Chinese carbon market announced in joint US-China statement

The US and China have made a second major joint announcement on climate that details domestic actions the two countries will take to address emissions after 2020 – and which follows on from a joint climate commitment the nations made last November.

The confirmation from Chinese President Xi Jinping of a national carbon market for China forms the most significant component of the announcement, which was made at a UN development summit in New York. President Xi announced that China will run a national carbon market in 2017 – the first time he has publically made such a commitment, though Chinese officials have been talking about it since last year and it had originally been slated for 2016.

The carbon market will see the seven current pilot schemes in various areas of China joined under a wider umbrella to set a carbon price across the whole country. The cap-and-trade scheme will cover power generation, steel, cement and other key industry sectors. It will make China host to the world’s biggest carbon market.

China’s current seven pilot markets, in cities Beijing and Shanghai, industrial municipalities Tianjin and Chongqing and the Guangdong and Hubei provinces, as well as Shenzhen, have significant differences in the number of traded allowances and average carbon price.

There was positive reaction to China’s carbon market announcement. The World Resource Institute’s President and CEO Andrew Steer said: ‘China has repeatedly shown that it’s serious about reining in its emissions. By committing at the highest level to a national carbon trading programme, China is making its intentions clear to businesses and investors about its shift to a low carbon economy.’

But analysis from Point Carbon at Thompson Reuters points to questions around how the pilot schemes will transit to a national market in the face of the delay in implementation; how the national scheme will link to China’s Five Year Plan and pledged 2020 and 2030 targets; and how the carbon market will work with power reform in China where carbon costs are reflected in electricity prices.

Other details in the wider US-China announcement included a common vision for success in Paris and significant climate finance commitments. On Paris the countries articulated a ‘set of shared understandings’ including the importance of a successful agreement that ramps up ambition over time towards a low carbon transformation of the global economy this century.

China announced that it would favour low carbon electricity under a ‘green dispatch system’, while the US reiterated its Clean Power Plan goals. Both countries are working on heavy-duty vehicle fuel efficiency standards, and are also acting on measures to reduce emissions of hydrofluorocarbons (HFCs).

On climate finance, China has announced CNY 20bn (US$3.1bn) to hep developing countries combat climate change. Both sides reiterated the 2020 climate finance mobilisation goal set in 2009 and underscored the importance of support beyond 2020.