Annex
China visit meeting notes
Sunday 19 October
Paul Lengthorn, Director, China, Mott MacDonald;
Jan Van der Van, Director, Asia, Carbon Trust; Mark Hewlett, Associate,
Atkins; Chas Pope, Director, China, Arup
Discussion on UK-China bilateral low carbon and
climate change cooperation, and the opportunities and barriers
facing British low-carbon businesses operating in China.
Monday 20 October
Renato Roldao, ICF international and partner organisations
Discussion of Euroaid's €5 million emissions
trading system (ETS) capacity building project with the key implementing
organisations.
· ICF
International were supporting the design of a national ETS by
providing knowledge and capacity to ensure any lessons learnt
in the seven pilot ETSs were incorporated into the national ETS.
· The Chinese
Government will replace the pilot ETSs with a national ETS.
· While technical
differences between the pilots were small, linking them was impractical
due to the diversity of experience including; the price and allocation
of allowances, sector coverage, whether the cap is fixed or intensity
based, and the level of enforcement.
· The national
system will come into force in 2016. It will draw on the best
attributes of each of the pilots. All parts of the country will
likely be included by 2018 or 2020. It will cover the most economically
developed parts of the country first. The pilot areas, for example,
were considered to cover more than 40 per cent of China's gross
domestic product (GDP).
· The Government
will develop a national legal framework to ensure compliance.
· Linking a national
ETS with systems in other countries has been a consideration.
The Government would not want to make a system that was incompatible
with others around the world.
Li Junfeng, Director-General, National Centre for
Climate Change Strategy and International Cooperation (NCSC)
Discussion on emissions trading in China, climate
change policy more generally and perspectives on the UNFCCC negotiations.
· The
Chinese Government has given a clear signal that it will reduce
its carbon intensity. China is able to control its emissions but
there are economic risks in doing so. For example, to displace
coal with solar energy could cost up to 20 per cent of GDP. This
makes it difficult to determine when its emissions will peak [On
12 November 2014 China announced that it intends to achieve the
peaking of CO2 emissions around 2030].
· China recognises
that there are various approaches to reducing emissions which
differ greatly. The United Kingdom (UK) and the United States
(US) are often held up as taking different approaches. Many people
believe that China is following a US model to emissions reduction.
The Chinese Government has not yet decided how it will reduce
emissions. It is likely to give an indication of its approach
in 2015. Achieving emissions reductions of even 1% a year will
be very challenging.
· China would
like to exploit its shale gas resources. There are several barriers
frustrating exploitation including; water, infrastructure, sand
and geology. In addition, more companies need to be allowed to
explore for shale gas and the Government should encourage technical
innovation.
· There is currently
a debate about whether a market price (ETS) or a government price
(tax) should be used to control emissions. Linking a Chinese ETS
will be difficult without a global market.
Lu Hao, Chairman, National People's Congress (NPC)
Environmental Protection and Resource Conservation Committee (EPRCC)
Discussion on the role of legislation in the establishment
and linking of carbon markets, the status of China's draft climate
legislation and the role of climate legislation over the long-term
in the transition to a global economy.
· China's
rapid development has led to severe environmental problems. The
Chinese Government takes this issue seriously and has been making
unremitting efforts to address the problem. It has introduced
environmental pollution laws and tasked 10 cities and regions
to tackle air pollution using industrial action plans. These will
have co-benefits of addressing local pollution as well as climate
change.
· The Government
has recently passed a legally binding resolution to tackle climate
change. It has set out targets that it is now trying to achieve.
It aims to increase renewable energy capacity by 11.4 per cent.
China is the largest installer of several renewable technologies
including wind power. Challenges remain including, for example,
integrating technologies into the electricity system and ensuring
the provision of the renewable energy law is implemented.
· An ETS will
be important to help address climate change and improve air quality
in China. Introducing legislation for implementing a national
ETS will be a key issue for consideration. But still at the very
beginning stage of this work studying and debating different options.
Believe that China should put carbon trading on its legislative
agenda as soon as possible. During the legislative process we
will draw on different experiences from inside and outside of
China.
· They are interested
to learn about the UK and EU's experience of developing legislation
to address climate change.
Jiang Zhaoli, Director, Department of Climate Change
of the National Development Reform Commission (NDRC)
Discussion on China's progress towards achieving
its low carbon goals during the 12th Five Year Plan. Market mechanisms,
including emissions trading pilots, progress towards the national
scheme, and the prospects for linking with other countries was
also discussed.
· In
2009 China committed to improve its carbon intensity by 40-45
per cent by 2020. The 12th 5 year plan set out how this would
be achieved. So far the Chinese Government has made good progress
and is confident it will meet its targets. It is optimistic that
it could go even further in its 13th 5 year plan and may revise
its targets. This ambition has been driven by a need to tackle
China's severe environmental problems and climate change.
· Several factors
have contributed to the progress made including; installing renewable
and low-carbon energy technologies such as wind, solar, hydropower
and nuclear; increasing forested areas; implementing caps on coal
consumption in specific economic regions; and a general slowdown
in manufacturing and exports.
· Emissions will
continue to rise but this will slow as energy efficiency improves.
This will not, however, be evenly distributed across the country.
In some regions carbon intensity is rising. In order to meet China's
national targets some regions that have already made progress
on reducing their carbon intensity will have to shoulder more
of responsibility.
· The seven ETS
pilots were launched in 2011. Five pilots have now completed a
trading cycle. Each pilot has a fixed cap. Different sectors (e.g.
power, chemical, building, aviation etc) are treated differently
and either have a grandfathering or benchmarking approach. China's
pilots are already the second largest ETS in the world. The pilots
have had 96-100 per cent compliance from companies because the
penalties for non-compliance are severe. Lessons are, however,
still to be learnt from the pilots. These include the need for;
a strict ETS law to ensure compliance, a stricter accounting methodology
and more third party verifiers. The most importance conclusion
reached from the pilots is that they are possible and necessary.
China has drawn upon experience from the EU ETS and the systems
in the US.
· A national
ETS will replace the pilots by 2016. Each pilot had to ensure
that the value of an allowance was the same across each of the
pilots. This will also ensure that existing allowances will be
valid in the forthcoming national market.
· In future linking
China's national ETS with other systems could be possible but
will be dependent on whether an international agreement can be
reached which ensures the nature of trading is the same between
ETSs. Linking ETS also requires political trust that the systems
have integrity.
Vicky Pollard, Counsellor-Environment and Climate
Change, Delegation of the European Union to China; Gailius Draugelis,
Head of Partnership for Market Readiness Programme, World Bank;
Wu Qian, Consultant, Ecofys; Mr Mei, General Manager, Beijing
Environment Exchange.
Discussion on the successes and challenges of
the current emissions trading pilots, linking the pilots, and
design and implementation of the national scheme.
Tuesday 21 October
Lu Lunyan, WWF; Li Rusong, Carbon Disclosure Project;
Li Lailai, World Resources Institute; Guo Peiyuan, Syntao
Discussion of work
to support the government and private sector implementation of
emissions trading and the challenges still facing China in the
low carbon transition.
· China
has been discussing the potential to cap total emissions by 2030.
This is unprecedented. Carbon trading is currently high up on
the policy agenda. The focus is currently on increasing efficiency
rather than overall reduction. It is currently difficult to determine
how effective the pilots have been at either improving efficiency
or reducing emissions.
· Development
of China's seven pilot emissions trading systems have exceeded
expectations and officials at every level are happy. The pilots
have made the prospect of implementing a national trading system
between 2016 and 2020 more concrete.
· Challenges
to developing a national system remain. These include ensuring
robust monitoring, reporting and verification systems are in place
and trusted; scaling up or linking the different pilot systems;
and ensuring compliance from participants at a local level.
· Removing the
pilot systems and replacing them with a national system will be
difficult because of China's size and because the pilot systems
are already up and running. A hybrid system is most likely. How
influential participants, such as the power sector, view the pilots
and the development of a national system will be important.
· It is unlikely
that linking will be approved by the central Chinese Government
in the near future.
Xia Yong, Vice-Minister and Deputy Director, Legislation
Affairs Office of the State Council
Discussion of the status of China's climate legislation,
what is included in the legislation, how this will support the
establishment of the national ETS and future plans for China's
climate legislation framework.
· China
is developing a law to tackle air pollution. This will include
legal and technical measures to try and mitigate emissions. Liability
will be placed on local governments who have responsibility for
environmental protection.
· China is exploring
the potential for a national emissions trading system. From a
legal perspective implementing an ETS is difficult, especially
monitoring, reporting and verification provisions. They want to
make sure they get it right. They are currently learning from
the experience of China's seven pilot systems as well as the experience
of other countries. They are keen to learn from the UK's experience.
· It is currently
difficult to say when a national system will be implemented because
they are still learning from the experience of the pilots. Only
when they are satisfied that the issues identified in the pilots
have been solved will a national system be put in place. This
includes ensuring that local governments strike the right balance
between economic development and environmental protection.
· Agree that
ETS should be compatible and potentially able to link up because
climate change is a global problem.
Wednesday 22 October
Bin Zhao, Vice Director-General, Hubei Province
Discussion on the progress of Hubei's ETS and
low carbon related policy.
· Hubei
province is working on restructuring its economy and growth model
encouraging the development of new industries such as renewable
and service industries. This work is led by the Hubei Provincial
group on climate change, chaired by the Governor of Hubei. Carbon
per unit of GDP reduced by 3.5%. Higher than the national goal
of 3%.
· Hubei is also
one of the seven ETS pilots in China. Total volume of traded allowances
was over 5 million tonnes in 2014.
· The UK is a
world leader in developing a low-carbon economy and has a lot
of experience. China has the largest market for the low-carbon
economy. There is potential for new and continued cooperation
between the UK and China on this issue.
Visit to Wuhan Optical Valley Exchange
Tour of the trade hall and discussion with officials
and participating companies of their experience of Hubei's emissions
trading system.
· Hubei
emissions trading system is one of the seven Chinese ETS pilots.
The local government has been very supportive of the ETS.
· In comparison
to the other ETS pilots, Hubei had 46 per cent of all volume traded
(the next largest was 13 per cent) and 29 per cent in value terms.
The average daily transaction volume represents 50 per cent of
China's total. Hubei is the nation's most dynamic ETS.
· The scheme
currently covers 138 sizeable schemes. The threshold is for inclusion
in the scheme is 16 tonnes (144,000 tonnes of CO2). Allowances
are allocated either by 'grandfathering' or 'benchmarking'. Allowances
will be auctioned in future.
· Hubei is the
first ETS in central China. They would like to grow and expand
in central China and establish China's first carbon financial
centre. This market could be worth 50bn RMB. They would also like
to move towards a national ETS.
· They are interested
in collaborating with the UK.
Prof Feng Youmei, Deputy President, Dean, School
of Medicine Wuhan University
Discussion of the Hubei ETS, next steps and how
they plan to prepare for a national ETS.
· Hubei
ETS is the only ETS in central China. It is the largest by volume
in China and the third largest in the world. It covers about half
of the emissions in the Hubei region.
· Hubei has a
high growth rate and has a large industrial sector. Growth in
emission has also been high.
· The Hubei ETS
has a rigid cap and a flexible structure. It currently focuses
on major enterprises in the power, cement, chemicals, glass and
steel industries. It has a strict 'off set' policy and a strict
default penalty. Currently 3 per cent of allowances are auctioned.
Non-covered entities, such as banks and individuals are also able
to trade. There is a price stability reserve. As such the price
has tended to be stable. The average price is 23 RMB. Highest
is 29 RMB. 20 RMB is the bottom price because that is the price
the government sells at.
Meeting with Wuhan DRC at Eco City
Thursday 23 October
Xu Ruisheng, Vice Governor, Guangdong
Discussion of Guangdong's low carbon development.
· Guangdong
is trying to move to a more low-carbon economy. It will have a
general ecological plan for every city in the province. The plan
will, however, try to strike the balance between economic development
and ecological protection.
· The Guangdong
ETS is in its pilot stage. They expect problems but are confident
that the amount of trading in the ETS will increase over time.
· There is, however,
a negative perception of the ETS in Guangdong which they would
like to change.
Wu Daowan, Deputy Director-General, Guangdong Develop
and Reform Committee (DRC)
Discussion of Guangdong's ETS and how it could
be improved and expanded.
· The
Guangdong ETS has successfully completed its first compliance
period and is currently running its second. It has helped to raise
awareness and acceptance of the ETS among businesses. They are
trying to resolve any remaining issues with the ETS design as
quickly as possible in order to make a contribution to the national
ETS.
· They are currently
exploring how the ETS could be expanded to including additional
industries and attracting participants from the banking and financial
sector. This will help reduce carbon but also move Guangdong industries
up the value chain.
· The Guangdong
and Shenzhen ETSs are currently exploring the potential to link
with each other. The lessons learnt from this could help to inform
the national system. Linkage has been endorsed by the national
government.
· In addition
to the ETS they are exploring other measures including, for example,
carbon taxes to incentivise carbon reduction and a public awareness
initiative on the importance of living a green lifestyle. They
support using a package of approaches. The main one will, however,
be defined by the central government.
· They recognised
the importance of exchanging ideas on ETS and want to learn from
the experience of developing the EU ETS.
Economic Information Commission and representatives
from business.
Discussion on energy efficiency policy and targets
set for businesses in Guangdong.
Visit to the new British Centre at the IFC building.
ETS seminar - Guangdong - Shenzhen ETS linkage Workshop
Discussion of the linkage project between Guangdong
and Shenzhen ETS.
· If
the Guangdong and Shenzhen ETS can be linked there will be benefits
for both ETS. There are, however, many challenges before linking
can be achieved. The markets are very different. There is a focus
on increasing the knowledge of both markets to improve the prospects
of linking in future. They are optimistic about the prospect of
linking and want to put it into practise as quickly as possible.
· They hope that
they will be able to link the two systems without making major
changes to either ETS. They hope that prices will converge over
time but this depends on the liquidity of both markets.
· As part of
the project they have drawn on the experience from different international
examples including the EU and Canada.
Reception at the British Consul Generals residence
with government contacts, implementing partners and academics.
Friday 24 October
Visit to the UK Guangdong CCUS centre
Mr Lu Xiulu, Deputy Mayor, Dongguan City
Discussion of the challenges facing Dongguan's
low-carbon transition.
Tang Jie, Vice Mayor, Shenzhen City
Discussion of the Shenzhen ETS and better understand
their ambitions for expansion of the scheme.
· The
Shenzhen ETS has been successful. Based on their experience, they
believe that ETS is a more effective tool for reducing carbon
emissions than taxes. China's experience of emissions trading
has effectively resolved concerns that China will tackle climate
change and maintain economic growth. Competitiveness concerns
have been addressed.
· The ETS has
started to encourage a transition to a more low-carbon economy.
For example, there is a move away from high energy consumption
products towards lower energy products. As a result, emissions
intensity is declining. Emissions will soon peak and start to
decline.
· The Shenzhen
ETS is cooperating with London, the EU ETS and California on emissions
trading.
XingAn GE, Vice president, China Emissions Exchange,
Shenzhen
Discussion of the Shenzhen Emissions Exchange-one
of China's first exchange platforms for voluntary greenhouse emissions
trading-which has played a major role.
· The
Shenzhen exchange was established in 2013. It is one of seven
centres in China which is registered to facilitate trading.
· The Shenzhen
pilot has successfully reduced the carbon intensity of its participants
by a third. The ETS has tried to be innovative by, for example,
issuing bonds and attracting international investors.
· In future they
would like to see the Shenzhen ETS expand and contribute towards
the establishment of a national ETS.
· Linking Shenzhen
and Guangdong ETS would be very difficult. There are significant
differences between the two markets. These considerations make
it more likely that the national ETS will start from scratch rather
than seek to link the existing pilot scheme.
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