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China's Cap and Trade to Come Within Five Years, Professor Stern Predicts

China will have a cap-and-trade system to limit its emissions by about 2015 as the world’s biggest polluter takes a lead role in developing clean energy, London School of Economics professor Nicholas Stern said.

“There will be cap and trade in China within four or five years,” said Stern, who published a widely cited study of climate-change economics for the British government in 2006. China wants “to win the green race, and good luck to them,” he said yesterday in conjunction with climate talks in Cancun, Mexico. “This is the kind of green race that we need.”

China, which is studying a cap-and-trade program to establish a market in pollution allowances, will help drive a new “industrial revolution” of low-carbon technology, Stern said. The European Union, which runs the world’s biggest emissions market, is working to help China set up a similar system in about eight cities, an EU climate official said today.

Consultations with China “are going much better than anticipated,” said Jos Delbeke, head of the European Commission’s climate unit, in an interview today in Cancun. “They are very operational in their demands.”

Innovation is needed to prevent worldwide temperatures from rising as much as 5 degrees Celsius (9 degrees Fahrenheit) by 2100, Stern said.

“We haven’t got a clue about our ability to adapt to that kind of temperature,” Stern said at a conference focused on how businesses can combat climate change and lobby policymakers.

After Kyoto

The event was timed to coincide with United Nations-led climate change treaty talks in Cancun. Negotiators from 193 countries are debating the 1997 Kyoto Protocol and how to craft a new global accord that includes the U.S. As the only industrialized country that never ratified the Kyoto treaty, the U.S. opposed the accord in part because it didn’t require China and other big developing countries to cut emissions.

Discord over Kyoto is stirring doubts about the future of a $2.7 billion a year part of the carbon market. Negotiators won’t be able to resolve in Cancun how to limit emissions once current obligations under the pact expire in 2012, Christiana Figueres, secretary general of the UN Framework Convention on Climate Change, said last week.

“Nobody knows what will happen after 2012,” Deutsche Bank AG Vice Chairman Caio Koch-Weser said in an interview.

Countries’ inability to agree on a climate accord means a single worldwide carbon market isn’t realistic at the time, he said. Rather, there will be local, regional and domestic carbon trading in Europe, China and elsewhere, according to Koch-Weser.

‘Political Reality’

“My vision would be that eventually you would connect them,” he said. “Then eventually you come back to the political reality of having a global agreement.”

The U.S. is among major emitters without a national cap on carbon. A cap-and-trade measure failed in the Senate earlier this year. President Barack Obama, who campaigned on a pledge to push for an emissions-trading market to fight climate change, says such legislation isn’t likely to win approval before 2013 at the earliest.

U.S. inability to act is a potential boon for China, National Wildlife Federation President Larry Schweiger said in an interview from Cancun yesterday.

“The Chinese have seen the American failure and seen the opportunity open up for them,” he said. “China will probably manage the carbon markets worldwide before it’s all over.”

Chinese climate negotiators are set to hold their first news conference at the Cancun talks today. The UN talks started Nov. 29 are scheduled to end Dec. 10.

To contact the reporter on this story: Kim Chipman in Washington at kchipman@bloomberg.net

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

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