The State Council, China’s cabinet, has issued a new climate plan that targets an 18-percent cut in carbon emissions by 2020 compared to level in 2015.
The central government is said to have already drafted detailed measures to develop a low-carbon economy by 2050, with plans to unveil the measures soon.
Also, China will set up a nationwide carbon trading platform, likely the world’s largest, which will help companies to trade their carbon emission quotas while saving energy and cutting costs.
I estimate the carbon market will explode by 2020, and that the annual trading value could reach 400 billion yuan by then.
The government’s plan will set clear direction and targets for low-carbon industries. It has highlighted key areas for the sector, such as building an ecosystem for low-carbon industries, establishing and operating a national carbon market, as well as enhancing international cooperation.
The measures should give a boost to environmental protection equipment manufacturing, services and related sectors. They will also give a new impetus to the new-energy sector.
China’s low-carbon initiative would also spur the development of a range of related financial products, a market potentially worth 100 billion yuan, covering fields like carbon funds and carbon options.
Certainly, an efficient pricing formation system is essential for a smooth market operation. There will be three types of pricing formation systems, a market-based pricing system, a government-led pricing system, and a hybrid system in which the market, governments and intermediaries all play a role.
Major carbon market suppliers would be those who have extra carbon emissions credits, and buyers would be those who failed to meet the carbon emission standard. But speculators on both sides are also expected to participate.
In my view, carbon pricing, like all merchandise, should be left to the market.
This article appeared in the Hong Kong Economic Journal on Nov. 7
Translation by Julie Zhu
[Chinese version 中文版]
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