Air pollution: China is falling short on climate regulation

A senior official in the Chinese government has admitted that the country’s carbon emissions trading scheme (ETS) is running significantly behind schedule and will have to be deployed in incremental steps. The initiative, first announced in 2013 and earmarked for introduction last year, will become the largest of its kind in the world once fully implemented and will be double the size of the EU’s system.

However, China’s scheme has been dogged by logistical and infrastructural complications from the outset and now looks unlikely to come into force in any significant form until at least 2020. The admission seriously undermines Beijing’s aspirations as a climate change broker in the absence of the US, while also serving as a reminder of the deeper issues underpinning China’s inability to wean itself off from the hugely pollutant energy source of coal.

Overdue and incomplete

Regional ETS platforms began trading in China in 2013, capping the amount of emissions a company could produce and allowing them to buy extra credits from their competitors or sell them if they surpassed their targets. They were intended to serve as guinea pigs for the national scheme, which had initially been scheduled to come into force in 2017. Early plans suggested it would encompass 6,000 companies working in eight key sectors and consuming over 10,000 tonnes of “coal equivalent”.

Finally announced at the Bonn climate summit in December 2017, the “simulated trial” version of the scheme will now only focus on a single industry – the power sector – translating to around 1,700 companies emitting over 26,000 tonnes of CO2 annually. While that’s a far-reduced scope than the initial estimates, it should still nearly double the amount of emissions regulated by such schemes worldwide.

However, it must be remembered that 2019 will only see mock trading take place and that money will only begin to change hands the following year. Furthermore, the government’s announcements have also been strikingly light on details in several key areas, including pricing structures, allowance allocations, auctioning, transparency and compliance.

Steel and aluminium still on the up

Although the news is slightly underwhelming given previous grand-standing and vague in certain aspects, the proposed ETS still represents a move in the right direction in terms of Beijing’s commitment to environmental reform. Unfortunately, the government’s actions in the same time period have hit several important snags.

Over the past years, China has repeatedly promised to curb steel and aluminium production, which comprise two of the country’s biggest coal consumers and are significant contributors to both pollution and carbon emissions. Despite pledging to cut output in January 2017 and again in March 2018, a Greenpeace study revealed that 75% of decommissioned steel mills were dormant anyway, while new capacity has since come online, thereby offsetting any gains made.

The aluminium industry is even more concerning. Not only did aluminium output rise by 12% in July of this year to match its highest ever level, but 80% of Chinese aluminium capacity violates environmental legislation. A case in point is Weiqiao Pioneering Group in Shandong Province. Thanks to connection to local politicians, regional monopoly and ability to supply locals with cut-price energy, Weiqiao has bypassed environmental regulations for years.

Pressure within and without

Besides resistance to environmental reform inside the country’s borders, China’s policy-makers are also struggling to carry through their ambitions in the current global climate. Most notably, the escalating trade war with the United States has caused China to abandon blanked restrictions placed upon its steel and aluminium industries – already producing at massive over-capacities – for fear of adverse economic effects. Instead, responsibility to assess and implement production cuts was delegated to local governments – the same ones that have looked the other way for years – which now decide on a productions curbs or increases on a monthly basis.

Local officials’ discretion in regulating production also affects coal, but here too, the trade war has made an impact. Degenerating bilateral relations have caused Chinese imports of US coal to fall from 3.2 million tonnes in the three quarters of 2018 to zero in October. However, a hot summer increased demand for energy for air conditioning, while drying up the reservoirs for hydroelectric power. As a result, China has been forced to ramp up domestic coal production to compensate for trade losses and meet heightened demand.

Furthermore, there’s little economic incentive for China to abandon coal as rapidly as it should. The latest figures indicate that GDP growth continues to exceed expectations, but the vast majority of those gains are caused by the very industries which are environmentally most damaging: aluminium, steel and coal. When it comes to a choice between today’s economy and tomorrow’s environment, for Beijing it’s clear there’s only one winner, especially in the midst of a trade war.

More action needed

Even as coal continues to prosper in China, Beijing can point to incredible investment in renewables ($126 billion in 2017 and a projected $363 billion by 2020) and a string of achieved yardsticks. The concerning qualifier is that those targets are woefully inadequate. The Climate Action Tracker acknowledges that China might be overachieving according to its own benchmark, but its efforts are “highly insufficient” in a global context.

Indeed, even the commitments agreed upon at the COP21 summit in Paris fall some way short of meeting its proposed targets. Should all countries meet their obligations, the global temperature will still rise by 3°C or more. As such, China’s proposed ETS is certainly a step in the right direction, but if the country is serious about positioning itself as a world leader in battling climate change, a “great leap forward” in energy is required.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes