The Chinese government has decided to pilot cap and trade systems in five major cities and two provinces. The pilot trading systems are expected to be set up by the end of 2013 and they will operate for two to three years as a learning exercise, Perera said. “China will take into account lessons learned from the pilot markets for the design of a national emissions trading system. When they would implement a national system depends on how these pilots perform. It is also possible that they may decide to go ahead with a national system before the end of the pilot phase,” Perera said.

“I think the intention for a national cap and trade system is there,” Perera said. China has a 2020 carbon intensity reduction target and the country has outlined a series of measures to achieve this goal in their 12th five-year plan. In China's 11th five-year plan, the country achieved a nearly 19pc reduction in energy intensity through administrative mechanisms, in which industries were given emission reduction targets. As China enters its 12th five-year plan, Beijing wants to implement more market-based mechanisms to complement administrative measures, including this pilot system, Perera said.

Emission reduction credits from Chinese projects could be traded domestically within a Chinese ETS. “Prices from clean development mechanisms (CDM) projects have collapsed,” Perera said. “If the prices for certified emission reductions (CERs) in the EU ETS are too low and Chinese CDM projects registered after 2012 will not be eligible in the ETS, one option is to allow them to be traded domestically,” he said. The EU has banned the use of CERs from projects based in non-least developed countries (LDCs) that are registered after the end of 2012.

ADB announced on 25 January that it is providing a $750,000 equivalent grant to China to set up a pilot emissions trading system in Tianjin that could pave the way for a national scheme. “One of the issues we are going to study in our system is how domestic offsets can be allowed into these pilot markets. There will be a lot of CDM projects located outside Tianjin, so we will study if those offsets can be traded in Tianjin.” Perera highlighted that in other cap-and-trade systems, offsets from other states and countries are fungible. The Tianjin government will decide to what extent they would allow offsets from other regions to be traded, he added.

Source: www.argusmedia.com/