China's carbon market still ranks as world's biggest

China has unveiled a programme that encourages companies to reduce their emissions so they can sell unused carbon allocations

The world’s biggest polluter is going to need the world’s biggest carbon market in its fight against smog. China on Tuesday unveiled a trading system for carbon emissions that surpasses the European Union in size and scope, even after the Asian nation scaled back its ambitions for the programme. The announcement was a boost for global efforts to rein in the climate-warming pollutant, as the US pulls back from a leadership role and trading systems elsewhere are still struggling.

“It is a big vote of confidence for climate change initiatives globally from the world’s largest emitter,” Sophie Lu, an analyst in Beijing for Bloomberg New Energy Finance, said in an email.

Still, Lu pointed out that the proposal only encompasses China’s power sector for now instead of the eight industries originally envisioned. “After several false starts and shifting priorities and nervousness around whether or not carbon speculation will make policy enforcement difficult, the regulators have decided to be even more cautious about the market deployment,” Lu said.

Among the key provisions announced by the National Development and Reform Commission:

• About 1,700 companies included in initial launch
• Companies that each emit more than 26,000 tonnes of carbon annually qualify
• More than 3 billion metric tonnes of carbon emissions affected
• No start date announced 

The Paris Agreement on climate change in 2015 brought together some 200 nations, including the US and China, in calling for limits on fossil-fuel emissions worldwide. The goal was to help meet the UN’s target of holding global warming to “well below” 2 degrees Celsius (3.6 degrees Fahrenheit). President Donald Trump has vowed to pull the US out of the accord, and is pursuing policies to encourage burning more coal.

China’s system will adopt a cap-and-trade rule in which the biggest corporate polluters purchase credits from those that don’t emit as much, and companies are encouraged to reduce their emissions so they can sell unused allocations.