RPT-PREVIEW-China to launch final CO2 exchange, national scheme uncertain

Wed Jun 18, 2014 8:26am BST

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* To launch 7th pilot emissions market in Chongqing on Thursday

* Climate officials look to create nationwide platform by 2016-17

* NDRC hints at separate nationwide scheme

By David Stanway and Kathy Chen

BEIJING, June 18 (Reuters) - China launches its seventh and final pilot carbon market in the sprawling city of Chongqing on Thursday, but plans to set up a national trading scheme within three years remain shrouded in uncertainty in the world's top emitter of greenhouse gases.

China has pledged that by 2020 it will reduce its carbon intensity - the amount of CO2 produced per unit of economic growth - by 40-45 percent from 2005 levels. It has also promised to set up market mechanisms to help meet its targets.

The ultimate aim of the seven pilot projects, experts had said, was to "let a hundred flowers bloom" in order to find the trading system that suits China the most, which would then form the basis of a national scheme.

"How to unify these markets is an extremely complex issue," said Shawn He, a lawyer with the Huamao & Guigu Law Firm in Beijing who specialises in carbon trading.

"I wouldn't doubt the ambition of the authorities, especially the National Development and Reform Commission (NDRC), to create a unified market in three years, but I'm more concerned about its integrity and quality."

The carbon market in Chongqing follows launches in Beijing, Tianjin, Shanghai, Shenzhen and the provinces of Hubei and Guangdong of schemes that force hundreds of local enterprises to buy permits to cover their emissions.

But these programmes cover only a tiny fraction of China's total greenhouse gas levels and climate officials say they are looking at creating a nationwide platform by 2016-2017.

In a speech last week, Sun Cuihua, deputy director of the climate change office at the NDRC, said a national trading scheme should be ready for launch within three years.

She, however, added that there was still a great deal of work to do, including the establishment of national standards.

"We first need to strengthen our statistical work and we also need to create a carbon emission system nationwide that covers major enterprises, which is the foundation for any carbon market," she said.

Nearly 20,000 enterprises across the country have already received orders from the NDRC to report their greenhouse gas emissions starting this year.

LINKING PILOTS OR SEPARATE NATIONAL SCHEME

Earlier this year, Su Wei, the director general of the NDRC's climate office, said a nationwide carbon market could be created by allowing provinces not covered by the existing pilot projects to participate in scaled-up cross-regional trading schemes.

While this proposal might have enabled high-emitting provinces like Hebei to participate in carbon markets set up by neighbouring Beijing or Tianjin, Su has since ruled it out.

According to a transcript of a speech at a closed-door conference in Shenzhen earlier this month, Su said existing pilot projects would merely be encouraged to use their expertise to help other regions "prepare" for a new nationwide scheme.

"The idea of extending the current carbon trading pilots to other regions is not about establishing a cross-regional market or extending the current scope of the pilot projects," he said.

Also, even if the seven pilot carbon markets wanted to cooperate, the permits traded in one jurisdiction are calculated differently from those elsewhere and are therefore incompatible.

The schemes have been tailored to match each region's economic development and so they also differ in the number of permits allocated to firms and in their focus, with wealthy Shenzhen looking to curb building or transportation emissions and Hubei trying to rein in heavy industries like steel.

One possibility is that China will create a separate nationwide scheme that will not be derived from the pilots, and Sun, the NDRC climate change office's vice-director, hinted last week that this might be one of the options now being considered.

The NDRC will bring out draft national regulations by the end of the year that will give the state planning agency the legal foundations to issue carbon permits itself, she said, adding that a nationwide scheme cannot just be created by integrating and extending the existing platforms.

"Because the pilots are currently independent, if we extend them to other regions or other markets, they will remain unconnected and it will remain an incomplete market," she said.

But the lawyer from Beijing, He, disagreed.

The pilots have legal force only until 2016, and if the NDRC creates a separate nationwide scheme, it would have to let the local schemes fall into abeyance to avoid a dual market.

"I think some form of integration (of existing markets) is the most reasonable solution," He said. (Editing by Himani Sarkar)