Letters | Despite China’s power crisis, it must persist with national carbon trading

Although China’s recent electricity crunch has dampened enthusiasm for environmental protection, the country must push ahead with its efforts to go green

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The sun sets near a coal-fired power plant on the Yangtze River in Nantong, Jiangsu province in 2018. Photo: AP

Published: 1:00am, 29 Oct 2021

In recent months, China has been experiencing its worst power shortages in at least a decade. Meanwhile, in July, the country kicked off its national carbon trading exchange, as part of its promise to achieve carbon neutrality by 2060.

While the soaring price of coal and the inability of renewable energy to make up for the shortfall may have been the triggers for the electricity shortage, the deeper cause is the contradiction between the country’s need for energy for development and its growing desire to protect the environment. China needs a new policy that reduces carbon emissions without hampering electricity supply.

The carbon credit market has several advantages over traditional regulations. First, since demand for electricity won’t decrease much due to the price inelasticity, the policy targets areas that are more capable of decreasing emissions.

Second, China’s economic history shows market forces are more effective drivers of change in corporate action than government intervention. In this case, the “invisible hand” of the market will adjust the distribution of carbon credits.

Environmental protection may have once been considered a burden on corporate development, but the carbon credit system quantifies the responsibility and makes it profitable. For example, analysts expect Tesla’s revenue from selling regulatory credits to be between US$1.3 billion and US$2 billion this year.

However, some practical problems need to be solved. Companies may try to falsely report their emissions to gain more carbon credits. To avoid this, the government could set up a cross-assessment mechanism. Also, the government could reduce the frequency of inspections but increase the penalties for offenders. This would motivate industries to set up internal standards.