ADB sets up carbon emissions trading system in China

By eGov Innovation Editors | Jan 26, 2012

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The Asian Development Bank (ADB) is helping set up a pilot provincial emissions trading system in China that could pave the way for a national effort to lower greenhouse gas emissions.

China is the world’s largest emitter of carbon emissions, but ADB says it has been making major strides in recent years to improve energy efficiency and to increase the use of renewable power sources.

ADB is providing a $750,000 equivalent grant to lay the groundwork for a cap-and-trade based emission trading system (ETS) in Tianjin, which could begin operations as early as 2013.

Cap-and-trade based emission trading allows market participants to turn emission savings into a tradable commodity and provides market-based incentives for industries to reduce their use of carbon-emitting fossil fuels. It is economically more efficient than a carbon tax, as the market determines the carbon price and intended emission reductions are stipulated by the market regulator.

“Emissions trading encourages companies to increase energy efficiency and renewable energy supply, which would ultimately result in reduced greenhouse gas emissions.  This pilot will provide valuable lessons for the design of a nationwide system to reduce the carbon intensity of the Chinese economy,” said Pradeep Perera, Senior Energy Specialist in ADB’s East Asia Department.

Under China's current five-year national development plan to 2015, it has set significant carbon and energy intensity reduction targets and is looking at developing market platforms that can provide companies with economic incentives to cut emissions.

The government has also earmarked similar pilot emission trading schemes for development in Beijing, Shanghai, Chongqing municipalities, and in Guangdong and Hubei provinces.