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Climate Exchange to boost emission trading

By Yu Tianyu (China Daily)
Updated: 2008-10-27 11:46

A month after two environment and energy exchanges opened virtually simultaneously in Beijing and Shanghai in August, an environmental trading platform was established in Tianjin municipality, one of most vigorously developing cities in China.

The newly unveiled Tianjin Climate Exchange (TCX) is a joint venture of US-based Chicago Climate Exchange (CCX), China National Petroleum Corporation Assets Management Co Ltd (CNPCAM) along with Tianjin Property Rights Exchange (TPRE).

China's 11th Five-Year Plan (2006-10) calls for cutting energy consumption per unit of GDP up to 20 percent by 2010 while reducing major pollutants, such as sulfur dioxide (SO2) by 10 percent.

TCX will start trading next year. Initially, the exchange will be focusing on trading on major pollutants, such as sulfur dioxide (SO2) and chemical oxygen demand (COD) and so on.

It will auction registered and issued certified emission reductions (CER) and verified emission reductions (VER), in a bid to further improve the country's "green efforts".

Entities who are able to cut extra emissions can sell "credits" to others unable to reach their targets.

Companies can economically reduce SO2 or other pollutants and are allowed to sell emissions rights to those that cannot.

Gao Luan, director of TPRE and vice chairman of TCX, says emissions trading is a good way to build up an environmentally-friendly society through market-orientated operations.

Richard L Sandor, chairman and CEO of CCX, says: "Emerging economies struggling to balance the need for economic development with the need for a cleaner environment are beginning to consider market-based mechanisms such as emissions trading to address local air quality and global climate change."

CCX is the world's first and the only voluntary and legally binding greenhouse gas emissions allowance trading system and began trading operations in 2003. It is also the world's only global system for emissions trading based on all six greenhouse gases.

According to a report by the International Energy Agency (IEA), China will become one of the largest contributors to global increases in energy use and emissions by 2030.

About two and a half year ago, Sandor, who is often regarded as the "father of financial futures" worldwide, started thinking about getting involved in China's green campaign.

"When China is getting very aggressive in combating climate change and environmental deterioration, I think there are good opportunities for us to promote our knowledge and 20-year experiences in the environmental sector," he says.

Located at Tianjin's Binhai New Area, TCX will implement the Binhai Comprehensive Reform Plan, approved on March 13, 2008 by the State Council to facilitate the clean development and establish an emissions trading market.

In 2006, Tianjin Binhai New Area was designated by the State Council as the national experimental zone for comprehensive reforms for financial innovation, land and administrative management.

Tianjin Property Rights Exchange says it will take advantage of its membership and networks to expand its emissions trading business to other provinces and regions.

Sandor says TCX will be an exchange designed to be in line with China's energy-saving and emissions reduction goals, current technologies and demands.

"Because every culture has their own way of looking at the environment, including problems, so we need Chinese partners to co-develop the program," he says.

TCX's members include entities with mandatory emissions or energy reduction requirements, liquidity providers who are not required to reduce their emissions and energy consumption, along with auction participant members.

"The trading will serve as an impetus for companies to upgrade their technological prowess to be more efficient," Sandor says.

"It's not easy to set up such a joint venture", he admits. "But we did it after we spent two and a half years explaining what value we add and how we can help China."

Sandor and his colleagues have been talking to authorities, industry insiders and giving lectures at universities about emissions trading.

"In China, we are at the beginning," Sandor says. "We think it is very promising. It just takes time."

In August, Beijing Environmental Exchange and Shanghai Environmental and Energy Exchange were launched.

Xiong Yan, president of Beijing Environment Exchange, says their current focus is environmental protection technologies.

While Beijing Environmental Exchange is planning to introduce SO2 and water pollutants trading and trading carbon emissions, but says policies in the two areas are not yet mature enough.

Emissions trading can reap benefits only when it operates under a mature market-orientated mechanism, say experts.

Xiong says that unified energy and environmental trading market needs incentives and proper management.

Officials from Shanghai Environment and Energy Exchange say there will be no competition among the three exchanges, and they don't exclude the possibility of cooperative relationships in the future.

They say that several exchanges will improve the whole trading scale in the country and be good for its energy saving and environmental protection.