China outlines plans for domestic carbon trading

Just days after Barack Obama's transition team signalled that the creation of a US carbon cap-and-trade scheme would be an early priority for the new administration, the global carbon market received another boost after Chinese officials said the government will establish a nationwide carbon trading scheme.

According to reports in the South China Morning Post, the State Forestry Administration said yesterday that the central government will enforce a compulsory carbon trading scheme across the country's provinces as part of its strategy to create a "low carbon civilisation".

Meanwhile, the People's Daily Online quoted an official at the Chinese Academy of Sciences who said that the new scheme would aim to ensure that carbon emissions are treated as a "scarce resource".

He added that provinces that invest in carbon capture systems for example, would be able to earn money from those regions that fail to invest in the technology.

"Based on the trading system designed by the project group, Yunnan, Qinghai and Tibet can receive carbon sequestration compensation; Shaanxi province is currently on the average, and other provinces, autonomous regions and municipalities should proportionally hand in their carbon funds," the paper explained.

Alessandro Vitelli at analyst firm IDEACarbon said that the proposed carbon trading scheme was likely to serve as a domestic cap-and-trade scheme and would have little effect on the wider global market built around the UN-backed Clean Development Mechanism (CDM).

He explained that while China is a major player in the CDM as a generator of carbon credits, UN rules mean that the resulting credits have to be registered in the developed economies that buy them – a fact that limits China's role as a trader of credits.

Vitelli also warned that while the establishment of a cap-and-trade scheme in China should help better manage its carbon emissions, it did not necessarily mean the government had shifted its position ahead of international climate change negotiations next month.

"This should not be interpreted as a change in the politics," he said. " Having plans for a carbon market does not mean China has changed its view that it needs to be able to continue to grow emissions as it grows its economy."