Can the EU and China align their carbon markets?

(China Dialogue, 6 May 2022) Pushing for a global carbon market might seem like a good idea but would be risky and complicated in practice. For now, collaboration is the way forward, writes James Norris.

The EU launched its emissions trading system (ETS) in 2005, and it now covers 11,000 emitters and almost half of European emissions. It uses a market-based cap-and-trade system to reduce greenhouse gas emissions from large power stations, industrial plants and flights within Europe.

Since then, several other national or sub-national carbon markets have either been fully launched or partly developed – notably in Canada, Japan, New Zealand, South Korea, Switzerland and the United States. But the EU has worked particularly hard to build a collaborative relationship with China – to help develop the carbon market concept – because China’s size makes it the obvious market leader in Asia.

China’s ETS began trading last year, and so far only covers the power generation sector, but “the 2,162 companies it includes produce an estimated 4.5 billion tonnes of CO2 emissions annually,” writes Renato Roldao in Energy Monitor. “That compares with an EU ETS emissions cap in 2021 of 1.6 billion tonnes of CO2.”

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China Dialogue, 6 May 2022: Can the EU and China align their carbon markets?