Why China's Big Step on Carbon Isn't Bigger Still

China is looking to financial markets to help restrain its emissions of greenhouse gases. It surpassed the U.S. as the world’s biggest polluter more than a decade ago and now is building what will become the world’s biggest market to trade credits conveying the right to produce emissions. About 40 countries or jurisdictions have developed or plan to start emissions markets, generally known as cap-and-trade. By forcing utilities to pay for at least some permits to release carbon dioxide, the programs encourage investments in equipment that uses fuel more efficiently and reduces pollution.

Big, though not as big as it initially appeared. A year ago, authorities were considering a nationwide system that would force 7,000 companies to pay more attention to, and perhaps pay for, the pollution they produce. The program announced on Dec. 19 includes 1,700 companies, all in the power utility industry, and it’s not clear if the program will extend across the whole of China or just to nine provinces, said Sophie Lu, a researcher at Bloomberg New Energy Finance in Beijing. Limiting the effort to coal-fired power plants and other power generators gives a reprieve to two other industries thought to be under the gun, the cement industry and producers of aluminum and other non-ferrous metal producers. As initially outlined by Xi Jinping, China’s president, two years ago, the trading system would also include iron and steel, chemicals, building materials and paper production.