Will China’s carbon traders learn from EU failures?

Rejection of a plan to revive the EU's ailing emissions trading scheme holds lessons for China, say campaigners

China’s nascent carbon markets must learn lessons from European failures, campaigners warned today, after the EU emissions trading scheme was dealt a severe blow.  

Politicians narrowly voted down measures to artificially boost the price of carbon emissions in Europe’s flagship climate change scheme, which have fallen to record lows this year. 
Under the “cap-and-trade” scheme, certain factories and power plants are required to buy permits to emit greenhouse gases above a set limit which can then be traded: the higher the price of the permits, the greater the incentive to cut emissions. But the carbon price, which once sat above 30 euros per tonne, now hovers below five euros. 
The proposal defeated in the EU parliament today, known as “backloading”, would have constrained the supply of permits in the market, bumping up the carbon price and giving a new lease of life to the ailing scheme, said advocates.
Critics meanwhile feared a higher carbon price would inflict yet more hardship on Europe’s struggling industries. Others said the scheme was already working as the EU is on track to deliver a 20% reduction in greenhouse-gas emissions by 2020, although this is much more likely to be due to the economic downturn in Europe since 2008.
Following today’s vote, it is likely the price will stay very low until at least 2020, when the third phase of the scheme comes to an end.
The result has caused dismay among environmental groups such as Greenpeace, whose EU climate policy director Joris den Blanken described the vote as a “historic failure”. 
It has also raised questions about the development of carbon markets in other parts of the world, notably China, where seven pilot trading platforms are due to launch, the earliest this year. 
Rob Elsworth, policy officer at Sandbag, an NGO focused on the carbon market, said it remained to be seen if the latest events in Europe would “dampen China’s enthusiasm” for emissions trading, but said Chinese policymakers would be studying the events closely. 
“China is in the process of writing the rules of their ETS and they know they have to learn from the EU’s mistakes. They have to build in clauses that would prevent such bizarre scenarios from occurring. We set up a framework that wasn’t flexible enough.” 
Stig Schjølset, head of EU carbon analysis at Point Carbon said that Europe’s low carbon price was unlikely to put China off pursuing its own schemes: “I’m not sure if the fact that you have lower carbon prices in Europe is necessarily very negative for other emissions markets because what they’re most afraid of is creating something that would put their own industry at a disadvantage.”
China is more likely to be concerned with its own domestic challenges, like how to create emissions reduction incentives in a heavily regulated power market, Schjølset added. Fixed electricity prices and fixed costs for power producers make it harder to use the market to drive lower-carbon production of goods and power – the heart of emissions trading – he said, adding that he expects delays to implementation of the Chinese pilots.