UK talks up links between EU-China carbon markets

UK talks up links between EU-China carbon markets


The United Kingdom’s Conservative government is reported to be working very closely with China to ensure the European Union and Chinese Emissions Trading Schemes (ETS) can link up “a few years after 2020”.

The moves were revealed by the British environmental news website BusinessGreen in an interview with the UK’s chief climate envoy, Sir David King.

Sir-David-King-UK-scientist“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,” Sir David said on the sidelines of a carbon event in the UK capital, 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.

China-coal-fired-power-cooling-towersThe 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.

However, the final design of China’s national market remains undecided, and the National Development and Reform Commission’s (NDRC) proposals will be subject to comments, and potential changes, from other government institutions as well as powerful state-owned enterprises and industry groups.

china windChina’s pilot markets have major problems with over-allocation, a lack of transparency and poor liquidity.

As a result if domestic politics were to stand in the way for the NDRC to address those issues properly in the national scheme, then EU interest in linking to the Chinese market would cool considerably.

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.

china-and-air-pollutionBut 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, is immense.

Most of those companies have no experience in the area nor of participating in environmental markets.

When it launches next year, the Chinese market will cover roughly twice the amount of carbon dioxide (CO2) emissions as the European market.

china_carbon_trading-genericMany observers have said a 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 politicians could do about it other than hope Beijing would fix it.