Cap-and-trade scheme: step forward – Sara Hsu

While much work remains to be done, China and the US has set an important step forward in curbing carbon emissions, writes analyst Sara Hsu in the Diplomat. “At present, China’s cap-and-trade systems do not address price distortions in the nation’s socialist economy.”

Sara Hsu:

At present, China’s cap-and-trade systems do not address price distortions in the nation’s socialist economy. Electricity prices continue to be controlled, encouraging electricity consumption. What is more, allocation based on grandfathering has resulted in higher standards for newer firms. Double-counting of emission allowances for both consumers and producers has produced an inefficient supply of allowances, and most allowances are currently free rather than sold at auction. China’s cap-and-trade system is also relatively nontransparent in terms of giving out allowances and monitoring the effectiveness of the cap-and-trade schemes.

These issues presented in China’s pilot cap-and-trade programs must be addressed in the national program. The National Development and Reform Commission has made a general statement that it will attempt to improve the regulations surrounding carbon trading schemes.

It should also be kept in mind that a cap-and-trade program cannot be considered a standalone policy in the war against climate change. Cap-and-trade programs have limitations, since not all emissions are easily monitored; they come from various sources and cannot be evaluated and “capped.” Programs that place an emphasis on moving to renewable energy, reducing household use of fossil fuels, improving mass transit, and enhancing energy efficiency must complement any cap-and-trade scheme.

Despite producing the world’s largest volume of emissions, China has been a leader in the use of renewable energy. China’s carbon-curbing plan and the effectiveness of its proposed emissions targets will among the important topics of discussion at the UN climate talks in Paris later this year.