27 June 2014

The "Carbon not Market" in China

I taught a fourth-year class at Simon Fraser University where I allowed students to pick a "natural resource" topic that they would study, present and write on. I learned a lot from my students (who enjoyed the experience [pdf]) and asked each to write a blog post on an interesting dimension of the area they studied.

Here's a edited post from NZ:

Global warming is a hot topic in China, and the world's largest emitter wants to reduce carbon emissions. Six local carbon trading schemes have been launched in China since June 2013, but is China’s carbon market really a “market”?

In China’s cap and trade carbon market, local governments set the cap based on information provided by companies and most permits are given to companies for free. These controls (or distortions) are further reinforced by a 10 percent limit on daily price movements. Trade among the six regional markets is not yet allowed, so prices vary by location.

China’s carbon markets were very popular in the beginning, but they have cooled in a year. Trading volumes are low and institutions underdeveloped. Laws and regulations still need to be written. Too few experts work on carbon regulations or trading.

Perhaps the problems can be traced to free permits and controlled prices. A market needs prices to be driven by demand and supply, not the government.

Bottom Line: China's carbon "market" is more propaganda than solution.

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