China confirmed long-expected news on Friday that its national emissions trading scheme will start in 2017, a year later than planned, meaning its seven pilot carbon markets are likely to operate for an additional 12 months at least.

The country also announced it will provide 20 billion yuan ($3.1 billion) in climate finance to help poorer nations cope with global warming, a similar sum to the US’s existing pledge to the Green Climate Fund.

The commitment was dubbed a “game-changing” move by observers because major climate finance commitments have previously only come from industrialised nations, reflecting the UNFCCC’s rich-poor divide that has required richer countries to lead.

“It lies to rest the flawed argument that Chinese pollution is an excuse for US inaction. And it sends a powerful signal that China will join other countries in the global fight against this worldwide threat, setting the table for an effective international climate agreement later this year in Paris,” said Rhea Suh, president of US-based green group Natural Resources Defense Council.

The news came as President Xi Jinping’s visited Washington to meet US counterpart Barack Obama, before both of them gather in New York with other world leaders next week for the UN General Assembly.

The two presidents – leading the world’s two largest economies and emitters – released a joint statement on climate that otherwise mostly consisted of rehashed policies that had already been flagged by the respective governments on a joint vision for the Paris climate deal, vehicle and buildings standards, and cutting methane and HFC emissions.

Their common vision for December’s global climate pact in Paris failed to lock in strong wording on a 2050 global emission goal, a sign of the tensions that remain to be resolved ahead of the crunch talks.

CHINA ETS IN 2017

The announcement said China plans to launch in 2017 a national ETS, covering power generation, steel, building materials including cement, chemicals, paper and non-ferrous metals.

China had originally intended to start its national carbon market in late 2016, but in recent months it has looked increasingly likely that the launch would be pushed to 2017 to give officials more time to prepare.

The delay means China’s seven pilot markets are likely to operate a year longer than originally intended.

Shanghai officials said last month they had begun preparations for an extension of their scheme, and are looking to add more sectors to the market and change some trading rules, including potentially introducing futures contracts.

This week Guangdong followed suit, saying it intended to bring six new sectors into the market, potentially tripling the number of companies covered.

Postponing a national market also leaves more room to act for a number of municipal governments across China which have said they want to launch their own pilots, including Baotou in Inner Mongolia and Jinchang and Jiuquan in Gansu.

“After Xi’s announcement today, there is no doubt that the carbon market is here to stay in China,” said Thomson Reuters Point Carbon analyst Hongliang Chai.

But he said China had still to resolve several key issues before launching what will be the world’s biggest carbon market.

These were how the pilot schemes transition to a national programme, how the national ETS can be configured to goals under China’s five-year plan and emission targets for 2020 and 2030 and how it can align with ongoing power sector reforms.

“Under the current structure, carbon costs are reflected in electricity prices and carbon pilots can only impact power emissions from the downstream consumption side, thus limiting the impact of the market on nearly half of the emissions covered,” he said.

GREEN DISPATCH

The joint statement said China would also implement a “green dispatch” system to favour low-carbon sources in its electricity grid.

It said this will establish guidelines to accept electricity first from the most efficient and lowest polluting fossil fuel generators.

This forms part of wider plans to reform its power sector that China announced in March, steps that are likely to make the national ETS a more effective tool to cut emissions by making electricity generation far more responsive to a carbon price.

“It may fix the current wind curtailment issues and clear grid access to renewables. Besides, under a more liberalized power market, carbon prices can help to drive out the most carbon-intensive facilities in favor of cleaner sources,” said Point Carbon’s Hongliang Chai.

CLIMATE FINANCE

China said it would make the 20 billion yuan available through a bilateral fund to help developing nations tackle climate change, rather than channelling it through the Green Climate Fund.

China also agreed to “work towards strictly controlling public investment flowing into projects with high pollution and carbon emissions both domestically and internationally.”

Both nations already agreed in 2013 to stop public funding for new conventional coal-fired power plants except in the poorest nations, though they are struggling to get a global deal on this amid opposition from coal technology giants Japan, Korea and Germany.

The finance commitment is a “game-changer” in international climate politics, according to Li Shuo, climate policy expert for environmental campaigners Greenpeace East Asia.

“It is a drastic increase from China’s previous finance commitments. The scale could potentially be even larger than the US pledge to the Green Climate Fund, which is still pending on harsh battles through the Congress,” he said.

“This sends a strong signal that China is ready for itself and to help the world shift away from dirty fossil fuels such as coal and towards renewable energy.”

PARIS AGREEMENT

The document included a ‘common vision’ on the Paris agreement, but the wording was much more vague than a June declaration the US agreed with its G7 partners, potentially highlighting a reluctance by China on key points ahead of the Paris talks.

The G7 industrialised leaders agreed that global emissions should be cut by 2050 to the upper end of the 40-70% reduction versus 2010 levels recommended by UN-backed scientists and a decarbonisation of the global economy by 2100.

But today’s agreement, mindful of the 2C goal, merely “underscored the importance of” mid-century strategies for the transition to low carbon economies and “emphasised the need for the low-carbon transformation of the global economy this century”.

David Waskow of US-based think tank World Resources Institute, played down the differences and said the broad theme was a positive sign that a deal could be reached in Paris.

“It’s not identical to the G7 declaration but it reflects the same intent to move in the direction of decarbonisation,” he said.

The EU’s climate commissioner Miguel Arias Canete said on Twitter that the agreement was an important step in US and China’s efforts to join the EU in effective climate action, and that it improves the chances of getting to an ambitious Paris deal.

“But let me very clear: Europe and many others will not sign just any deal. It must be an ambitious deal,” he added, repeating a warning he has made numerous times in the past few months.

By Stian Reklev and Ben Garside – ben@carbon-pulse.com