Time is entirely non-renewable. So how to make up lost time? To jump exponentially ahead and break the mold.
That’s what China has done with its long-awaited announcement in December 2017 that it would officially implement a nation-wide mandatory cap-and-trade system covering its power sector.
In a classic cap-and-trade, emitters are issued emissions allowance permits and those who undershoot their allowance may sell their unused allowances to others who may have exceeded their allowances. All must collectively remain under a maximum level of permitted emissions. That maximum is gradually reduced, tightening the supply of allowances, raising the demand. Raising demand should raise prices, and thus emitters in theory seek cheaper ways to reduce emissions.
This drives efficiencies, stimulates adoption of new technologies and, overall, achieves significant emissions reductions.
China has not released full details yet, but it will offer a training wheels period to emitters so they can become accustomed to the rules.
China’s cap-and-trade system may have been a long time coming, but it has spent the last decade investing in people - not only in the mechanics of trading - training the next generation of cap-and-trade practitioners.
This investment in human capacity, and the huge size of the emissions pool in China, means that China’s cap-and-trade system has the potential to energize all carbon markets, including in the EU.
China is perhaps the least conventionally capitalistic nation in the world. Yet, it has co-opted the invention of the most conventionally capitalistic nation in the world, the U.S.
With the U.S. abandoning the cap-and-trade tool it invented in the late 1990s to address acid rain and failing to legislate for a national cap-and-trade in 2010, China has been left to become a beacon of environmental capitalism. Unafraid to flout theory and expectations of ideology, China has now taken the lead and its cap-and-trade system has the potential to transform the world’s approach to climate change and environmental finance.
I had seen this in the making some years ago in August 2008, when we launched the Tianjin Climate Exchange (TCX), China’s first pilot cap-and-trade, which I helped spearhead.
The launch had the thrilling feel of a journey to an entirely new world, an unknown world that would, in time, come into focus. Excitement crackled and people were eager.
Meanwhile, back in the U.S., policy was stuck. Brave leaders in the House of Representatives, especially Congressmen Henry Waxman of California and Ed Markey of Massachusetts, were struggling vote-by-vote to eke out support for a bill that would have established a national cap-and-trade.
Finally passing the House, the legislation fell flat in the U.S. Senate. California and the northeast states have small cap-and-trade systems in place, but a national system is now unlikely to emerge in the foreseeable future.
Cynics may wonder if China’s national plan will sufficiently reduce greenhouse gas emissions and question certain aspects of the plan. But, now that China’s announcement is official, the cap-and-trade will only gain strength and momentum.
It has been 26 years since the Rio Conference, when the world’s nations agreed the Framework Convention on Climate Change, and already two years since the Paris Agreement came in.
The clock of climate change policy has never stopped ticking, with much time squandered.
China may have won some of it back, on behalf of us all.