China’s announcement last month that it will begin implementing a national cap-and-trade system for greenhouse gas emissions in 2017 is welcome news. Not only because it signals (again) that the world’s largest emitter may be starting to tackle global warming (and conventional air pollution), but because it tosses another shovelful of dirt on a longtime U.S. excuse for inaction.
Reports on China’s announcement nevertheless raised concern about whether China (or any government) can implement and enforce such a complex, opaque system. A decade in, the European Union’s Emissions Trading Scheme has proven only weakly effective. The EU has struggled to remedy numerous design and implementation flaws including a too-loose cap that has failed to induce a significant, persistent and rising carbon price, as well as international offsets that hold down carbon prices and whose environmental benefits remain maddeningly difficult to monitor and verify.
Moreover, the opacity of permit-based trading systems appears well-suited to China’s particularly corrupt form of “crony capitalism.” And another possible motivation for China’s choice of cap-and-trade over a transparent and easier-to-administer carbon tax is Beijing’s history of profiteering from questionable carbon offsets; these could expand if China can link with lucrative carbon markets in the west.
If China does proceed with cap-and-trade, it would be wise to build in a price floor to assure a clear minimum carbon price ― a “patch” that the EU has thus far failed to enact.