China Moving Forward on 12th Five Year Plan Climate and Energy Implementation; Targets, Taxes, Emissions Trading Plans in Development

The many climate and energy pieces of China’s 12th Five Year Plan appear to be moving into place. Most recently, Chinese Climate Change Minister Xie Zhenhua announced that China was about to come out with a full plan for the 17% carbon emissions reduction target in the Plan (2011-2015). In March, China announced an initial set of initiatives to control the growth in carbon emissions, and the 17% figure is part of the larger goal or reducing emissions by 40-45% by 2020.

What is likely to emerge in the full plan are the provincial allocations – the specific targets for each province. These are essential for spurring provincial efforts on both energy efficiency and renewable energy development, and are a key element in the development of pilot emissions trading schemes.

At a conference in Guiyang in Southwestern China two weeks ago, Minister Xie announced that China will launch pilot emissions trading programs in the near future, as one of a number of climate friendly policies. In April, China announced the six provinces where emissions trading pilots would take place: Beijing, Chongqing, Guangdong, Hubei, Shanghai and Tianjin. There are actually very few details on these potential emissions trading schemes.

Several of the other initiatives are much further along. China has already extended the very successful Thousand Enterprise Program to Ten Thousand Enterprises, thus massively expanding China’s most successful industrial energy efficiency program.

Dr. Jiang Kejun, a climate specialist at China’s Energy Research Institute (ERI), told me that he expects two other critical policies to come in before the pilot programs are up and running: a total cap on energy use and a carbon tax. The energy cap first came up in discussions surrounding the 12th Five Year Plan. Having such a cap would make establishing the pilot cap and trade programs much easier, as a cap creates the incentive to trade. But the cap in and of itself will be a critical control tool and unlike the pilot programs is likely to include both a nationwide number and caps for each of the provinces. Caps can be implemented with conservation measures. Trading would simply be an added feature for the pilot provinces.

Similarly, talk of a carbon tax appears to be fairly advanced. Dr. Jiang says he expects a modest carbon tax within the next year or two. China already has an energy consumption tax on oil and gas, so adding in coal would enable the roll out of a national tax. The general consensus of experts I have spoken with is that the initial level would be fairly low – in the range of RMB 10-20 per ton of CO2, but analysts who spoke at a recent WRI roundtable suggested that even a modest tax would have a positive impact on reducing not just carbon emissions but SO2 and NOx, as well.

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