By Haibing Ma

Provinces and municipalities had been competing to establish emissions trading systems (Source: nddaily).

In an article co-authored with my colleague Alexander Ochs in September 2010, we discussed China’s interest in setting up a scheme for carbon-emissions trading in the next five years. Now, the deal is set: The National Development and Reform Commission (NDRC) recently issued an official notice to initiate pilot carbon-trading programs in seven regions. By embracing market-based approaches to mitigating climate change, China is seeking to facilitate a smooth and efficient transition to sustainable development.

The seven pilot regions are the cities of Beijing, Tianjin, Shanghai, Chongqing, and Shenzhen, as well as Guangdong and Hubei provinces. It’s no surprise that some of these regions overlap with China’s “Five Provinces, Eight Cities” pilot program on low-carbon development, initiated in 2010. Although details of the emissions trading programs have not been elaborated, designation of the pilot regions indicates that the central government has finally made up its mind to issue clearer guidance on exploring carbon markets, in order to better coordinate existing municipal and provincial interest in emissions trading.

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12th Five-Year Plan, absolute cap, carbon emission, carbon intensity, carbon tax, China, emission trading, energy intensity, environmental equities, Grand Western Development Program, NDRC, pilot, preferential policies, Special Economic Zone, voluntary

Worldwatch President Chris Flavin, Dr. Bill Nordhaus of Yale University, and Center for Global Development Nancy Birdsall discuss the merits of different carbon pricing policies.

With international climate negotiations rudderless and little hope for passage of a climate bill in the current U.S. Congress, some believe the time is ripe to consider whether there might be a better way to price carbon than cap-and-trade. On March 24, at a round-table hosted by Worldwatch and the Center for Global Development, Dr. Bill Nordhaus of Yale University argued that an international system of harmonized carbon taxes could be a more economically efficient and politically feasible framework to deliver carbon emissions reductions than a cap-and-trade system.

Mr. Nordhous’ thinking is rooted in the lessons of recent history. Most ways you slice it, the last two years have not been kind to carbon markets.  Although the volume of global carbon transactions increased 80 percent between 2008 and 2009, average global carbon prices fell from US $28 to $17 per ton of carbon dioxide-equivalent (CO2e), according to our latest Vital Signs Online trend. This decline in carbon prices, driven mainly by transactions on the European Union Emissions Trading Scheme (EU-ETS), was partially a result of the global recession, which reduced industrial output and, consequently, demand for carbon allowances. But more fundamentally, some are beginning to question the vision of interconnected, international carbon markets that has dominated the discussion of carbon pricing since the 1980s.

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Bill Nordhaus, cap and trade, carbon tax, Center for Global Development, Climate Change, mitigation, Yale University