China Plans To Create A Nationwide Carbon Market By 2017 : Parallels China is building what could be the world's largest carbon market. Pilot programs are helping to lower emissions. But this is mostly due to slowing growth and the shift away from manufacturing.

China Plans To Create A Nationwide Carbon Market By 2017

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China is home to some of the world's most polluted cities. It's also one of the biggest investors in renewable energy sources. As part of China's pledge to cap carbon emissions by the year 2030, it is now building what could soon become the world's largest carbon market. NPR's Anthony Kuhn reports from Beijing.

ANTHONY KUHN, BYLINE: I'm at the Beijing Environment Exchange, one of seven emissions trading pilot programs around China. Wang Yang, the exchange's director, is showing me the main hall.

WANG YANG: (Through interpreter) What you see here are the two big trading boards. On the one to the left, you've got buyers. On the one to the right, you've got sellers. At the moment, people are selling.

KUHN: OK, so right now on the board, we've got four sellers of carbon credits with the prices going as high as 48 renminbi per ton of carbon. That's about 7 and half dollars per ton. Here's how it works. The government gives companies permits to emit a certain amount of carbon each year. If they emit less, they can sell the extra permits. If they emit too much, then they have to buy them. The government will allot the companies fewer permits each year. Wang Yang says in the two years since it opened, the Beijing pilot program has done pretty well.

YANG: (Through interpreter) It's put pressure to some extent on companies to reduce their emissions. And it's given them an incentive to get that bonus income from selling credits. It's helped Beijing to beat its targets for total carbon emissions.

KUHN: So far this year, China's capital is using less energy per unit of economic output, and the city's air looks and smells a bit cleaner than last year. But most of that is due to a slowing economy and the shift away from manufacturing towards services, which emit less carbon. Alvin Lin, a Beijing-based attorney with the Natural Resources Defense Council, says the price of carbon is still too low to really motivate companies to invest in energy efficiency.

ALVIN LIN: We want this to have an effect over five or 10 years. It's really impacting how whole industries do what they do, and it's really impacting long-term investment decisions. So it sort of makes clear that you can't keep building coal-fired power plants because, in the future, the price of carbon is just going to increase rather than decrease.

KUHN: China plans to create a nationwide carbon market by 2017. That, in turn, could be linked to international carbon markets. Zhang Zhongxiang is an expert on carbon markets at Tianjin University, not far from Beijing. He says right now, China's carbon markets are plucking the low-hanging fruit. He predicts that once China's economy makes the transition from industry to services and consumption, reducing emissions will be much harder.

ZHANG ZHONGXIANG: (Through interpreter) How do you reduce emissions then? Don't drive big cars, and don't live in big houses. Changing people's behavior and habits is the hardest thing to do.

KUHN: Zhang says the markets are not transparent enough. And therefore, it's hard to know what the price of carbon in China should really be. He notes that during political events, such as a big military parade this year, Beijing has essentially ordered the skies to turn blue by simply shutting down factories across much of north China. He thinks using markets to address pollution will be a more viable solution in the long run. Anthony Kuhn, NPR News, Beijing.

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