Emissions trading in the PRC and Hong Kong - Killing Two Birds with One Stone

United Kingdom

People's Republic of China (PRC) officials have decided to tighten pollution control in China by establishing the potentially lucrative market of emissions trading which is estimated to be worth up to $13billion. Hong Kong has recently received permission from the central PRC government to join the experimental pollution control scheme on the mainland in the creation of a market for emissions trading.

Emission trading involves caps on emissions from sources such as factories and power plants. Companies that produce less than the allocated pollution can bank units for later use or sell them to firms that have breached the cap. The purchasing firm can use the credits to reduce its aggregate output on emissions.

The PRC's State Environmental Protection Administration (Sepa) announced in March this year that four provinces (Shandon, Shanxi, Henan and Jiangsu) and three cities (Shanghai, Tianjin and Liuzhou) would pioneer PRC's first cross-provincial border trading scheme.

Hong Kong has recently received permission from Sepa for a cross-border experimental project that would link Hong Kong, Guangdong and Macau with mainland markets. The Asian Development Bank (ADB) has indicated that it may provide support the project to conduct emissions trading between Hong Kong and its neighbouring province.

The ADB has already signed an agreement with officials in Taiyuan, Shanxi province to operate a sulphur dioxide trading system in an attempt to cut emissions by 50% within five years. The ADB said the mainland market for sulphur dioxide trading could be worth at least $1billion, depending on future penalties for pollution associated with acid rain. PRC's total carbon emissions in a global trading market could be worth up to a $13 billion, as estimated by a bank official.

To learn more about this, please contact Luke Filei on [email protected] or telephone number +86 21 628 96363.