BERCShop: China’s Carbon Market and Lessons Learned from California

China has an important role in reducing the effects of global climate change, and having an effective national carbon trading may significantly mitigate its carbon production. On April 6th, we had the pleasure of hosting Dr. Bo SHEN and Dr. Bin YE from the Lawrence Berkeley National Laboratory to share their extensive experiences investigating and establishing carbon trading markets in China. More than 50 students, alumni, scholars, and working professionals also joined China Focus for this BERCShop on “China’s Carbon Market.”

Our keynote speaker, Dr. Shen introduced the development of China’s carbon market and what China can learn from California’s cap and trade program. Dr. Ye then focused on a specific case study of Shenzhen’s Emissions Trading Scheme (ETS) and introduced the top design ideas behind the Shenzhen ETS, including the Measurement, Reporting, & Verification (MRV) rules, allowance allocation methods, and the latest market operation status.

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Dr. Shen is a Principal Scientific Engineering Associate in the China Group of Lawrence Berkeley National Laboratory. He gave an insightful presentation titled “Carbon Cap-and-trade Programs in California and China: Experiences and Lessons Learned.” His speech highlighted several insights for China’s national cap and trade market design, including: 1) To set an appropriate level, China needs to build a good foundation on collecting verified emissions data to allow tracking of annual emission by source and trends; 2) China needs to embrace flexibility for covered entities such as 3-year compliance periods, low annual surrender, purchasing future allowance, allowance banking, and use of offsets; 3) China needs to set up a strategic receiver while creating floor and soft ceiling prices to provide stable market signals; 4) China needs to address double-counting of emission by assigning the responsibility to the pollution source; 5) China should have strong enforcement for compliance by revising its current penalty strategy.

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Following Dr. Shen’s speech, Dr. Ye, the first director of the Shenzhen carbon trading management office, spoke of the special difficulty of ETS construction in China and concluded by commenting on the outlook of China’s national ETS. Dr. Ye contended that the biggest challenges for the ETS constructions in China included 1) a relatively weak market awareness embedded in the national top level policy design; 2) an imperfect and immature market mechanism; and 3) a lack of understanding that air is commodity and can be traded. Nevertheless, he has faith that a successful carbon trading market will be a necessary component in China’s effort to mitigate climate change. He and many others are working toward that goal, and perhaps someday we can all contribute!

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If you are interested in this particular topic, you can read further on LBL China Energy Group’s publications at https://china.lbl.gov/publications

Below are Dr. Ye’s publications regarding China’s carbon market:

Ye B, Jiang J, Miao L, et al. Innovative Carbon Allowance Allocation Policy for the Shenzhen Emission Trading Scheme in China[J]. Sustainability, 2015, 8(1): 3.

Ye B, Jiang J, Miao L, et al. Interprovincial allocation of China’s national carbon emission allowance: an uncertainty analysis based on Monte-Carlo simulations[J]. Climate Policy, 2016: 1-22.