As it launches yet another regional carbon market in the province of Hubei, China has revealed it expects to have a nationwide carbon market within three years.
China’s Hubei province formally launched its carbon market, imposing caps on greenhouse gas emissions from 140 major energy and industrial emitters.
At the same time the Ministry of Finance (MOF) said China plans to launch a nationwide market to trade pollution permits within three years as part of efforts to tackle its environmental crisis.
Hubei, home of 58 million people and a GDP equal to that of Austria, became the sixth region in China to introduce a market to halt rapid growth in carbon emissions, blamed by scientists for causing climate change.
China is the world’s biggest-emitting nation, and Beijing wants to use markets to reduce its emissions per unit of GDP to 40-45 per cent below 2005 levels by 2020.
In the first few minutes of trading, 210,000 permits cleared on a trading screen visible to guests at the launch ceremony.
The permits traded at US$3.38 each, the lowest in all six Chinese markets.
Hubei Energy Group, the biggest power generator in the province, sold 200,000 permits.
State-owned energy firms PetroChina and Huaneng bought 50,000 permits each, with Shell snapping up 20,000.
Those trades had been negotiated in advance, and are unlikely to reflect general market liquidity, which has been patchy in the other Chinese carbon schemes.
The Hubei government has issued 292.2 million permits to scheme participants for the first year of the scheme, according to a government document seen by Reuters last week, equal to 97 per cent of their 2010 emissions.
The biggest company in the market will be Wuhan Iron and Steel, one of China’s largest metals producers, which has 28 facilities included.
A further 7.8 million permits will be sold in government auctions, while 24 million have been set aside in reserves.
Hubei firms can use offset credits, known as Chinese Certified Emissions Reductions (CCERs), to cover for up to 10 percent of their emissions, but are restricted to using credits from projects located in the province.
Companies that fail to comply with the scheme will be fined 150,000 yuan and given fewer free permits the following year.
Earlier Reuters revealed the ministries of finance and environmental protection had submitted draft guidelines for a national market to the State Council, China’s Cabinet, which will make the final decision, MOF said in a statement on its website.
“We will facilitate cross-regional trading, especially among regions covered by the same air and water pollution control regimes,” the statement said.
The market would cap emissions of key pollutants from major facilities and force those that exceed their caps to buy permits in the market, hence providing economic incentives for polluters to invest in cleaner technologies.
Pollution from China’s coal-fired generators, energy-intensive heavy industries and ever-growing traffic has plunged the country into a deep environmental crisis in recent years.
Research has showed several hundred thousand people die prematurely every year from coal-related pollution, while in many urban areas the smog occasionally gets so bad that schools and public institutions shut down.
Premier Li Keqiang announced a “war on pollution” at China’s annual parliamentary session earlier this month.
China’s pollution-countering strategy mirrors its efforts to cut climate-changing greenhouse gas emissions.
The government has picked seven regions to open pilot carbon trading markets, with a mandatory national scheme due to follow sometime between 2017 and 2020.
