By Mathew Carr

April 15-16, 2021 — LONDON: China’s carbon market may be oversupplied at the beginning, but the nation will risk missing its net-zero target for 2060 unless the program quickly gets strict under a tightening carbon cap, according to new analysis.

Carbon prices in the country’s planned national market are initially seen near zero by Matt Gray, who has analysed the country’s giant coal power industry and carbon market plans.

That’s because the market, which could become the world’s biggest, will be oversupplied based on the 2019-2020 allocation, Gray, Co-Founder and Co-CEO at TransitionZero, estimates:

Gray says there is opportunity for a dramatic decline, yet it is difficult to say how much of cuts will be incentivised by the market.

Here is the opportunity; Gray says these cuts are needed to hit China’s target:

The initial looseness is actually deliberate, according to slides on the EU-China emissions trading system project website, which indicates older coal plants may lose out as they are replaced by newer, more efficient ones (see link in the caption of the chart below).

The allocations are to take place based on principles including “Reward the advanced, punish the backward”, “Proceed step by step, loose first and strict afterward” and “goal oriented, overall balancing.”

China and the EU have been collaborating on emissions trading for years, yet the China market’s start has been delayed. It’s initially focusing on emissions intensity and transitioning its pilot carbon markets.

The latest plan seems to be to start it in a more complete way in the five years through 2030, when China plans to cap its emissions, according to an official (see the story linked in the notes below). It’s unclear whether China will cap its emissions for the entire five years or just part of it. Perhaps, that’s subject to international negotiations.

China’s been arguing for years that rich countries including the U.S., most responsible for the climate crisis, need to cut their emissions first and fastest. That’s now happening, at least to some extent.

U.S. special climate envoy John Kerry is currently in China, he says, as part of a plan to boost global ambition. Will China’s President Xi attend President Joe Biden’s virtual Earth summit April 22-23?

If he does, that could signal he wants to go hard on emission cuts. Alternatively, it might be that the world’s big climate beasts just want to be seen to be going for ambitious climate action.

NOTES:

China’s first proper carbon cap from 2026?:
http://carrzee.org/2021/01/09/china-seen-capping-emissions-in-the-five-years-from-2026/

(Headline translation by Google)