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China Carbon Trading Plan May Be Held Up by Its Economic Growth Priority

China’s plan to begin carbon trading may be held up by negotiations with cities and industries over how to set a limit for emissions, China’s National Development and Reform Commission said.

The Chinese government wants to begin a pilot program in a single sector or city to test the impact of an emissions cap on growth ahead of a possible nationwide move to carbon trading, officials at China’s top economic planner said this week during climate talks in Tianjin, northern China.

The negotiations are “difficult” because any cap set on emissions will inhibit economic development at a time when the central government’s priority is raising living standards for the more than 150 million Chinese who subsist at poverty levels, according to Sun Cuihua, deputy chief of the climate-change department at the national planner.

“It’s difficult to negotiate with one specific sector or province because all of them are growing their economies,” she said at a briefing. Imposing a cap will “impact their local economic growth.”

The briefing took place as envoys from 175 governments met for United Nations-led talks aimed at laying the groundwork for an agreement to mitigate climate change. The Tianjin meeting is the last before a Nov. 29-Dec. 10 summit in Cancun, Mexico.

Before the last summit in Copenhagen in December, China said it planned to cut output of carbon dioxide gas per unit of gross domestic product by 40 percent to 45 percent by 2020 from 2005 levels.

“We still want to have a trial because we need to find such mechanisms to help meet our target and fulfill our obligation” on emissions reductions, Sun said.

China, U.S.

Emissions in China, which has surpassed the U.S. to become the world’s biggest emitter of greenhouse gases, will rise as the country continues its rapid economic growth, according to Xie Zhenhua, vice chairman at the Commission.

In 2007, China became the largest emitter of energy-related carbon dioxide, according to the International Energy Agency data. The country’s annual discharge of CO2 was more than six billion tons in 2008, almost tripling from 1990s levels, IEA said in a report on its website.

This contrasts with the European Union, where emissions of greenhouse gases from the 27 member-states fell last year to 17.3 percent below 1990s levels, according to estimates by the EU environment agency.

The EU agreed in 2008 to cut emissions by 20 percent this decade compared with 1990 and is considering toughening its target to 30 percent. It stopped short of doing so at the Copenhagen climate summit, citing a lack of comparable efforts by the U.S. and China.

‘Follow With Interest’

“We follow with interest the discussions in China with regard to more advanced carbon market mechanisms,” EU climate spokeswoman Maria Kokkonen said today. “As Europe has implemented the world’s largest carbon market and is committed to building a strong international carbon market, we naturally stand ready to share our rich experience in designing and implementing a successful cap-and-trade system with China.”

The bloc wants to make its carbon cap-and-trade market a cornerstone of a global carbon market. Started in 2005, it covers about 12,000 installations that produce energy or goods ranging from paper to cement.

Polluters must have an allowance for each ton of carbon dioxide they let off. Those producing more than their allowance have to buy more; those that emit less can sell their surplus.

EC Mission

The European Commission, the EU’s regulatory arm, sent a mission to China in July to seek cooperation on carbon trading, and the EU’s climate commissioner Connie Hedegaard said this week another visit is planned in November.

A pilot cap-and-trade program would likely be in one of the five provinces and eight cities designated as low-carbon models, said Wang Shu, the National Development and Reform Commission’s deputy director for climate change.

“Most regions still need to develop their economies, so imposing a cap is very difficult,” he said yesterday. “Maybe a city can set up a cap to target high emissions factories but we’re still considering how to do that.”

China already has voluntary carbon trading programs in Beijing, Shanghai and Tianjin.

The Tianjin Climate Exchange trades emissions credits backed mainly by projects that were originally developed for the UN-backed CDM mechanism, Mu Lingling, vice president of the exchange, said in an interview yesterday. Some project managers decide not to go through the certification process, she said.

The exchange has handled 6,049 tons of voluntary credits this month, the majority in Tianjin, she said.

To contact the reporter on this story: Stuart Biggs in Tianjin, China, via sbiggs3@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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