China Takes The Lead To Fight Climate Change As U.S. Pulls Back

China, the world's biggest polluter, has opened the largest carbon trading market. It scaled back its original plan to cover 1, 700 companies compared to 6,000 that were considered for inclusion. Yet, it still covers nearly 3 billion metric tonnes of emissions and is 50 percent bigger than the European Union carbon market.

China is no doubt taking the leadership role in the world with the establishment of this cap-and-trade, Paula DiPerna, a special advisor at the Carbon Disclosure Project and who also helped set up China's pilot projects, told BloombergQuint in an emailed reply. “Absence of U.S. political leadership on the issue will hurt U.S. companies operating around the world, as other nations adopt stringent climate change requires in alignment with scientific imperatives.”

A carbon marketplace allows trading in emissions allowances. The government stipulates a permissible level of emissions for a company and if it doesn't reach that cap, it can sell the remaining carbon credits to those who have exhausted their quota. This way, the more polluting corporations tend to pollute less.

China's participation in carbon trading would boost the portion of emissions covered by pricing worldwide to almost 25 percent, Bloomberg reported. That would create a financial incentive for power companies in China to cut greenhouse emissions and instead opt for cleaner power generation.

Pollution levels are still rising years after nearly 200 nations led by the U.S. endorsed the United Nations Framework Convention on climate change, a treaty to limit fossil-fuel emissions. Carbon markets, along with cheaper renewable energy, have started to slow that growth. Such a market is intended to help clean the air and incentivise companies to switch to cleaner systems.

No doubt, the China system will have growing pains, but eventually, it has the potential to secure significant emissions reductions, said DiPerna. As linkage with other markets ensues, “China will become the focal point of international carbon pricing, which will have significant indirect other benefits to financial management and financial best practices across the board.”

China's commitment to cut emissions comes at a time when U.S. President Donald Trump is scrapping Obama-era green policies by pulling out of the Paris agreement.

In 2005, the European Union was the first set of nations that made carbon permits mandatory. But the prices fell drastically because member states dished out several such permits for free.

In the EU, original problems came from poor design and overallocation to accommodate resistant participants and because of political concerns that high emitting nations would pull out of the system otherwise, said DiPerna. Significant revisions in the EU program have just been undertaken and so the overall goal to reduce emissions and reduce costs of alternatives to fossil fuels in Europe should be easier to attain, she said.