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The 5th Assembly of the World Bank’s Partnership for Market Readiness (PMR) is coming to an end after rich and rewarding meetings in Washington DC this week. I had the opportunity to present China’s final Market Readiness Proposal (MRP) (pdf), or in more simple language, China’s proposal to build a national emission trading system (ETS). Together with China, the PMR also received proposals from Chile, Costa Rica and Mexico on their initiatives. (Also read: Can Carbon Taxes Be Effective?)
From the Chinese perspective, our MRP serves as a summary of the Government’s initial thoughts on how a domestic ETS would be established to cover the whole country. For this to happen, a lot of work needs to be done, and this proposal provides a framework and roadmap to guide us on our journey. We are expecting domestic and international institutions, experts and stakeholders from different levels to be involved in this design process. Above all, we hope to draw on the experience of existing carbon markets around the world as well as from the seven pilot ETSs - comprising five cities and two provinces - set to start this year in China. Facilitating continuous technical dialogues, PMR serves as a knowledge exchange platform for our team from China and all the participant countries. This is a unique and valuable experience.
The Chinese MRP is organized as several building blocks. The first is China’s policy background, which provides the context for the plan. The rest are on how the sectors would be identified, how the main technical and institutional elements will be considered and, of course, the nuts and bolts of an ETS.
Many of our enterprises have gained initial carbon market experience from participating in the Clean Development Mechanism (CDM) and voluntary markets. The EU has the largest and longest running carbon market, but we have also seen emissions trading starting in Australia and California recently. To incorporate the lessons learned from these markets, we have included more elements, such as a price containment mechanism and participation of financial institutions in our MRP.
Another crucial element is how experience will be drawn from our own domestic pilot ETSs. Since November 2011 five cities and two provinces (Beijing, Shanghai, Tianjin, Chongqing, Shenzhen, Guangzhou and Hubei) have been preparing for these schemes at full speed. This year, it is thrilling to see these pilots taking shape.
For instance, in the Guangdong pilot, 310 participating companies are expecting to receive the first allocations within a few weeks. These pioneers from the power, iron and steel, cement and petroleum sectors are preparing to start trading in the second half of 2013. Shanghai published sector-specific greenhouse gas verification and reporting guidelines for nine sectors in January this year, and 200 participants have started reporting and verifying their historical baseline. Shenzhen was the first of the pilots to pass carbon trading legislation, in November of 2012. As a city without many heaving industries, 800 enterprises from 26 sectors are included in the Shenzhen scheme to ensure over 50% of the total emissions are covered. It plans to complete the baseline verification over the next three months and trading will also start within the year.
Market mechanisms are a crucial measure to combat climate change in the most economically efficient way. China is ready. We are embarking on a new journey of building our domestic market, drawing on the experience of countries around the world and hopefully over time able to share our experience. I hope you are also ready for the new carbon era.