Friday, April 4, 2014

China's carbon markets

Greetings from the Australian National University in Canberra, where a discussion of carbon trading is taking place. One participant expressed regret that Australia was scrapping its planned carbon trading scheme. Some governments have been suspicious of carbon trading (the Chinese Government changed from this view from around 2009, the new Australian government appears to be doing the reverse).

The Chinese Government decided to have pilot trading schemes, as there were already some local trading schemes run by local provinces and endorsing these as "pilots" allowed the central government to regularise the process. The pilots were all in economically developed regions. China's fifth was Tianjin emissions trading scheme.  Perhaps this voluntary pilot approach is one which could be applied in Australia, which the federal government would find palatable. Unlike China, Australia has good emissions from which to derive trading data.

Some of the Chinese carbon trading schemes make allowance for prior reduction efforts made by companies. This provides some form of credit so firms which have already made reduction efforts are not penalised compared to those which have not, before the scheme starts. Allocating generous credits to firms is also a way to encourage them to participate, where there are limited cohesive powers. However, excess credits can make the market unworkable (as has happened in Europe).

One other point to make the market work well is a futures market (which is not permitted in China, also buying and selling the same day is not permitted). One lesson from China is that it takes time to learn how to set up a carbon market and make require several attempts.

Australia's planned approach with a fixed price trading system, before a floating price was pointed out by some as being both a theoretically and practically workable system. It was pointed out that penalties for non-compliance were required. The Clean Energy Regulator (CER) threatened Clive Palmer MP's company,  Queensland Nickel, with legal action for non-compliance.

One suggestion was that perhaps carbon emissions should be addressed as an energy efficiency issue, as that is seen as more urgent and useful by the general public and politicians. 

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