes of carbon dioxide a year. In total, that accounts for about 40 per cent of the country’s carbon emissions. Although there is no specific timeline, the ETS is expected to expand to cover seven other sectors – petrochemicals, chemicals, building materials, steel, non-ferrous metals, paper and domestic aviation – in the future.

According to the report, the utilities sector was expected to be the first to be materially affected as the impact of the ETS expands gradually, followed by steel, cement, chemicals and aluminium by the middle of this decade.

“If (the ETS) can reduce emissions by nearly half, it will already be an extremely successful policy, but there is no guarantee,” said Xu Yuan, an associate professor at the department of geography and resource management at Chinese University of Hong Kong. He added that he was not surprised by the potential contribution of the scheme, but it needed a combined effort involving other carbon reduction policies to help China reach its 2060 carbon-neutrality goal.

“Emission trading is just one out of many polices adopted for reaching environmental goals … When multiple policies are applied at the same time, it is difficult to separate their individual and joint effects,” he said.

The country has adopted other measures to achieve its carbon neutrality goals, including the promotion of renewable energy and increasing forest coverage. Its provincial and local governments are also designing and introducing more local and specified policies to incentivise carbon reduction measures in different sectors.

“There are many uncertainties in the national ETS now. Carbon trading is certainly an important tool, but it is not the only tool … To achieve such significant reduction in carbon emissions requires other tools to cooperate,” said Lin Boqiang, dean of Xiamen University’s China Institute for Studies in Energy Policy.

Source: South China Morning Post, 19 Aug 2021

Link to Report by IAGCC/Schroders:—a-new-dawn.pdf

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