Beijing considers EU-style carbon trading

PUBLISHED : Wednesday, 01 August, 2007, 12:00am
UPDATED : Wednesday, 01 August, 2007, 12:00am

The mainland may set carbon emissions quotas and establish a carbon-trading exchange based on Europe's cap-and-trade system under plans to use financial incentives to improve energy efficiency and cut pollution.

Market forces should be used to support green policies by introducing carbon trading and loosening the pricing system for utilities and commodities, People's Bank of China governor Zhou Xiaochuan said in an article published in Green Leaf, a magazine supervised by the State Environmental Protection Agency (Sepa).

'We must seriously study and learn from international carbon-trading mechanisms and explore the possibility of setting up a pilot emissions quota system and developing an emissions quota exchange in China,' Mr Zhou said.

Putting a price on carbon that can then be traded gives a financial incentive for firms to cut emissions.

Mr Zhou also said further reforms were needed to relax price controls on a number of key commodities - including coal, finished oil products, natural gas, water and electricity - to allow the pricing mechanism to become an effective regulator of economic behaviour.

The government currently cushions consumers from the true market costs of many commodities and public utilities to ensure social stability, but critics say failing to price water and electricity at a realistic level encourages waste.

Analysts said a cap-and-trade system, whereby enterprises buy and sell carbon credits to meet mandatory individual emissions quotas, was a long way off.

'I doubt China is ready to introduce universal emissions caps and establish a carbon market. The top 1,000 state-owned enterprises have already signed emission reduction contracts with the government, but this is associated with the companies having a high income,' said Yang Fuqiang, vice-president of the Energy Foundation, a United States NGO.

Nevertheless, Mr Zhou's comments reflect a concerted attempt by several government departments to use financial incentives to drive up environmental standards.

On Monday, Sepa published the names of the first batch of 30 enterprises blacklisted under a new 'green credit' initiative jointly undertaken by PBOC and the banking regulator. Under the policy, banks cannot lend to blacklisted enterprises and those failing to meet strict environmental standards will have to repay loans.

Of the 30 blacklisted enterprises, 13 were paper manufacturers and 12 were based in the northeastern provinces of Heilongjiang and Jilin , scene of the Songhua River disaster two years ago.

Sepa deputy director Pan Yue said government departments had to work together to prevent the mainland's appalling environmental record from deteriorating further.

'The severe state of China's environment shows that the emissions-reduction measures of a few specialised agencies are limited and we must unite with more macroeconomic departments,' he said on the agency's website.