- China wary of the socio-economic impact of the unregulated carbon market
- reluctant to give free rein to market forces to determine a carbon price that incentivizes emissions reductions in its power
According to academics, the launch of China’s nationwide carbon market has faced delays partly because the government remains cautious about its impacts on economic inequality says an article on SP Global.
Emissions trading system
The highly anticipated launch of China’s emissions trading system, or ETS, was initially slated for end-June and was postponed for undisclosed reasons.
China is reluctant to give free rein to market forces to determine a carbon price that incentivizes emissions reductions in its power, industrial, and transportation sectors, which are the backbone of people’s livelihoods and its economic growth.
According to the environment ministry’s initial plan, the power sector will be the first sector to come under the ETS, which will eventually include steel, building materials, petrochemicals, chemicals, nonferrous metals, paper, and aviation by 2025.
Economic disparity
China’s most carbon-intensive industries are also the most coal-intensive, and a single nationwide carbon price burdens provinces heavily relying on coal, as economic growth rates and industrial development vary with each province.
Heavy industries are concentrated in the northern provinces that may need to buy carbon allowances from southern provinces, Peng Wensheng, Chief Economist at China International Capital Corp, said. Additional carbon costs will become a burden for northern provinces’ economic development and exacerbate existing income inequalities.
“Among all provinces, Shanxi, Inner Mongolia, and Shaanxi have a much heavier dependency on coal mining and power sector for its taxation,” Peng said, adding that energy transition will be more painful for these provinces while they struggle to create employment and sustain economic growth.
Global carbon regime
The wariness of global pressure to impose a uniform carbon price has made China even more cautious in designing its domestic carbon pricing mechanism.
The Carbon Border Adjustment Mechanism or CBAM proposed by the European Union has raised concerns about potential carbon taxes on imported goods currently covered in the EU’s Emissions Trading System.
The CBAM, once implemented, will significantly impact China’s steel, aluminum, and cement export volumes and competitiveness, according to a recent study by Tsinghua University. Currently, 9% of aluminum products and 8% of steel imports into Europe are from China, the study showed.
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Source: SP Global
