ADB to help China design its pilot ETS

January 26, 2012
ADB to design China's Emission Trading Scheme

The Asian Development Bank (ADB) will help China set up a pilot provincial emissions trading system that is expected to pave the way for a national scheme and help cut emissions of the largest green house gas emitter on the planet.

"Emissions trading encourages companies to increase energy efficiency and renewable energy supply, which would ultimately result in reduced greenhouse gas emissions" said Pradeep Perera, senior energy specialist in ADB's East Asia Department. "This pilot will provide valuable lessons for the design of a nationwide system to reduce the carbon intensity of the Chinese economy."

The bank is providing a USD750,000 grant, matching the government's money, to lay the groundwork for a cap-and-trade based emission trading system (ETS) in Tianjin municipal area. It could begin operations as early as 2013.

ADB will help design the platform, including the trading rules and regulatory framework, as well as support the commissioning of the trading platform.

Under its current five-year national development plan to 2015, China has set significant carbon and energy intensity reduction targets and is looking at developing market platforms that can provide companies with economic incentives to cut emissions. The government has also earmarked similar pilot emission trading schemes for development in Beijing, Shanghai, Chongqing municipalities, and in Guangdong and Hubei provinces.

An ETS allows market participants to turn emission savings into a tradeable commodity and provides market-based incentives for industries to reduce their use of carbon-emitting fossil fuels. It is economically more efficient than a carbon tax, as the carbon price is determined by the market and intended emission reductions are stipulated by the market regulator.