The UK government is working very closely with China to ensure the EU and Chinese emissions trading schemes can link up “a few years after 2020”, David King, the UK’s special representative on climate change, told BusinessGreen.
“We have worked with the Chinese government very closely to ensure that the mistakes we made in the European cap-and-trade system were not repeated in the Chinese system. But the outcome is going to be something that is compatible,” King said on the sidelines of a carbon event in London.
According to the envoy, a tie between the two markets could become reality a few years after 2020, when the EU has finalised its market reforms and the Chinese scheme, due to launch in 2017, has been operational for a few years.
The EU has spent millions of euros to help China design its national market, and through its embassy and consulates in China, the UK has played an advisory role to both the national ETS and many of the seven regional pilot markets.
But the final design of China’s national market remains undecided, and the NDRC’s proposals will be subject to comments – and potential changes – from other government institutions as well as powerful state-owned enterprises and industry groups.
The pilot markets have major problems with over-allocation, a lack of transparency and poor liquidity, and if domestic politics were to stand in the way for the NDRC to address those issues properly in the national scheme, EU interest in linking to the Chinese market would cool considerably.
DOMESTIC FOCUS
Chinese officials have said they will launch studies on potential linking with other markets “after 2020”, and there have been talks about such studies in cooperation with South Korea.
But for the next several years, China’s focus will be firmly on domestic market affairs as the challenge of getting the ETS, to be comprised of some 10,000 companies, most of which have no experience in MRV and participating in environmental markets, to function properly is immense.
When it launches next year, the Chinese market will cover roughly twice the amount of CO2 emissions as the European market.
Many observers have said an EU-China ETS link would likely lead to cheaper emission reduction opportunities for EU firms, and might inspire other nations to join as well.
On the other hand, there are major risks involved in linking two big markets, as any unexpected problems in the Chinese market would have a huge impact on its partners as well, and there might be little lawmakers could do about it other than hope Beijing would fix it.
By Stian Reklev – stian@carbon-pulse.com
Not yet signed up to CP Daily? Subscribe to our free newsletter here
