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Thursday, December 22, 2011
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Will China’s Panda Market be a Bear or a Bull for International Carbon Linking?

By Guest Author, Jasmine Hyman, PhD candidate, Yale School of Forestry & Environmental Studies, and Jonathan Smith, JD/MEM candidate, Yale Law School and the Yale School of Forestry & Environmental Studies

This post originally appeared on the Yale School of Forestry & Environmental Studies UNFCCC blog on 9 December 2011.

The Ring of Fire is ablaze with the new carbon trading schemes sweeping around the Pacific Rim. New Zealand is home to the first mandatory trading scheme outside of the EU, and the governments of both California and Australia recently approved trading programs. Japan, which is pulling out of the Kyoto agreements in 2012, has been proposing the widespread adoption of bilateral carbon offset mechanisms for countries no longer part of those agreements, and at the municipal level, both Tokyo and Saitama are experimenting with urban carbon markets. Meanwhile, China and South Korea have plans to scale out national emissions trading schemes by 2015 as well.

Investors worldwide are taking note of these developments in Asia. At a China-sponsored side event at the climate negotiations in Durban, Henry Derwent, CEO of the carbon market’s International Emissions Trading Association, praised Asia as being the epicenter of the fastest growth in the carbon market, and noted that surveys indicate that of all the new trading programs developing around the world, participants in trading schemes have the most confidence in those that are being created in Asia.

China in particular has been the focus of attention ever since the controversial launch in 2009 of its “Panda Standard” with BlueNext, one of the leading environmental exchanges originating from the EU. This past year, the Chinese government announced that as part of the carbon intensity and energy intensity targets of its 12th Five Year Plan (2011-2015), seven pilot carbon trading schemes will be launched in provinces and cities: Beijing, Chongqing, Guangdong, Hunan, Shanghai, Shenzhen and Tianjin. Officials hope that these market-based programs will assist China in meeting its pledge to reduce nationwide carbon intensity (emissions per unit GDP) 40-45 percent below 2005 levels by 2020.

China’s domestic carbon trading scheme elicits equal parts confusion and optimism. The exact structure of the pilot carbon markets has yet to be worked out, as Tsinghua University’s Teng Fei noted in a Durban side event. One major point to work out is whether these pilot programs will cap emissions on an absolute basis, or per-unit of GDP basis. China is also looking at the Tokyo program, which bills itself as the “World’s First Urban Cap-and-Trade,” to see whether it should copy Tokyo’s end-user cap on building and facility owners, or follow the more traditional, EU-style cap on producers such as factories and power plants. And it is still unclear whether the pilot programs will be uniform in structure, or tailored to the specific circumstances of each province and city.

While Mr. Derwent maintains that it is “far too early to think of Chinese markets demanding international credits,” Li Junfeng of the Energy Research Institute of China’s National Development and Reform Commission did indeed indicate that the ultimate trajectory of China’s carbon markets are to eventually join a global market.

But stitching together the current patchwork of trading schemes will be challenging. On the international level, linking China’s trading schemes to its neighbors will be difficult, if not impossible, especially if the Chinese programs quantify emissions reductions in terms of GHG intensity, rather than the international norm of issuing carbon credits for reductions in absolute GHG emissions. Linking to the Australian scheme, which will likely be one of the largest sources of credit demand in the region, will also be complicated by the Australian system’s use of a floor price. It remains to be seen how carbon credits from other schemes will meet the floor price in order to circulate within the Australian market — will there be a top-up fee to the trader? A subsidy from the Aussies? Or no linking at all?

Leon Wang Liangling, Regional Manager for China and East Asia at The Gold Standard Foundation, a certification scheme for voluntary and CDM offsets, also points to internal tensions in bringing a market mechanism for pollution control to China. “Building a working, effective and efficient domestic scheme is highly challenging given the massive scale and high complexity of China’s economy. The truth is that those challenges that confront the trading scheme didn’t pop up only when the international climate talk heated up — they have been among the difficulties that China has to deal with in its market reform in recent decades.”

Worldwide interest in linking up the many regional carbon trading programs remains high. EU Climate Commissioner Connie Hedegaard confirmed plans to link the EU system with the what will soon be the second biggest emission trading scheme in the world: California’s. The EU has informed California that they hope to collaborate to ensure that their two programs are linkable. “It doesn’t have to be identical, just compatible,” Hedegaard notes.

With the potential of China’s scheme to be the largest in the world, pressure to make the Chinese system compatible will likely be high as well. It is up to China whether its carbon market will be a conservative bear that protects national interests, or an energetic bull pushing for global carbon market linkages.

Jasmine Hyman, is completing a doctorate at the Yale School of Forestry & Environmental Studies, where she holds a doctoral fellowship from the National Science Foundation. Jonathan Smith is a JD/MEM candidate at Yale Law School and the Yale School of Forestry and Environmental Studies. They attended COP-17 in Durban.

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Friday, December 09, 2011
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Bridging Gaps in Durban: What Can China do?

By Guest Author, Angel Hsu, Max Song, and Jonathan Smith

The following post is republished from China FAQs: The Network for Climate and Energy Information.

One of the most persistent themes so far at Durban has been how to bridge gaps - the divide between the developed and developing countries, many of whom disagree about whether the Kyoto Protocol should be extended into a second commitment period; the hole in climate finance pledges from developed countries; and the ambition or emissions gap between the Copenhagen pledges and the stabilization of global temperatures below a 2 degrees Celsius increase from pre-industrial levels.

These three major gaps must be addressed in Durban. One major question will be whether developing and some developed countries, Europe in particular, can work together to find a solution that enables the Kyoto Protocol to be extended. When it comes to money, there are questions about where some $2 billion USD out of the $30 billion promised to developing countries at Copenhagen and Cancun to assist them in mitigation and adaptation efforts will come from.

Perhaps the most prominent issue being discussed in Durban is the emissions or ambition gap between Copenhagen emission reduction pledges and the goal to limit global temperature rise to 2 degrees Celsius. To help facilitate the negotiations, the United Nations Environment Programme (UNEP) released a report Bridging the Emissions Gap which concludes that even if countries fully implement their Copenhagen commitments, the world would only be about halfway towards the emission reductions necessary to ensure global temperatures do not warm more than 2 degrees Celsius. However, the good news is that we have the technological and financial capacity now to achieve the emissions reductions necessary to avoid such an increase. Focusing on projections of global greenhouse gas emissions in the year 2020, the report looks at the “emissions gap” between:

  1. the level of emissions needed to ensure an average global temperature increase below 2 degrees C; and
  2. the level of global emissions in 2020 we’re likely to see given the voluntary emission reduction pledges in the Copenhagen Accord.

The report finds that even if all Copenhagen reduction pledges are met, total emissions would still exceed the level necessary to prevent a 2-degree increase by 6 to 11 gigatonnes. This is about 1 gigatonne greater than last year’s gap, an increase brought about by some countries such as Australia and Brazil having clarified how they calculate the baseline emissions from which their reductions would be made - effectively weakening their Copenhagen pledges.

But on the bright side, the full implementation of current technologies could more than make up for the gap, and at an economically feasible price. Existing energy efficiency technologies, renewable energy sources, and agricultural practices will be enough to put us back on the right track. In other words, we no longer need to wait for the next great technological breakthrough, just the next great policies to deploy the technology we have now. The report also emphasizes the need to improve measurement and accounting for market-based incentives such as the carbon reduction projects through the Clean Development Mechanism and from land-use, land-use change and forestry (LULUCF).

Negotiators here in Durban have been actively discussing the report and referencing the emissions scenarios that show global emissions must peak sometime before 2020 if temperature rise is to be contained below 2 degrees C. Delegates have been referring to the 6-11 gigatonne gap on the plenary floors and in the working groups over the last week.

We had the opportunity to speak with Dr. Kejun Jiang of China’s Energy Research Institute and a lead author of the UNEP report, about their analysis and what China can do here in Durban to help bridge the gap.

The Gap

Q: The UNEP report concludes that global emissions will need to peak before 2020 if the “emissions gap” is to be closed. How likely do you think it will be for countries to agree on this here in Durban and what about the time frame for when China’s emissions will peak?

A: It’s necessary for the world to see emissions peak by 2020. We can get there supposing China’s emissions peak in 2025, and developed countries will have significantly reduced emissions by 2025. This way, it’s still possible to control global average temperature rise below 2 degrees Celsius. It’s not quite possible to observe the global peak before 2015. For China, emissions are expected to peak around 2030. However, if we look at clean tech development in China now, the speed is very fast and it’s still possible to see major changes coming from China in 3 to 4 years to help close the gap.

Q: So is China’s Copenhagen pledge to reduce carbon intensity 40-45 percent enough to help bridge the emissions gap?

A: Actually, the 12th-Five Year Plan was made according to a target of 45 percent carbon intensity reduction. There are a lot of policies and actions in the plan on energy efficiency and non-fossil fuel energy. If all this work could be done well, it is possible for China to do better than the target.

Clean Tech

Q: Technology transfer continues to be a very hot-button issue in the UN climate negotiations. Will China be pushing for technology transfer to contribute to their ability to help close the emissions gap?

A: There is much capital from China looking for investment opportunities, however domestic investment has been pretty much saturated, and they are now looking at overseas investments. Clean tech investment is a good choice because China has the most competitive technologies that can bring down the cost of wind and solar power. So this is what we want to convey here in Durban: it’s not just emission reductions, it’s also about the country’s future competitiveness in the clean tech sector.

China will have a lot of capital in the future, like I just said, and China is not really in need of CDM money, which is only a tiny little part of GDP. What China needs is high-end technology.

The Durban Agenda

Q: What do you think can be accomplished here in Durban?

A: So here are my suggestions for us observers this time in COP-17. First, we want to leave some more room for the negotiators. Copenhagen was about debating; Cancun was about moving forward, and Durban is a working conference where countries don’t really want to fight each other but to finish the “homework” left from Copenhagen and Cancun. Also, countries in Durban want to nail down some technical details. For example, the EU wants to promote a “road-map” this time, and countries like China are waiting for that proposal to see how much it can be promoted. If Durban fails again, then countries will start to doubt UN’s capability.

Also China is changing very fast, and the negotiators need time to follow up. For example, China expected financial support in Copenhagen, but this time, this is not a major issue for China.

Q: If Parties fail to decide on a second commitment period before the Kyoto Protocol expires next year, what do you think China’s response will be?

A: I think this [failure to agree on the Kyoto Protocol] would be unimaginable. Without the KP - the minimum-level of agreement - it would be a mess. Ideally, we should have an improved KP, both considering the needs from G77+China and developed countries. China can also compromise on some issues here in Durban.

Q: If a new agreement can only be made for 2020, do you think that would be too late?

A: Certainly too late. There is possibility for some countries to make new adjustments to their 2020 emission goals. So I think countries should start to make targets for 2025 and 2030. If those targets are made very clear, then we can start to place less emphasis on emission targets for 2020.


Angel Hsu is a PhD candidate at Yale School of Forestry and Environmental Studies and a contributing expert to ChinaFAQs.org; Max Song is a MEM student at the Yale School of Forestry and Environmental Studies; and Jonathan Smith is a JD/MEM candidate at Yale Law School and the Yale School of Forestry and Environmental Studies. They are all attending COP-17 in Durban.

Posted in: Environmental Performance MeasurementEnvironmental Law & GovernanceEnergy & Climate
Thursday, December 08, 2011
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Propelling the Durban climate talks - China announces willingness to consider legally binding commit

By Guest Author, Angel Hsu, PhD candidate, Yale School of Forestry and Environmental Studies

The following post is republished from China FAQs: The Network for Climate and Energy Information.

When China launched its first official pavilion at a UN climate conference last week, UN Framework Convention on Climate Change (UNFCCC) Secretariat Cristiana Figueres was there alongside China’s NDRC Vice Minister Xie Zhenhua to cut the ribbon. Swarmed by journalists in the standing-room only conference center of the China pavilion in Durban, Figueres applauded China for being a “trend-setter” in global renewable energy, resonating around the world and during the first week of climate negotiations in Durban.

“As I look at what has happened here at Durban in the negotiations this past week, what I see is a sailboat that has been sailing over very difficult waters, but with the wind blowing the right direction. And now that you have arrived, that boat now has a powerful motor behind it,” she said. The motor propelling talks forward into the second and final week of negotiations here in Durban may be developments in China’s negotiation position that emerged last week. An announcement that made waves was with regards to China’s willingness to consider signing on to a legally-binding agreement with binding climate targets after 2020 for the country.

Lead Chinese negotiator Su Wei told media last Friday that, “We do not rule out the possibility of legally binding. It is possible for us, but it depends on the negotiations,” Su is quoted as speaking in English rather than Chinese, presumably to make his point clear.

Although China made similar noises in Cancun, Su’s statement is the first time in the international climate negotiations that China has made this type of overture so clear with regards to a willingness to consider placing its post-2020 action into a legally binding instrument. This willingness to discuss the legal nature of post-2020 targets comes directly counter to the United States’ position put forth in Durban last week in which Jonathan Pershing, Deputy Envoy for Climate Change, said that a legally binding post-2020 agreement would be unacceptable unless other major economies also agree to be legally bound. Indeed it would seem to fulfill one of the US’ main conditions for moving forward.

If China is indeed open to placing its post-2020 commitment into an internationally legally binding instrument, it has just opened a pathway forward to both securing the Kyoto Protocol for the post-2012 period and building a bridge, with all Parties, to a legally binding regime in the near future. The impact of this is not to be underestimated.

Vice Minister Xie Zhenhua confirmed China’s stance when he spoke at a briefing for international NGOs immediately following the China Pavilion’s launch. “We can start the process for a legally-binding framework for issues after 2020,” Xie said, clarifying five conditions that must be met before China can make its commitments legally binding in an international agreement. These conditions are:

  1. Parties must continue the Kyoto Protocol through a second commitment period;
  2. Developed countries must meet financial commitments to provide developing countries $30 billion in fast-start financing and $100 billion per year by 2020 through the Green Climate Fund;
  3. Institutionalization of consensus on finance, technology transfer, REDD+, adaptation, and transparency measures;
  4. Commitment to completion of the review of adequacy of long-term goals scheduled to take place between 2013 and 2015.
  5. Define a framework for a post-2020 agreement that upholds common but differentiated responsibilities, equity, respective capacities, and environmental integrity.

If all conditions are met, Xie says, “We are open to the process.”

Implications – Will China’s move bolster the EU mandate?

The question remains as to whether these major developments in China’s position here in Durban will have a significant impact on the negotiations in Durban. The European Union has stated its openness to placing its 2020 targets into the legally binding Kyoto Protocol if it is part of a package. The package includes a roadmap that would clearly show the way forward for all major economies to be in a binding regime in the post-2020 time period, the negotiations for which would end in 2015. China’s statements agreeing to internationally-binding emissions limits in a post-2020 framework might galvanize other major emerging economies such as India and Brazil to do the same.

Jennifer Morgan, the Climate and Energy Program Director at the World Resources Institute, explained the significance of China’s new posture:

“If China is indeed open to placing its post-2020 commitment into an internationally legally binding instrument, Europe and the most vulnerable countries are now its key allies. If these Parties can work together this week, Durban has a good chance of success,” Morgan added.

It is not yet clear what kind of commitment China would be willing to bind, and that level of specificity does not appear to be part of the current discussion.

Jonathan Smith (JD‘12/MEM’12) and Max Song (MEM’12) contributed to this piece.

Angel Hsu is a Phd candidate at Yale School of Forestry and Environmental Studies and a contributing expert to ChinaFAQs.org; Max Song is a MEM student at the Yale School of Forestry and Environmental Studies; and Jonathan Smith is a JD/MEM candidate at Yale Law School and the Yale School of Forestry and Environmental Studies. They are all attending COP-17 in Durban.

Posted in: Environmental Performance MeasurementEnvironmental Law & GovernanceEnergy & Climate
Tuesday, December 06, 2011
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Chinese experts discuss absolute emissions limits in Durban

By Guest Author, Angel Hsu, Max Song, and Jonathan Smith

The following post is republished from China FAQs: The Network for Climate and Energy Information.

The idea of a total cap on energy consumption in China, first suggested last March before the National People’s Congress, has reemerged in Durban -- and surprisingly there are now suggestions that China might consider some kind of a cap on carbon emissions. This has been suggested apparently as part of domestic policy rather than as a negotiating position, but details are very sketchy.

Over the last week, we have been witnessing an active debate amongst Chinese academics and researchers on energy and carbon caps, although these discussions have taken place separately, from outside the plenary floor and in the multitude of side events the Chinese delegation has been hosting. Chinese negotiators have been careful to not muddy the waters in Durban, especially after making such a loud splash late the first week of negotiations by supporting a legally-binding treaty after 2020. Read more.

What senior government researchers have been suggesting, however, is that China is considering an absolute rather than an intensity-based emissions target that is more restrictive after 2020. Statements by senior researchers from the Energy Research Institute - a high-level government think tank associated with the National Development and Reform Commission (NDRC) - are the first time that China has suggested they might soon be ready to set a timetable and limit for its emissions, at least in the context of domestic policy.

This idea first emerged prior to the March release of the Five-Year Plan. Senior representatives of the Chinese government suggested that an energy consumption cap of 4.1 billion tons coal equivalent might be included in the Plan. Since then we understand the question of a total energy cap has been hotly debated within the Chinese government. Now its advocates are speaking fairly forcefully in Durban and going beyond the energy cap to suggest a carbon cap as well.

At a side event on local pilot carbon trading schemes on Dec. 1 organized by Tsinghua University and the Institute for Global Environmental Strategies, the debate of absolute versus intensity emissions targets was prominently mentioned. Tsinghua University professor Teng Fei emphasized that whether these preliminary carbon-trading schemes will cap emissions on an absolute or an intensity basis is the biggest issue for government leaders in deciding how to roll out these programs to the four cities and two provinces selected as pilots. Lead Chinese negotiator Su Wei was also present and added, “It’s very clear in China’s Five-Year Plan that it’s our objective to gradually establish a national system on carbon emissions trading. Certainly the pilot system is still in the design stage but we have more or less set the direction of piloting market mechanisms.” It certainly could be the case that experience with regards to the design of caps (i.e. sectoral or provincial basis; baseline calculations, etc.) in these local pilot projects may eventually inform a national level cap on emissions.

One reason for a possible shift to an absolute target is because an emissions cap may spur growth in alternative energy sectors – such as natural gas, renewables and nuclear – according to Yang Fuqiang, Senior Advisor on Energy, Environment, and Climate Change for the Natural Resources Defense Council.

While Chinese experts and delegates have not suggested what kind of carbon number they are considering, Jiang Kejun of NDRC’s Energy Research Institute noted, “If you add up the coal consumption cap, the target for non-fossil energy consumption, and the natural gas target, you can basically calculate what an emissions limit for China might be.”

At this point this discussion mainly concerns domestic policy, but its active airing in Durban suggests the scope for Chinese policy development in the next several years.

Angel Hsu is a Phd candidate at Yale School of Forestry and Environmental Studies and a contributing expert to ChinaFAQs.org; Max Song is a MEM student at the Yale School of Forestry and Environmental Studies; and Jonathan Smith is a JD/MEM candidate at Yale Law School and the Yale School of Forestry and Environmental Studies. They are all attending COP-17 in Durban.

Posted in: Environmental Performance MeasurementEnergy & Climate

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