Updates from Tianjin: Chinese Businesses and NGOs Discuss the Future of Carbon Markets

China is hosting a UN climate meeting for the first time ever this week in Tianjin. While the venue has impressed most of the international visitors and the Chinese have gone out of their way to be good hosts, much of the enthusiasm for the meeting is not captured inside the conference center. Chinese companies and NGOs are energized by the event, but most are not officially registered organizations with the UN Secretariat, and thus need to hold their events outside the official venue. This is basically an unfortunate logistical result of the UN requiring organizations to register quite early and China’s volunteering and putting together this meeting in just the last couple of months. Many of these companies and local groups are interested in climate, but are unlikely to travel around the world to meetings outside China.

On Wednesday, I attended two such offsite events, a forum hosted by a consortium of forty local NGOs and a business forum, both on the future of the carbon market in China. The NGO forum, which WRI co-hosted, attracted private sector participants, including the CEO of China’s largest real estate firm Wang Shi. Tianjin is actually home to one of China’s many emissions trading exchanges, the Tianjin Climate Exchange, which co-hosted the “Forum on the Future of the Carbon Market” with the Energy Research Institute ((ERI), a policy research organization directly under China’s National Development and Reform Commission (NDRC)), and with support from a number of organizations, including the Environmental Defense Fund.

The conversation at the business forum was surprisingly frank. With almost three hundred attendees at one of Tianjin’s finest hotels, a range of speakers talked about the many needs of the carbon market. This ranged from the NDRC’s concern with the lack of a second commitment for the Kyoto Protocol (the source of external demand for China’s carbon credits) to a Ministry of Finance official’s concerns about the incompleteness of China’s market development and the amount of government interference in markets. He noted, as has been the experience in the US with the SO2 market, that there is a need for a complete and airtight legal regime in order to effectively trade emissions credits. MOF’s Chen Huan, Deputy Director of the China CDM Fund, emphasized the difference between voluntary programs and those with firm caps. He described markets without caps as essentially a form of “advertising.” In order to have real incentives to trade, companies would need emissions restrictions, but he emphasized that China’s legal regime needed to be tightened to have a successful market.

ERI Deputy Director Li Junfeng described the overall message of the conference as, “We should do it.” The participants expressed enthusiasm for creating domestic emissions markets, and Li emphasized to me that the growing consensus is that a market requires some kind of mandatory cap. It is not yet clear how this will play out in terms of overall Chinese policy. Will there be localized or sectoral experiments? Will the caps be not on emissions, but on some other measure? There is still a diversity of views. One aspect of the NDRC’s emphasis on the domestic nature of its policies and their separation from international commitments is that this may be the space NDRC needs to feel comfortable experimenting with new tools.

In the three years since the Bali Climate Conference the community interested in climate issues in China has expanded many times. There was almost no NGO activity three years ago, and today the 40-member consortium includes not only Beijing-based national groups, but also local groups in a variety of cities. The business-oriented climate community has also grown as Chinese companies have been introduced to emissions trading through the CDM and Chinese alternative energy developers have flourished under China’s national new and renewable energy targets. As with the discussion earlier this summer on the carbon tax, the discussion of carbon markets is still about whether to do it and about what the options might be. What is clear is that there are now a variety of communities in China interested in seeing new market-based mechanisms to control carbon emissions.

Photo by Matthew Stinson courtesy of a Attribution-Non-Commercial 2.0 Generic license.