China’s Carbon Emission Trading : An Overview of Current Development

This report, published by SEI and the Swedish think tank FORES, examines China’s efforts to establish domestic carbon markets by 2015, building on seven regional pilots. (Recent mediareports suggest there may be a one-year delay, and the energy sector may be excluded.)

SEI’s report finds that while China’s initiative is clearly a positive development, the process is just in its infancy, and it still has to overcome fundamental issues with China’s energy sector, its business culture, and its legislative and bureaucratic framework that may make this endeavor quite daunting.  There is a substantial need for international expertise and technical support.

The report also warns against setting expectations too high; while some people talk as if this were the magic bullet to start reducing China’s emissions, in reality it’s not certain that China will even set an absolute cap on emissions (rather than an emissions-intensity target), and any cap will likely allow for continued emissions growth, just slower growth. And it looks a bit at the implications for global carbon markets, at China’s experience with pollutant emissions trading to date, and at major challenges that China needs to address to lay the groundwork for successful carbon markets.