China Takes Over Carbon Market

Antoaneta Bezlova* - IPS/IFEJ

BEIJING, Nov 27 (IPS) - China stands to benefit from the booming global greenhouse gas market. Foreign investors are flocking to pay Chinese energy companies and factories to reduce pollution instead of spending far more to cut emissions at home.
Initially skeptical of the carbon trading market, worrying that it will allow richer nations to pay their way out of obligations to reduce emissions under the 1997 Kyoto Protocol on climate change, China has now come to embrace the system as an opportunity to attract foreign investment in promoting energy efficiency and renewable energy projects.

China currently accounts for 60 percent of carbon credits trading under the Clean Development Mechanism (CDM) developed under the Kyoto Protocol. Its dominant position in the thriving market represents a big change from a few years back, when it had just five percent of the contracted volume.

The CDM allows polluters in one country to earn credits by reducing greenhouse gas emissions in another. Since global warming is a worldwide phenomenon, the mechanism reasons, it does not matter where the reductions actually occur. And because the cost of implementing reductions in developing countries is often cheaper than in industrialised economies, polluters in the industrialised countries benefit from credits through projects in countries such as China.

At the first Carbon Expo Asia -- a conference on emissions trading, held in Beijing -- officials hailed the CDM as a win-win solution between developed and developing countries that could provide environmental investment for free.

"Developed countries get opportunities to emit greenhouses gases at a relatively low economic cost and achieve their emission reduction targets, while developing countries obtain benefits such as funding and technology transfer, which will boost their efforts to pursue sustainable development," said Jiang Weixin, a senior official of the National Development and Reform Commission.

Weixin spoke at the opening of the Expo, an event modeled after an emissions-trading fair in Cologne, Germany. The choice of China as a host underscored the country's growing importance in the global emissions trade. The vast majority of CDM investment has been heading to China, with India and Brazil also receiving big portions.

In the past, China has called for industrialised countries to take more responsibility for reducing emissions. As a developing nation, China is exempt from curbing its output of greenhouse gases under the Kyoto Protocol. But as the benefits of international mechanisms like CDM have become apparent, Beijing has welcomed the investment and help it provides by streamlining its approval process and cutting bureaucratic delays.

Since the United States -- the world's biggest emitter of greenhouse gases -- has refused to accede to the terms of the Kyoto Protocol, most of the potential buyers of carbon credits are from Europe and Japan. The exemption also of rapidly developing economies such as China and India from the reduction targets has prompted critics to say that the current regime leaves the world's biggest polluters outside the strict controls.

Despite the shortcomings of the climate change treaty, its core mechanism -- carbon trading -- has proved to be resilient, and of particular significance to China.

Beijing has approved 125 projects so far under the CDM, including wind farms and hydropower generation, as well as chemical-pollutants reduction projects.

These are expected to cut 630 million tonnes of carbon dioxide, the main gas contributing to global warming, by 2012, when the first phase of the Protocol expires.

By then, some predict that China could be the main supplier of emission trading units in the CDM market.

"It is possible because China is the biggest developing country," says Zhang Jianyu, from the Beijing office of Environmental Defense, a U.S.-based group promoting emissions credits trading.

Three decades of breakneck industrial development have spurred China's economic growth, but also spewed emissions that have polluted the global environment. China now accounts for 14 percent of global carbon dioxide emissions. It is also the biggest emitter of sulfur dioxide, which causes acid rain.

Emissions from China and other rapidly growing economies in Asia are also increasing faster than in other countries. According to a World Bank report issued in May, China increased its greenhouse gas emissions by 33 percent between 1992 and 2002, while India's emissions grew 57 percent over the same period.

Despite the newfound enthusiasm for CDM among Chinese officials, its future in China remains questionable, not the least because of Beijing's own development plans.

Hit by acute power shortages in the past few years, the country has embarked on a frenzied campaign to build more power plants.

Japan's Institute for Energy Economics predicts that by 2007, China will have built an additional 200,000 megawatts of new power-generating capacity, about 80 percent of which will be coal-fired.

This greater capacity is expected to contribute some 1.17 billion tonnes of new carbon dioxide emissions by 2010. This whopping amount would eat up a good portion of the targeted overall emission reductions under the Kyoto Protocol of 5.5 billion tonnes of carbon dioxide over the same period.

China already relies on coal for about 70 percent of its energy supply. While aware of its high-polluting effects, Beijing has been slow to diversify its energy sources or to increase energy efficiency. Rocketing prices of oil and natural gas of late have made this even more difficult.

A new report on confronting climate change ranked China near the bottom of its index of 56 countries that were part of the 1992 United Nations Convention on Climate Change. Released by the Climate Action Network - Europe, the report ranked the United States at 53, with only China, Malaysia and Saudi Arabia below it.

But Chinese officials defend Beijing's record on fighting climate change. They point to Beijing's commitment to reduce energy consumption by 20 percent and pollutants by 10 percent in the next five years.

*This story is part of a series of features on sustainable development by IPS (Inter Press Service) and IFEJ (International Federation of Environmental Journalists).

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