On July 16th, China launched trading in the world’s largest carbon market, which is one part – but apparently an important part – of that nation’s efforts to curb its greenhouse gas (GHG) emissions. That message was delivered on July 22nd by Carnegie Mellon University Professor Valerie Karplus during the most recent webinar in our series, Conversations on Climate Change and Energy Policy, sponsored by the Harvard Project on Climate Agreements (HPCA). A video recording (and transcript) of the entire webinar is available here.
As readers of this blog know, in this webinar series we feature leading authorities on climate change policy, whether from academia, the private sector, NGOs, or government. In this most recent Conversation, I was fortunate to engage with someone with solid experience in research and engagement, with her focus on energy and environmental policies in an exceptionally important part of the world, namely China. Valerie Karplus is Associate Professor in the Department of Engineering and Public Policy at Carnegie-Mellon University, where she studies resource and environmental management in firms operating in diverse national and industry contexts.
Professor Karplus is an expert on China’s energy system, including related climate change policies – a very timely topic given recent developments in China. She previously directed the MIT-Tsinghua China Energy and Climate Project, a five-year research effort focused on analyzing the design of energy and climate change policy in China, and its domestic and global impacts. She holds a BS in biochemistry and political science from Yale University, and a PhD in engineering systems from the Massachusetts Institute of Technology.
In the first part of the webinar, Valerie uses a PowerPoint deck to take us through her views of “The Future of China’s National Carbon Market.” She praises the Chinese government’s commitment to addressing climate change, while acknowledging that sustaining those efforts will be neither simple nor easy.
“Many challenges around the question whether China can be trusted come from the fact you had different interests operating in different parts of the system,” she says. “I would say that the intentions of the top leadership to establish a credible system can be trusted…[but] a lot of the challenges will come in the implementation on the ground.”
Professor Karplus with QI Ye, Director of the Brookings-Tsinghua Center for Public Policy (BTC), at a workshop in Beijing in 2019 on carbon emissions trading, organized by the Harvard Project on Climate Agreements.
China’s new, national carbon trading system, launched earlier this month, is currently limited to the nation’s electricity sector, and includes more than 2000 power plants, but Karplus remarks that there will most likely be pressure to expand the scope of the system to other sectors in coming years to meet President Xi’s 2020 proclamation that the country will be carbon free by 2060.
“This is very ambitious because this is the first time that there has been discussion of deeply reducing emissions in China and tying that to a long-term goal,” she says. “There are plans underway to think about how all of the different energy sectors will need to change to support China’s carbon neutrality goal by 2060.”
China’s climate policies date back several decades, Karplus notes, and were crystallized by the nation’s Nationally Determined Contribution (NDC), announced in compliance with the 2015 Paris Climate Agreement. This includes making best efforts to reach peak CO2 emissions by 2030, reducing CO2 intensity by 60-65 percent relative to 2005 levels by 2030, increasing the non-fossil share of the primary energy sector by 20 percent by 2030, and increasing the forest stock by approximately 4.5 billion cubic meters by 2030. Doing all of this will be challenging, to say the least.
“China’s efforts to start to address carbon emissions we should think about as a gradual and long-term process, and the planning process and even action plans will also play an important role alongside efforts to address carbon through legislation targets,” she remarks. “The accounting of carbon is just now starting to happen. It’s well developed for the power sector, but for the other sectors it’s still not developed, so we need to ask how to read the tea leaves, essentially, on how different instruments will come into play and have different impacts over time.”
China’s national emissions trading system may be said to have begun with a set of sub-national pilot systems in 2014, in parallel with a number of other efforts designed to address air pollution. The seven pilot systems eventually led to the announcement in 2017 that the country would push forward with the development of a national emissions trading system. Policymakers learned a great deal through those pilot systems, according to Karplus. Looking forward, she predicts that China’s current carbon trading system, which is a tradable performance standard, will evolve into a mass-based cap-and-trade system by 2030, and will be accompanied by several other policy advances.
“You’re going to see a lot more electrification, a lot more renewables, a lot of directive energy policies in place alongside the cap-and-trade system, and the cap-and-trade system will evolve over time to have the function of both linking with global efforts and ambitions to provide a way of tracking and responding to other things happening in the world. And it also will help to control emissions within an ever-shrinking share of the power sector, which is fossil generation, but I don’t see the carbon market per say as being the main driver. It is one of many drivers and that’s where I think things will be in 20 years.”
The Q&A session with the audience after Valerie Karplus’s presentation is particularly interesting and informative. Do stay on the video for that!
All of this and much more can be seen and heard in our full Conversation here. I hope you will check it out.
Previous episodes in this series – Conversations on Climate Change and Energy Policy – have featured Meghan O’Sullivan’s thoughts on Geopolitics and Upheaval in Oil Markets, Jake Werksman’s assessment of the European Union’s Green New Deal, Rachel Kyte’s examination of “Using the Pandemic Recovery to Spur the Clean Transition,” Joseph Stiglitz’s reflections on “Carbon Pricing, the COVID-19 Pandemic, and Green Economic Recovery,” Joe Aldy describing “Lessons from Experience for Greening an Economic Stimulus,” Jason Bordoff commenting on “Prospects for Energy and Climate Change Policy under the New U.S. Administration,” Ottmar Edenhofer talking about “The Future of European Climate Change Policy,” and Nathaniel Keohane describing his view of “The Path Ahead for U.S. Climate Change Policy.”
Watch for an announcement about our next webinar. You will be able to register in advance for the event on the website of the Harvard Project on Climate Agreements.
