China provinces seek approval to set up local CO2 mkts

BEIJING (Reuters) - A number of Chinese regions are lobbying Beijing to allow them to set up local pilot carbon markets within the next five years, but the government response is likely to be lukewarm, analysts said.

Jiangxi in eastern China said this week that it would seek government approval to set up a local emissions trading platform, making it the latest region to bid for a stake in a potentially lucrative Chinese carbon credit market.

“The government talks about carbon trading and everyone is trying to consolidate their position in their own provinces just in case something new comes up and they will be the ones chosen,” said Allan Zhang, head of sustainable business solutions with PriceWaterhouseCoopers in Beijing.

The economic powerhouse of Guangdong in southeast China revealed earlier this month that it would seek Beijing’s approval to include a carbon trading platform in its “five-year plan” for the 2011-2015 period, but it did not provide any further details.

The heavily populated Sichuan in the southwest is also considering a bill to establish a provincial emissions trading scheme in the coming five years.

Hebei, China’s biggest steel producing region, is also seeking approval for a province-wide emissions trading scheme, the local government said earlier this month.

Zhang said there was currently a “tug of war” between central and local governments, with the latter trying to position themselves ahead of the likely introduction of mandatory regional carbon intensity targets in the next five years.

Last October, the National Development and Reform Commission called on 13 pilot “low-carbon zones” -- included Jiangxi’s capital, Nanchang, as well as the provinces of Guangdong, Hubei and Yunnan -- to submit detailed low-carbon plans.

However, the NDRC also said it would restrict the number of regional exchanges in order to avoid excess competition.

“I don’t think Beijing is going to give very strong support (to the new provincial plans). At best they have a very doubtful attitude about what they may achieve, and also they are trying to support the three major exchanges,” Zhang said.

There are already around 20 regional exchanges currently trading sulphur dioxide or chemical oxygen demand permits, but China is likely to lend its support to just three established trading platforms in the cities of Tianjin, Beijing and Shanghai.

Beijing is expected to include a commitment to the use of “market mechanisms” to reduce its carbon intensity rates in the final version of its national five-year plan to be issued in March, but the language is expected to remain vague as provinces and industries lobby to try to reduce their burden.

China has committed to reduce 2005 carbon intensity levels by 40-45 percent by the end of 2020, and it sees CO2 trading as the best way to meet the target, but it also needs to address problems with monitoring and verifying emissions cuts before a pilot scheme can go ahead.

Su Wei, director general of the climate change department at the NDRC, said earlier this month that China was currently studying how to impose binding emission targets on regions and industrial sectors.

Some of the options include mandatory sector caps and fines for violators, an emissions permit trading platform for state-owned enterprises, and a voluntary carbon exchange for private firms, the National School of Administration, a training center for Chinese officials, said in a paper earlier this month.

Reporting by David Stanway, Editing by Jacqueline Wong