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China Carbon Market Set For Explosive Growth

China’s carbon emissions market is set to expand 30 times over the next ten years, reaching $25 billion by 2030, Bloomberg reports, citing an analysis by Citi.

“The Chinese national ETS [emissions trading system] as currently rolled out should play a limited role in reducing emissions at first,” Citi analyst Tracy Liao said, as quoted by Bloomberg.

“We expect a series of developments to transform China’s ETS into the world’s largest effective carbon trading scheme and a key building block of the country’s 2030 peak emissions commitment.”

China launched its carbon trading market last month. Initially, it will only cover its power industry, but it will still be a sizeable market: the country has about two thousand power generation facilities, which account for almost a third of its total emissions. Later on, the system will be expanded to include other heavily polluting industries such as steel production, petrochemicals, and cement production.

Beijing is also being careful with the new market that, like the European ETS, aims to encourage polluters to reduce their carbon footprint. The plan envisages certain carbon allowances, but these have yet to be auctioned off on the newly created market. The authorities have said it will happen “at a future appropriate time”.

According to Citi’s analysts, this year Beijing will allocate emission allowances totaling 200 million tons. As regards the price of carbon, the bank has forecast it will initially be set at $4 per ton, to be raised to $25 per ton by 2030. Meanwhile, the allowances will be raised to 1 billion tons of carbon dioxide by that year.

These carbon-trading policies could undermine China’s competitive edge as the manufacturing powerhouse of the world.

“If policies are stringent enough, this could precipitate the shifting of supply chains of emission-intensive industries from China to other countries that do not face the same regulatory costs,” Liao said, as quoted by Bloomberg.

By Charles Kennedy for Oilprice.com

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