Launching The World’s Largest Carbon Credit System

Late last year, in a shockingly ambitious pledge, Chinese president Xi Jinping announced that his country would reach peak domestic greenhouse gas emissions by the end of the decade and that China would bring its carbon footprint all the way down to net zero by just 2060. The targets are as timely as they are ambitious; according to the Intergovernmental Panel on Climate Change (the world’s premier authority on the issue) we have just a decade left to change our emissions outputs drastically enough to avoid the worst effects of climate change.

So it’s great news for all of us that China, the world’s biggest greenhouse gas emitter by a considerable margin, is getting serious about curbing their carbon footprint. However, there remains a considerable gap--nay, a chasm--between Beijing’s lofty climate-friendly rhetoric and the country’s actual and projected emissions--both of which are hefty to say the least. 

China currently produces about a third of the world’s total carbon emissions each year (to the tune of more than 10 gigatonnes), with about a third of those emissions coming directly from coal. While Beijing has sped to ramp up domestic clean energy production in recent years, the world’s second-largest economy is still dependent on the especially dirty fossil fuel for over half of its power production. In fact, at the same time that President Xi has touted Beijing’s climate goals, much of the country has gone back to coal for reasons of energy and economic security. As of last year, according to reporting by Forbes, China was either presently adding or planning to add more coal-fired capacity than the present total capacity of either the U.S. or India. And that’s just domestic--China has considerably increased overseas coal production as well. 

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And it’s only going to get worse. China was the only major economic power that managed to eke out a modicum of economic growth even as the pandemic decimated many global markets, and the nation’s economic rebound stands directly at odds with its decarbonization goals. So what is China going to do about it? Are President Xi’s words just that--empty promises?

The rollout of a new sweeping carbon credit scheme across China over the past month shows that Beijing is, in fact, extremely serious about their decarbonization pledges. As we speak thousands of power plants across China are busily adding up their carbon emissions from the last year--no small task--in a “collective flexing of bureaucratic muscle” which “could eventually emerge China's most powerful tool to decarbonize its gargantuan coal-powered economy” Forbes reported this week. 

This tallying is just the first step of an extremely ambitious carbon credit trading scheme that will be the biggest of its kind once it’s up and running. Chinese power companies will be allotted credits which allow the company to emit a certain amount of greenhouse gas emissions. Companies which exceed their allotment will have to pay up, while companies which curb their emissions and are left with extra credits will be able to sell those on the market to companies that need them, thus giving power companies a double-incentive to bring their carbon footprint down in order to benefit their bottom line. 

China’s long-awaited scheme finally launched on February 1st, but will take years to fully roll out. For now, the project mostly consists of getting an accurate reading of emissions data, which has been a huge issue in the past, with a long track record of misreporting in addition to normal human error. In order to encourage accurate reporting, the program itself is far more carrot than stick, giving companies extremely high caps for carbon emissions and extremely low fees for exceeding those caps. Only once reliable emissions data is secured will Beijing begin tightening those numbers to encourage companies to reduce emissions in earnest. 

While the program has been criticized for being toothless, and for being far more limited in scope than originally promised (initially the credit scheme was designed to apply to a number of economic sectors, not just the power sector, which is still the long-term goal), experts see the rollout as the beginning of China’s best bet to meet its emissions targets as well as an assurance to the rest of the world that President Xi is ready to put his money where his mouth is. 

By Haley Zaremba for Oilprice.com

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