Multiple Functions of Carbon Trading
– The Carbon Market Pilot Program Initiated by Hubei University of Economics
Authors: Xia Jin (reporter) and Tao Hui (correspondent), Guangming Daily (October 27, 2020, Page 01)
【Well-off life coming true】
Carbon market is an important policy arrangement and regulatory innovation of China’s environmental protection efforts. With the only carbon emission trading pilot program of Central China, Hubei is the largest carbon market of the nation and the second largest carbon market of the world. The province is now building the National Carbon Trade Centre and Carbon Finance Centre.
During the development of carbon market, the Carbon Emission Trading and Hubei Collaborative Innovation Centre affiliated to Hubei University of Economics provided essential technical support as a first-level carbon economics research university of the nation.
Build a Hubei Model for the nation
In 2011, Hubei was designated as one of the seven carbon emission trading pilots of the nation. Currently, the carbon market of Hubei ranks first in terms of transaction volume, continuity and volume of social funds attracted. Productive explorations have been made on top of the Hubei Model with a view to the development of a national carbon market.
Traders in the carbon market include chartered companies placed under government control, investment institutions and private investors. All the 400-plus large industrial companies with yearly energy consumption of over 10,000 tons of standard coal are included in the trading system. As of recently, the percentage of effective trading days of Hubei carbon market is 100%, the percentage of company trading is 100%, and the percentage of contract fulfilment is 100%. The market price of carbon emission fluctuates in the range of 15~35 yuan/ton. Companies included in the trading system have realized 350 million yuan of carbon reduction revenue in the carbon market.
For company traders, the carbon market is a conformity tool and more importantly a vehicle of development model transformation. Huaxin Cement is one of the first companies included in the carbon emission management system of Hubei. In the first year, the company was awarded over 20 million tons of carbon emission quota. At the end of that year, actual emission amount was over 1 million tons greater than allocated quota, therefore over 30 million yuan was spent to buy extra quota to fulfil carbon emission commitment. In the second year, the company worked seriously on energy saving and successfully developed technologies that converted household wastes into Refuse Derived Fuel (RDF). The consumption of coal was reduced, the residual heat was recycled, and overall carbon emission was reduced by 10%. The Company successfully reduced the cement production cost and generated over 400,000 tons of surplus carbon quota, which was sold for over 9 million yuan.
The carbon market of Hubei implements the principle of appropriate total emission control. In the period from 2014 to 2019, the free emission quota allocated for each company decreased year after year, which forced the companies to reduce their emissions. At the same time during this period, the growth rate of secondary industry of Hubei was higher than national average each year, indicating the health of economic structure was getting increasingly better.
Meanwhile, Hubei is actively exploring the mechanism of ecological compensations. Up to now, 128 rural projects including household methane-generating pits and forestry carbon sinks have been created, reducing 2.14 million tons of emission on yearly basis. About 2.17 million tons of carbon emission quota generated by impoverished areas have been sold in the carbon market, creating 50 million yuan of revenue for impoverished areas.
Carbon finance is another innovation effort of Hubei. In conjunction with 6 banks, Hubei Carbon Emission Trading Centre has signed 120 billion yuan of carbon credit to support low-carbon developments and relevant technical applications. For the first time in the nation, five carbon funds have been created. 5.9228 million tons of carbon emission quota are placed under carbon trusts. Carbon insurances are also created. These carbon finance tools have further expanded the financing channels of industrial companies.
Build university-based carbon market think tank of Hubei
The creation of Hubei Model is indebted to the technical support provided by university-based think tank.
As an “excellent energy-saving university of the nation” and a “model energy-saving unit of the nation”, Hubei University of Economics has created the Resources and Environmental Economics undergraduate major, first of the kind in the nation. The Carbon Emission Trading and Hubei Collaborative Innovation Centre created by the University is the only provincial-level institute dedicated to research concerning carbon emission trading.
Technical talents and the training thereof are very important for development of the carbon emission trading system and the transformation into low-carbon lifestyle.
Carbon Emission Trading and Hubei Collaborative Innovation Centre has created the Hubei Climate Change Statistics and Reporting System; jointly developed the Hubei Online Greenhouse Gas Emission Online Reporting System for Key Enterprises and Public Institutions; and organized 29 training sessions for 3681 trainees from enterprises and government agencies. The training sessions covering all personnel in the fields of energy and climate change at county or higher levels in Hubei Province have provided strong support for climate change management of Hubei.
The Collaborative Innovation Centre is now working on a national carbon market to be established in the near future. Sun Yongping, Executive Vice Director of the Centre said that: “The National Carbon Emission Trading and Registration System will be a hub of the carbon markets and can link the carbon markets with other capital markets. It is expected that Hubei will become home to the most unique and biggest green capital market of the nation”. By cooperating with Wuhan University, Tsinghua University, Hubei Carbon Emission Trading Centre, Sino Carbon and other interested parties, Hubei University of Economics has submitted one proposal to the National People’s Congress (NPC) and the Chinese Political Consultative Conference (CPCC), two proposals to the provincial NPC and CPCC of Hubei, two proposals to the municipal NPC and CPCC of Wuhan, 6 reports that support decision making, and 23 technical proposals that have already been adopted.
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After years of piloting, China has gathered a lot of experiences in carbon emission trading. But much remains to be done to further improve the operation mechanism of the carbon markets.
In recent years, the Innovation Centre has made great progresses in the application of key projects and theoretical innovations, offering essential support for better development of Chinese carbon markets. The project Carbon Emission Quota Allocation Method and Ability Development in Key Sectors and Regions of China was designated as a sub-topic in the National Key Research Plan of 2018 by the Ministry of Science and Technology. The project Global Management of Climate Risks and China’s Solutions to Key Problems will stop the gap of carbon market research in China and the whole world.
The Innovation Centre undertook the research Evaluation and Optimization of China’s Carbon Emission Trading System, and Evaluation and Optimization of the Methods Used to Determine the Total Emission and Quota Allocations of China’s Carbon Emission Trading System, two projects funded by the National Social Science Foundation of China in 2018. These research projects provide valuable input for the development of the national carbon emission trading system. Hubei’s Climate Change Statistical System and the Development Thereof, a project initiated by the Innovation Centre, has been designated as a China Clean Development Mechanism Project. The project will provide important support for the creation of greenhouse gas emission statistics and reporting system intended for regions and enterprises of Hubei; and accelerate Hubei’s transformation to green development.
Relying on the University’s advantages in applied economics, the Centre is pushing for the creation of interdisciplinary branches of sciences and the development of economics disciplines related to climate change management in China. Research papers published on prestigious journals at home and abroad include Do Environmental Rights Trading Schemes Induce Green Innovation? Evidence from Listed Firms in China, etc. Published monographs include Research into Main Carbon Market Systems of the World. These research results will promote the development of economics disciplines related to climate change in China. The Centre has also created Environmental Economics Research, the first journal related to environmental economics in China. The blue paper series released by the Centre have been included in China Think Tank Index (CTTI).
(Reporter Xia Jing and correspondent Tao Hui)