China is set to launch an emissions trading scheme by the end of the year, a significant step for the world’s largest emitter of carbon dioxide. ETS work by putting a cap on emissions and using the market to find the most cost-effective means of reducing them through the trading of permits to pollute amongst companies. The Chinese scheme will initially cover power generators before expanding to steel making and aluminium and 6 other key industrial sectors by 2020.
China will be joining a host of regions, countries and territories with existing ETS including the European Union, Switzerland, South Korea, California, New Zealand and Quebec. These schemes cover about 13% of the world’s total carbon emissions and in 2016 represented US$50 billion of value (combined with carbon taxes).
The launch would also be a boost to hopes of creating an international carbon trading market which the World Bank estimates would potentially reduce the cost of countries’ pledged emission reduction efforts by as much as 30% by 2030 and 50% by 2050 while providing an important source of income for developing countries.
China’s ETS is a very promising sign for global efforts to reduce carbon emissions and encouraging for other countries considering introducing an ETS to meet their emissions reduction targets under the Paris Agreement.