Beijing unveils sector coverage for national carbon market, aviation included

16 February 2015

China’s national carbon market is set to cap emissions from six industrial sectors, targeting power generation, metal and nonferrous metal related production, building materials, chemicals, and aviation, government officials said in early February.  

China announced last November in a landmark bilateral deal with the US that it would implement a range of regulations to ensure its emissions peak by 2030. A national cap-and-trade carbon market was slated as one tool to help the Asian giant meet this target.

The new scheme across the world’s largest emitter of greenhouse gases would reportedly regulate some three to four billion tonnes of carbon dioxide a year by the end of the decade and create a carbon trade worth up to 400 billion yuan (US$65 billion).

According February’s announcement China’s emissions trading scheme would likely kick off towards the middle of next year.

Jiang Zhaoli, a senior official at China’s top policy body the National Development and Reform Commission (NDRC), said the new market would initially operate with a three year trading phase before moving to full functionality by 2019.

The national market will be built on seven current regional schemes that have been rolled out over the past four years. One challenge facing policymakers will be stitching together these markets, which each have slightly different characteristics, such as variations in sector coverage. 

Aviation emissions regulation

The inclusion of aviation in China’s carbon market could be watched with interest, some experts said last week, given past international rows around tackling airline emissions due the implementation of unilateral mitigation measures in certain regions.

However, after several years of stalled attempts, the 191 members of the UN’s civil aviation body agreed in October 2013 to develop a proposal for the first-ever global market-based mechanism (MBM) on aviation emissions by 2016. The sector accounts for some three percent of global greenhouse gas emissions. (See BioRes, 29 October 2013)

The deal, clinched at a two-week meeting of the International Civil Aviation Organization (ICAO), includes language stipulating that countries must seek agreement from other nations before imposing domestic market-based measures on aviation emissions.

The ICAO discussions were set against a backdrop of backlash over the EU’s addition of international aviation to its Emissions Trading System (ETS) in 2012.

The bloc was slammed for the move specifically because the rules required the surrender of carbon permits for the entire duration of flights landing in and taking off from the bloc.

The EU argued it was necessary to include non-EU airlines in its ETS in order to prevent so-called carbon leakage, in other words, if a non-EU airline leveraged its non-taxed position to take over market share from European airlines. The move was labelled by some experts as resembling a border carbon adjustment (BCA).

Some two-dozen key trade partners, including China, the US, and Russia, struck out against the EU ETS aviation component and threatened potential countermeasures such as a WTO compatibility challenge, tit-for-tat taxes, and discriminatory treatment for European aircraft manufacturers.

After putting the controversial aviation component on ice for a year from April 2013, EU lawmakers agreed last April to revise the aviation ETS portion, extending the exemption of international long-haul flights until at least 2017.

At the time, however, Brussels signalled that failure to reach agreement in ICAO on an aviation emissions plan by 2016 would prompt a restoration of the original legislation. (See BioRes, 7 April 2014)

China’s national carbon market would most likely target domestic airlines, although this will be confirmed in coming months, following government approval.

UN talks

Meanwhile, last week saw aviation and maritime emissions crop up in the context of the UN climate change talks, with some countries backing the idea of including a global emissions-reduction target for the two sectors in a new global climate deal.

Language to that effect is inserted in the mitigation section of a newly agreed 86-page negotiating text. The document contains options within options on possible arrangements for the new climate agreement slated for adoption at a UN meeting in December in Paris, France.

A further option in the finance section of the document would also encourage ICAO and the International Maritime Organization – the UN body charged with regulating global shipping – to develop a levy scheme to provide financial support for the UN climate talks’ Adaptation Fund.

Some experts have argued that certain developing countries, particularly Small Island Developing States (SIDS) given their remoteness from international markets and reliance on tourism, are particularly vulnerable to abatement measures in the transport sector.

The negotiating text also includes various formulations to support the development of national and international market-based mechanisms as policy options for tackling emissions. Some parties, however, remained opposed last week to including or recognising markets as a climate tool in the final deal. 

For its part, Beijing did not come out in strong support for markets in the 2015 agreement at the UN climate talks last week, and stressed that developing country participation should be voluntary in any new international market-based arrangements. 

ICTSD reporting; “China to launch carbon market middle of 2016,” SOUTH CHINA MORNING POST; “National carbon market on the horizon for China,” THE CARBON BRIEF, 5 February 2015; “Talks target emissions cap on airline and shipping industries,” FINANCIAL TIMES, 12 February 2015. 

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