China launched the world’s largest carbon market last Friday with prices in Shanghai opening at $7.40 per ton of carbon. It is a significant move by the world’s biggest emitter but is it enough? And are carbon markets an effective tool for tackling climate change?
The new national carbon emissions trading scheme (ETS) in China for buying and selling emissions is the latest development in the country’s push to reach peak carbon emissions by 2030, and become net zero by 2060. The volume of greenhouse gas emissions covered by the ETS is three times the amount covered by the EU’s equivalent scheme. For now it only includes China’s energy sector, which is responsible for 40% of the country’s CO2 emissions, but other sectors are expected to join.
One of the central criticisms of these schemes is that free allowances, often referred to as free pollution quotas, are offered by governments. In China’s case, to encourage companies to get on board with the ETS, free allowances are being handed out. Opponents of this system wish to see more of a polluter pays principle applied and a scrapping of free allowances.
TransitionZero, a leading financial analytics company using real-time data to support the transition to a zero carbon economy, said that in its current format, China’s ETS will have little impact in helping cut emissions from power generation, but it recognises the move will likely be one of many the country will accelerate to achieve the net zero target.
“We believe China will meet the net zero target ahead of time due to the country’s track record of solving problems,” TransitionZero said.
This is not the first rodeo for carbon markets, the Kyoto Protocol in 1997 introduced one on an international scale that went on to be mired in corruption scandals, with a 2015 report by the Stockholm Environment Institute revealing the scheme had actually increased emissions.
Having the ability to independently and reliably monitor emissions in real-time is the only way to overcome this and effectively enforce and regulate ETS schemes, something that wasn’t possible at the time of the Kyoto Protocol. Now, though, the technology exists to do it. The Climate TRACE (Tracking Real-time Atmospheric Carbon Emissions) coalition, which Al Gore helped organise with TransitionZero, is leading the way on this.
“Our goal is to combine satellite data from existing constellations, artificial intelligence, and an array of other resources to produce an independent accounting of all significant sources of human-caused greenhouse gas emissions on the planet,” Gore wrote in the foreword to a TransitionZero report on using actionable analytics to power China’s transition to clean energy. We will release a new data tool for global emissions monitoring this summer, well ahead of the upcoming COP26.”
Gore added: “As China launches the world’s largest carbon market, there is a need for new tools that can be used to strengthen this market to drive greater emissions reductions. New technologies like Climate TRACE represent a major breakthrough for crafting and implementing policies like this – and there are a multitude of other use cases that this new tool will unlock to help the world meet its goal of net- zero emissions as soon as possible.”