China Studying Cap-And-Trade System to Help Cut Greenhouse Gas Emissions

China, the world’s biggest polluter, is studying a cap-and-trade system to help cut greenhouse gas emissions, said an official at a state-run research center.

The government may set emissions quotas for large enterprises and a certain portion of them may be traded, Zhang Junkuo, head of development strategy at the State Council’s development research center, told reporters in Beijing today.

The world’s fastest-growing major economy has pledged to reduce its carbon-dioxide output per unit of gross domestic product by as much as 45 percent through 2020 compared with 2005 levels. The cap-and-trade study is still in the early stages and is being considered among other options including a carbon tax, Zhang said.

“It’s likely that China will introduce some kind of cap- and-trade system, although it’s not clear when and how it will operate yet,” said Wang Fan, an analyst at Ping An Securities Ltd. in Shenzhen. “The idea of a carbon tax seems much more unlikely to me, as China is a developing nation and I don’t think there’s much support for this idea.”

Tokyo and New Zealand are the only carbon-trading markets in the Asia-Pacific region. The European Union, which manages the world’s biggest cap-and-trade system, sent a mission to China in July to study a pilot carbon-trading program.

In Australia, Prime Minister Julia Gillard vowed to restart an effort to cut emissions after replacing Kevin Rudd in June. A committee that Gillard set up in September to explore ways of introducing a carbon price has held its first meetings. The country, which gets 80 percent of its power from coal, aims to source 20 percent of its electricity from renewable energy by 2020.

Curbing Emissions, Energy

A cap-and-trade market in China could be functioning as early as 2013, Richard Sandor, who helped found London-based Climate Exchange Plc in 2003, said at a climate-change forum in Hong Kong this month.

China may spend about 5 trillion yuan ($750 billion) in the next decade developing cleaner sources of energy to reduce emissions from burning oil and coal, Jiang Bing, head of the National Energy Administration’s planning and development department, said on July 20.

Premier Wen Jiabao has set a goal of cutting energy consumption per unit of GDP by 20 percent in the five years ending 2010. China may announce a new target in the next annual meeting of the National People’s Congress in March, Zhang said.

Cap-and-trade puts a price on carbon by setting limits on the amount of emissions that polluters can produce. Those exceeding the limit must buy credits to offset their emissions, while those that emit less can sell their balance in the carbon market.

--Wang Ying in Beijing and John Duce in Hong Kong. With assistance from James Paton in Sydney. Editors: Ryan Woo, Alex Kwiatkowski.

To contact the reporters on this story: Ying Wang in Beijing at ywang30@bloomberg.net; John Duce in Hong Kong at Jduce1@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

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