The 18th Party Congress highlighted trading of various environmental commodities – energy savings, carbon emission rights, pollution discharge rights and water rights – all of which will have a national cap, except carbon emissions. Our analysis shows that China’s emissions might not peak until 2030, but by then its annual emissions could amount to half of the carbon budget – what is allowed in order to stay within the 2°C warming target.
This week, China released its annual report on climate change policies. Xie Zhenhua, China’s chief climate negotiator, suggested that China’s emissions could peak when its GDP per capita was around half that of when developed countries’ emissions peaked. We estimate this to be around $US20,000-25,000 per capita; China is currently at around $US5,000 per capita. Based on our analysis (which is not an HSBC economics forecast), we estimate that Chinese GDP per capita could reach those levels around 2030 (chart 1).
We analyse China’s possible emissions in 2030 and find it could be at 12Gt, over 40% more than current levels. This would be almost half of the allowed emissions under the WEO 450 scenario, according to the IEA’s World Energy Outlook (WEO) 2012. Even if China could deliver larger reductions in carbon intensity, China’s absolute 2030 emissions could still be 10Gt, 40% of the WEO 450 scenario carbon budget. We believe China will continue to step up its domestic climate change efforts, even if it won’t be subject to legally binding absolute emissions reductions. The Doha conference starts on Monday.
Imposing a national cap then starting sub-national trading is almost a trend in China
At this month’s 18th Party Congress, President Hu recommended carrying out trials for trading energy savings, carbon emission rights, pollution discharge rights and water rights. Hu also reiterated the cap on total water consumption and the desire to impose a ceiling on total energy consumption. The 12th Five-Year Plan sets targets to reduce pollution discharge; however, there is no such absolute limit for carbon emissions.
Water: China already has a national cap on water withdrawals (670bn m3 by 2020), so trading water rights is a natural progression, in our view. In No water, no power, September 2012, we noted that some inter-provincial planning or collaboration would have to take place since the sum total of the 31 provincial caps actually exceeds the national total for 2015. Trading water rights could potentially solve this anomaly. China has previously traded water rights between cities on a small scale.
Pollution: China has a 12th Five-Year Plan target of reducing pollution discharge by 8-10% from 2010 levels and in recent months, more provinces have been releasing guidelines on the trading of pollution discharge rights.
Energy savings: Premier Wen mentioned his desire to see a total cap on energy consumption during the national congress meetings in March 2011 and President Hu reiterated this in his recent speech at the 18th Party Congress. We think the trading of energy savings could follow a similar pattern to India’s PAT scheme.
This article is an edited version of the HSBC Climate Change Global report, The elusive cap becomes a peak: China’s carbon emissions may not peak until 2030. Reproduced with permission.