I doubt I’m alone in feeling disappointed by the outcome of Ban Ki Moon’s climate summit of World Leaders today. It might just be the fact that I had my hopes up after reading the [Times Online](http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article6841435.ece “”) article over the weekend confidently asserting that China was going to stun the world and announce the introduction of cap and trade. No sources were cited so I should have known better but I guess I just wanted to believe.
Had China said it wanted to join the carbon market properly it would have been a big step forward. At present, it’s mainly European companies investing in wind farms and the like in China, because they have caps to meet and can make cuts more cheaply overseas. The problem is the task of decarbonising China and Europe (and ultimately the rest of the world) is too huge to be shouldered by EU firms alone. To be fair the tradable permits bought by Western firms only provide part of subsidy – Chinese ‘feed-in’ laws guaranteeing a good rate of return for clean power also contribute.
But if China can afford subsidies why do European firms need to pay too? Wouldn’t if be better if China picked up the tab and European firms spent their money investing in clean infrastructure here moving away from the polluting coal fired power stations we’ve been building for over half a century? To do that China has to be willing to require its own polluting companies to start footing the bill for the massive global clean up operation. President Hu’s commitment to providing 15% of China’s primary energy from nuclear and renewables by 2020 is not enough if the other 85% is still provided by inefficient coal and oil – especially as according to data published by carma.org roughly 16% of China’s power sector is already zero emission.
Practically speaking China would struggle to emulate the US’s idea of placing a cap on 85% of its economy. They do not have the data and a well-established regulatory infrastructure to apply to the task of controlling polluters. But they could announce that they intend to start with their power sector. Power stations are the largest source of emissions in the world and there are surprisingly few of them. In China only 750 fossil fuel fired power stations account for the biggest portion of their emissions of CO2 and they are relatively easy to track (compared to the 12,000 installations currently in the EU Emissions Trading Scheme).
Assuming it’s practically possible to introduce a cap and trade mechanism in China the next question is why would they do it? Two reasons – a more reliable market in clean technologies: at the moment China is at least partly reliant on the vagaries of the European emissions trading scheme. If demand dries up because of a recession, reducing emissions in Europe without trying, or because something cheaper than subsidised Chinese wind farms comes to market (forestry credits say) then the market could quickly shrink to nothing. This is not good for a country that is investing massively in engineering capacity – a larger market would help Chinese manufacturers plan for the future.
The other benefit is the secondary economic effects that spring up when you create a new class of tradable commodity that is equivalent to hard cash. Creating a few billion permits and sinking them into a market generates a lot of economic activity – activity with a low carbon footprint helping to reduce the carbon intensity of GDP. At present London is benefiting from the creation of the EU emissions trading scheme. Wall Street is sure to catch up quickly if cap and trade legislations is passed in the US. Beijing or Hong Kong should be eager to join the party.
While current forms of cap and trade are far from perfect they do put a break on emissions, money flows and things happen. We are calling for world leaders to commit to controlling pollution from their power sector, causing a massive flow of capital into clean solutions. Fine sentiments and commitments to working together are not enough. We need a clear action plan. A new Apollo mission to rid the world of carbon emissions: One Giant Leap into a cleaner future.