(China Focus Face to Face) The world's largest carbon market is born. Can China be an international "carbon seller" again?

  China News Service, Beijing, August 3, title: The world's largest carbon market is born, can China be an international "carbon seller" again?

  China News Agency reporter Pang Wuji

  On July 16, China's carbon emissions trading market was officially launched. The first batch of 2,162 key emission units in the power generation industry were included in the national carbon market, covering approximately 4.5 billion tons of carbon dioxide emissions per year.

Under this huge scale, China's carbon market has become the world's largest carbon market once it is launched.

  How is the carbon market different from the familiar stocks and other markets?

How is China's carbon market designed?

Will China become an international "carbon seller" in the future?

In response to these issues, Zhang Xiliang, director of the Institute of Energy, Environment and Economics of Tsinghua University and head of the technical expert group for the overall design of the national carbon emissions trading system, accepted an exclusive interview with China News Agency "China Focus Face-to-face" for an authoritative interpretation.

China News Agency "China Focus Face to Face" interviewed Zhang Xiliang, director of the Institute of Energy, Environment and Economics of Tsinghua University and head of the technical expert group for the overall design of the national carbon emissions trading system.

Photo by China News Agency reporter Jiang Qiming

Excerpts from the interview are as follows:

What is the carbon market?

China News Agency reporter: What is the carbon market?

How is it different from what we are familiar with, such as the stock market?

Zhang Xiliang:

The basis of the carbon market (operation) is the carbon emission permits issued by the government to enterprises, also called quotas.

Within a certain period of time, the actual carbon emissions of an enterprise cannot exceed the emission allowances it receives, which is called carbon emission compliance.

  The carbon emission reduction performance of different companies is also different, some companies have excess quotas or permits, and some companies are not enough.

The carbon market provides a trading platform for (insufficient) companies to purchase quotas to supplement them, so as to achieve compliance, (too many quotas) companies can sell excess quotas to obtain a portion of the income.

  Therefore, the transaction in the carbon market is actually the transaction of allowances, that is, the transaction of carbon emission permits issued by the state.

Buying stocks can become a shareholder of an enterprise, so the stock market transaction is actually a transaction of enterprise ownership.

The two are fundamentally different.

Generally speaking, the carbon market is a policy market that helps the country achieve carbon emission reduction targets.

China News Agency reporter: Who can trade in the carbon market?

Zhang Xiliang: The

primary trading entities in the carbon market are enterprises, especially large carbon emitters and key emitters.

This range may be expanded in the future.

The relevant documents of the Ministry of Ecology and Environment are clear, and investment institutions and individuals that comply with the trading rules will be added to participate in carbon emissions trading in a timely manner.

This can increase market influence and improve market liquidity.

Data map: Shijiazhuang Hegang Group Carbon Asset Management Co., Ltd.

Photo by Wei Qingyuan

China News Agency reporter: What are the main aspects of the carbon market's incentive mechanism?

Zhang Xiliang:

The incentive mechanism of the carbon market first comes from carbon prices.

Carbon prices will affect the cost of product production or service provision, and ultimately affect the prices of products and services.

Affected by the carbon price, the higher the carbon content of a product or service, the higher the price, and the lower the carbon content, the lower the price.

This will create a mechanism: to make consumers more inclined to choose products or services with lower carbon emissions, thereby encouraging the production and consumption of low-carbon products and services.

  In addition, carbon prices can be used to encourage enterprises to make technological innovations in carbon emission reduction.

If a product has low carbon content, it will be more competitive in the market and its price will be more competitive.

Carbon reduction is not a "free lunch"

Reporter from China News Service: At present, how is the pricing of carbon prices in China's carbon market considered?

Zhang Xiliang:

The basic carbon market still depends on how many allowances the country issues.

If the country issues relatively few quotas and the total amount is set less, the carbon price will be relatively high, and if more quotas are issued, the carbon price will be relatively low.

  A key factor in determining the carbon price is whether the country’s carbon emission reduction targets are strict and how much the country expects the carbon market to play a role.

China News Agency reporter: You mentioned that the incentive mechanism of the carbon market comes from carbon prices.

However, a company needs a certain cost to achieve carbon emission reduction. Is it uneconomical for companies to reduce the carbon price of products through carbon emission reduction?

Zhang Xiliang:

We must admit that carbon reduction is not a "free lunch".

The introduction of a carbon price will definitely increase the costs of some companies, especially those companies that do not perform well in reducing carbon emissions.

These companies may need to purchase additional quotas to achieve compliance.

This reflects the carbon market's disciplinary effect on companies that do not perform well in reducing emissions.

But it needs to be seen that this is short-term.

In the long run, carbon prices will encourage companies to carry out technological innovation and help reduce emission reduction costs.

Data map: On December 27, 2018, China's first 100-megawatt molten salt tower solar thermal power station was completed in Dunhuang, Gansu.

Photo by Yang Yanmin

China's carbon market will exceed 7 billion tons in the future

China News Agency reporter: According to official reports, the early launch of the carbon market and the inclusion of the power generation industry is only the first step, and the market coverage will be gradually expanded in the future.

What is your estimate of the scale of the carbon market, and what is the future potential?

Zhang Xiliang: The

national carbon market started from the power generation industry, and the current scale has exceeded 4 billion tons.

In China, carbon emissions mainly come from two industries, power and industry.

In the future, the coverage of the carbon market will be further extended to industrial industries such as steel, building materials, petroleum, chemical, non-ferrous metals, and the final annual carbon dioxide emissions will exceed 7 billion tons, accounting for more than 70% of the national carbon emissions.

Data map: Qinghai photovoltaic power generation project base.

Photo by Zhang Haidong

China's carbon market will provide reference for developing countries

China News Agency reporter: As early as 2005, the European Union had set out to establish a carbon dioxide emissions trading system, and now the EU's trading system has become more and more perfect.

What international rules did China refer to when designing the carbon market?

Zhang Xiliang:

At present, more than 30 countries and regions in the world have adopted or plan to adopt the carbon market mechanism to reduce carbon emissions. Among them, the EU and California have relatively mature carbon markets.

China's carbon market is very open in the process of design and development, so pay attention to drawing on foreign experience.

  For example, the construction of the European and American carbon markets adopts a phased approach, which is not perfect at the beginning, but is gradually improved.

China’s carbon market has also adopted this approach. At the beginning, seven pilot projects were conducted in five cities and two provinces to provide a reference for the development of the national carbon market.

  In addition, legislation is critical to the healthy operation of the carbon market.

The carbon market involves economic activities, and finally some problems have to be resolved through laws.

China is also very active in this regard.

China News Service: Compared with Europe and the United States and other countries, what are the innovations in China's carbon market?

Zhang Xiliang:

First of all, when the Chinese carbon market started, it was not a mass-based carbon market but a rate-based one. This can reduce the cost of enterprises as much as possible and reduce its impact on the economy. To the lowest.

  In terms of carbon emission control (methods), China has (always) focused on intensity control, supplemented by total amount control, and is currently shifting to focusing on total amount control.

This is also in harmony with China's current stage of economic development and the country's major policies to deal with climate change.

  In addition, a big challenge facing China's carbon market construction is that the electricity market reform has not yet been completed.

Most electricity prices in China are still determined by the government. If the power industry needs to purchase additional allowances, it will increase costs. However, this cost cannot be transmitted to users through the price mechanism of electricity prices, so it is difficult to achieve carbon reduction through market mechanisms. Row incentives.

Therefore, when designing the carbon market, especially when calculating the emissions of high-energy-consuming enterprises, in addition to accounting for their direct emissions, they also account for indirect emissions related to their electricity and heat use to make up for some of the impacts caused by the imperfect power market. .

These will also become lessons for developing countries to learn from.

Data map: Zheneng Changxing Xianfeng Photovoltaic Power Station under the blue sky and white clouds.

Photo by Zhu Jiangyun

China News Agency reporter: How do you evaluate the level of China's carbon market?

Zhang Xiliang:

After the launch of China's carbon market, the price of carbon has been around US$8 per ton. I think this is a very good level.

According to estimates, the current marginal cost of abatement on a full economic scale in China is about $7.

For the carbon market to play an effective role, the carbon price should be greater than or equal to US$7.

The current carbon price is higher than this level, which is an effective carbon price.

  The EU carbon market is recognized globally as a relatively mature carbon market, and the current carbon price is above 50 Euros per ton.

But don’t forget that for seven or eight years in the EU carbon market, carbon prices have been hovering in the range of 3 to 9 euros per ton, which is relatively sluggish.

  In the future, moving towards achieving the peak of carbon by 2030 and achieving the goal of carbon neutrality by 2060, the full-scale carbon emission reduction costs of the Chinese economy will also increase, so there is still room for carbon prices to rise.

We estimate that during the "14th Five-Year Plan" period, the carbon price in China's carbon market may be around US$8 to US$10 per ton; during the "15th Five-Year Plan" period, the carbon price may further rise to US$15 per ton.

  At present, apart from China, other developing countries have not yet established a carbon market.

A very important value of China's carbon market construction is that it can provide reference for the vast number of developing countries.

Can China continue to be an international "sale of carbon monks"?

China News Agency reporter: Recently, some foreign experts (officials) suggested that China, the European Union and the United States take the lead in forming a consistent carbon pricing mechanism. Do you think this condition is now available?

How does China's carbon pricing keep up with international standards?

Zhang Xiliang:

In theory, the establishment of a global carbon pricing mechanism is very important for global carbon emissions reduction and climate change.

Article 6 of the Paris Agreement contains special arrangements for (using) global carbon pricing and global market mechanisms to achieve emission reduction targets.

Some advanced economies, such as the United States and Europe, have relatively high marginal abatement costs. With this mechanism in place, emissions can be achieved by purchasing allowances in countries with lower marginal abatement costs through the carbon market.

For example, the EU can go to Cambodia, Vietnam, India and other countries to buy quotas.

In this way, global carbon prices may be leveled.

Some developing countries can also get part of their income by selling quotas.

  But technically speaking, it is difficult for the carbon markets of China, the European Union, and the United States to be linked, and there is still a long way to go.

I personally believe that the key to the construction of a carbon market is not whether to link them together or whether to implement the same carbon price.

More importantly, as many countries and regions as possible establish carbon markets and use the carbon price mechanism.

China News Agency "China Focus Face to Face" interviewed Zhang Xiliang, director of the Institute of Energy, Environment and Economics of Tsinghua University and head of the technical expert group for the overall design of the national carbon emissions trading system.

Photo by China News Agency reporter Jiang Qiming

China News Agency reporter: Will China still be an international "carbon seller" in the future?

Zhang Xiliang:

In the past, there was also CDM, the Clean Development Mechanism. At that time, China was the largest seller of carbon emission reduction targets under this mechanism.

This has greatly promoted the development of China's renewable energy industry, especially wind power and photovoltaics.

But at this stage, China's cooperation with the EU and the United States in the carbon market no longer emphasizes the sale of quotas by Chinese companies.

Because China itself faces strong international performance obligations.

Including the "3060" dual-carbon target proposed by China, it is actually very challenging.

Therefore, at this stage, it is not China's demand to get income by selling quotas.

At the 2021 Green and Safe Port Conference, Tianjin Port Group focused on the "dual carbon" goal and built the intelligent container terminal of section C of Tianjin Port into an artificial intelligence "zero carbon terminal."

Photo courtesy of Tianjin Port Group.

China News Agency reporter: How will forest carbon sinks be transformed into "golden mountains and silver mountains" through the carbon market in the future?

Zhang Xiliang:

How can green water and green mountains be transformed into golden mountains and silver mountains? The carbon market will play a direct role. Trees, grasslands, etc. have carbon absorption capacity and can be developed into forest carbon sink projects, and then put them in the national carbon market to offset (carbon emissions), which is directly realized. In the future, this may become a fast channel for the transformation of green water and green mountains into golden mountains and silver mountains. From a national perspective, when designing a carbon market offset mechanism, priority will be given to encouraging forest carbon sink projects. Companies can also achieve carbon reduction by purchasing forest carbon sink projects instead of quotas. (Finish)

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