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A Grand Chinese Climate Scheme

A Grand Chinese Climate Scheme. Dr. Soren E. Lütken UNEP/ Risoe Center 26 May 2011, Beijing. Something happened in Copenhagen. Top-down to bottom-up pledges to the Accord China minus 40-45% emission intensity India minus 25% emission intensity

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A Grand Chinese Climate Scheme

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  1. A Grand Chinese Climate Scheme Dr. Soren E. Lütken UNEP/Risoe Center 26 May 2011, Beijing

  2. Something happened in Copenhagen... • Top-down to bottom-up • pledges to the Accord • China minus 40-45% emission intensity • India minus 25% emission intensity • 40 non-Annex I countries have submitted pledges – NAMAs – 18 with quantitative emission limitations • only 20% or 10Gt CO2 without limitation

  3. China Constructive... • Objective no. 1: Benefit Chinese economy • technology development and deployment • Objective no. 2: Benefit the Chinese environment • China’s National Climate Change Programme 2007: “blaze a new path to industrialization” (Ma Kai)

  4. So where do emissions fit in...? • A driver of new global technology markets • China wants to be a major supplier • A driver of international politics • China wants to play its role • A market in itself • China is already leading in CDM

  5. China’s CDM history • Cautious approach • only Chinese ownership of projects • regulation based on a Chinese version of the PDD • No CERs approved post 2012 • Hence China in full control of the post-2012 carbon market

  6. Is there any market...? • EU ETS the only game in town • becoming restrictive • prioritizing LDCs • history of ‘raids’ against Chinese CERs and/or industrial gasses • Japan, US, Australia, New Zeeland, Canada....

  7. Market estimates (2010) ...

  8. The Chinese choice • Surplus supply = falling prices • option 1: sell at 0 • option 2: not sell – also at 0 • Option 1 helps Europe out, no gain for China • Option 2 brings several advantages

  9. The climate scheme chapter 1 • Precautionary measures come in handy: • Projects approved on the basis of a Chinese PDD • No CER approvals in Chinese LoAs post 2012 • CDM projects must be in Chinese majority ownership – large majority in state ownership

  10. The climate scheme chapter 2 • Holding back the credits may jump-start a domestic Chinese carbon market • the carbon exchanges are ready • the 12th 5-year plan endorses it • It will help meeting the 40-45% intensity target • 340 million CERs/y ~ 15% of the target • (but ~ 50% of a European 30% reduction)

  11. The climate scheme chapter 3 • Holding back the credits will create credit shortage in EU ETS • LDCs may deliver 50 million CERs/y • Increased domestic reductions necessary = • Increased investments in renewable energy technology

  12. The climate scheme chapter 4 • Holding back the credits will create a larger demand for renewable energy technology • from China... • Thus China can exchange a low cost European carbon market for a larger market for Chinese renewable energy technology

  13. Any downsides? • No legal issues – all projects are Chinese owned and no contracts are violated • From one state pocket to another • The loss from CERs may partly be regained in the domestic market (if CER prices tumble anyway - at current prices about 250 million €/month) • China may just as well take the reputational bonus from withdrawing now than suffering from a European exclusion later

  14. Chapter 5 with a twist • Now the CER price suddenly went up – thanks to Chinese withdrawal. • LDCs (Africa) benefit – thanks to China • 100 Chinese projects in Africa by 2012 (Sharm-el-Sheikh 2009) • Chinese technology to Africa for CDM projects, regaining part of the lost CER revenue at much higher prices

  15. And a happy ending too Chinese withdrawal from CDM • Leads to major additional emissions reductions • Helps China meet its own intensity target • Creates a market for Chinese technology • Accelerates investment and technological development in Europe, and • Increases project development in Africa

  16. And even more intriguing... • China can make this happen all by itself • The world can only congratulate China stepping up to the plate • The global climate will be the true winner

  17. You can imagine why this story line was not popular with the carbon traders... • So for tomorrow ...

  18. When regulating for energy investments in a carbon constrained world: Choosing among stakeholders • Power utilities • Technology suppliers • Consumers • Carbon traders • Industry • International climate negotiation partners • International trading partners (e.g. oil and coal suppliers) • Forestry • Transporters • REVENUE PRESERVATION – the finance minister • And timing ...

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