China May Withhold Carbon Offsets After 2015 to Meet Own Goals, ADB Says

China may decide to withhold emission-reduction offsets to comply with its own climate targets after 2015, limiting supply to the European Union, said an official at the Asia Development Bank.

“The establishment of domestic emissions-trading systems in China will provide a market for domestically issued emission credits if China decides not to offer Certified Emission Reductions to international buyers,” said Pradeep Perera, senior energy specialist in ADB’s East Asia Department. “China has already started a domestic process for issuing emission credits for emission-reduction projects closely following the Clean Development Mechanism procedures,” Perera said Jan. 27 in a phone interview from Manila.

Surging supply of offsets from the so-called CDM helped drive prices in the European Union to four-year lows earlier this month. That market, the world’s biggest, banned supply from new projects in most emerging nations including China after 2012. Still, China has supplied 59 percent of all credits issued since 2005, and based on projects already registered may maintain that portion of the market through this year, according to United Nations data and forecasts.

Certified Emission Reduction credits for December have plunged 66 percent in the past year as Europe’s sovereign-debt crisis curbed demand. They were down 5.3 percent yesterday at 3.78 euros ($4.96) a metric ton on the ICE Futures Europe exchange in London as of 5 p.m. EU allowances for December fell 5.1 percent to 7.77 euros a ton.

Guangdong Market

At the UN climate talks in December 2010, China promised to lower the amount of carbon pollution created per unit of output, or its carbon intensity, 40 percent to 45 percent by 2020 from 2005 levels. A program to curb the increase of greenhouse gas emissions in China’s Guangdong province will probably be the largest of the nation’s seven test climate-protection systems, according to Bloomberg New Energy Finance.

Guangdong is seeking to cut the carbon intensity of its economy by 19.5 percent in the five years through 2015, New Energy Finance said Jan. 24 in a research note. Other regions have looser targets.

“For the purpose of pilot provincial emissions trading systems, it is likely that an absolute emission cap will be set for the economic sectors in the geographical areas covered,” Perera said. “Based on the experience and lessons learned from these pilot ETS, a national ETS is likely to be established after 2015.”

‘Counting Twice’

That national level market will probably help determine whether China achieves its voluntary pledge to cut emissions intensity by 2020, the official said. “At this stage it is not clear how the emission cap for this national level ETS will be set and whether it would be an absolute cap.”

Perera declined to comment on whether China may use its own offsets to meet its voluntary target.

Doing so might leave the nation open to accusations that it is counting emissions reductions twice, said Trevor Sikorski, an analyst in London for the investment banking unit of Barclays Plc. “That may lead to criticism,” Sikorski said Jan. 27 by phone.

It’s unclear whether China’s floor price of about 8 euros a ton is limiting supply from that nation, Sikorski said. It’s only possible that China’s policies on offsets will help tighten the EU’s carbon market, he said. “There’s a potential for that to happen, but it probably won’t.”

Halt in Supply

Post-2012 letters of approval from China’s National Development and Reform Commission, the nation’s regulator, are specifying volume limits that might suggest a halt in supply around 2015, Sikorski said Aug. 25. Those letters are needed in order to receive UN approval for credits.

ADB is providing a $750,000 equivalent grant to lay the groundwork for cap-and-trade in Tianjin municipal area which could begin operation as early as 2013, Manila-based ADB said Jan. 25 in a statement on its website. That followed a request from China, Perera said. ADB will help design the platform, including the trading rules and regulatory framework, as well as support the commissioning of the platform, the development bank said at the time.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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