Photographer: ChinaFotoPress via Getty Images

China's 2017 Carbon Timetable May Be Hit by Slowing Economy

  • Energy-intensive companies lack incentive to trade carbon
  • Lack of carbon data and design experience may slow the process

A slowing Chinese economy threatens to undermine the deadline outlined last week by President Xi Jinping to introduce a nationwide carbon market by 2017.

Companies ranging from coal-fired power plant operators to cement producers and oil and gas companies, faced with struggles to stay afloat, could be reluctant to participate in the cap-and-trade system the Chinese government has vowed to roll out on a national level, according to Tian Miao, an analyst at North Square Blue Oak Ltd., a London-based researcher.

"With slowing energy demand in a slowing economy, the last thing these companies want is an extra cost associated with a carbon emissions commitment,” Tian said by phone from Beijing. “They’ve got enough to worry about already. The launch of a nationwide market at a time when they are having a difficult time to survive has the risk of not having enthusiastic participants at first.”

Xi’s national market would open in 2017, covering industries including power generation and iron, steel and cement makers. China already has seven pilot programs running around the country.

The start of a national pollution-trading system is part of a larger push by China to cut global-warming emissions for its most polluting industries. The country has previously committed to bringing emissions to a peak around 2030. Additionally, the world’s most-populous nation has aggressively pushed solar and wind power development.

Cap-and-Trade

Cap-and-trade systems provide a mechanism for the biggest corporate polluters to buy credits from those that don’t pollute as much. The idea is that the emissions trading system prompts companies to cut their emissions so they can sell their unused allocations.

China’s emissions of carbon dioxide fell last year for the first time in more than a decade, according to Bloomberg New Energy Finance. Moreover, China’s energy demand will grow at an average annual rate of 2 percent through 2020, according to National Energy Administration. That would be down from growth of 2.2 percent in 2014, compared with the previous year.

A drop in China’s carbon emissions would add risks to basing a carbon market on previously inflated projections, according to Lauri Myllyvirta, an energy analyst at Greenpeace East Asia.

The Chinese government should introduce a floor price in the design to ensure returns for a carbon-trading market to have sufficient participation, Myllyvirta said.

Another hurdle could be the lack of historical data.

A dearth of data on past carbon emissions and an unfamiliarity with financial market design could mean provinces are slower to prepare for national trading, according to Sophie Lu, a Beijing-based analyst at Bloomberg New Energy Finance. 

"There will be a lot work for provinces to do, which means they may need more time,” Lu said. “We may eventually see a rolling start for the market. More likely some of the advanced 20 provinces will start trading first and then the rest of the country."

Nonetheless, committing publicly to a start date will help facilitate the roll-out, BNEF’s Lu said.

— With assistance by Sarah Chen

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