China’s President Xi Jinping Promotes Environmental Cooperation and Reform

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WASHINGTON – White House officials have praised President Xi Jinping’s anticipated promise of a national market for China in greenhouse gas quotas as a breakthrough in environmental cooperation and reform.

But to work well, Mr. Xi’s plan, expected to be announced in Washington on Friday, will demand big changes from a government accustomed to heavy-handed intervention and skewed statistics. It will take years of effort to build a substantial market that plays a major role in curbing emissions, and even then it could founder, like similar initiatives elsewhere, experts said.

China has had local trials underway since 2013, whose records have been mixed at best, kept alive by the liberal doling out of emissions permits or by cajoling companies to take part.

He and others said that Mr. Xi’s 2017 target date would be only the start of a national trading plan, which initially would include big companies in several industries.

Mr. Xi has come to Washington encircled by doubts that his government is serious about market overhauls, reducing pollution or shouldering global burdens. He hopes to rebuff those criticisms by promising to recruit the forces of capitalism to tame the smokestack pollution driving global warming.

So-called cap-and-trade programs limit the amount of pollution that can be emitted by companies and then let them pay competitive prices for a share of the quota. Companies that do not use their entire quota can sell the remainder, while those that need more than their quota would have to buy additional permits.

The intended result is a competitive market that induces companies to devise ways to reduce emissions.

But to make that happen, Chinese regulators must develop policies and trading platforms that give companies confidence they are being treated equally and transparently as they buy and sell emission permits, free of underhanded meddling and favoritism for rivals. If China’s stock market is any guide, plenty of investors say that their experience is often the opposite.

“There’s been a debate in Western countries about whether or not China is a market system,” said Qi Ye, the director of the Climate Policy Institute of Tsinghua University in Beijing. “Europe certainly is a market system, so if Europe cannot do an emissions trading system well, how would you expect China to have a successful carbon market?”

For now, United States officials and many environmental groups have welcomed the plan as a stimulus for negotiations on a new global climate change treaty in Paris in December. Chinese officials have said before that they wanted to establish a nationwide emissions market by 2017, but Mr. Xi’s declaration will put presidential weight behind that goal, they said.

“China starting its national emissions trading scheme will have a major signaling effect globally,” said Frank Jotzo, the director of the Center for Climate Economics and Policy at the Australian National University in Canberra, who closely follows developments in China. “The world’s second-largest economy puts in place a price on carbon emissions, and this will be noted the world over. If successful, it can grow into playing a major role in facilitating China’s objectives for a cleaner energy and industrial system.”

Mr. Xi’s announcement would build on one he made last November, when he and President Obama announced an agreement that China’s carbon dioxide emissions would stop rising by around 2030, the first time that the Chinese government had given a clear goal for a peak.

A growing number of scientists now say that China’s slowing economy, and weakening dependence on heavy industry for growth, would make a peak by 2025 feasible.

China’s greenhouse gas emissions are about double those of the United States, the second-biggest polluter, and that has magnified international pressure on Beijing to do more to avert climate change. But Mr. Xi appears unlikely to budge from his more conservative peak date.

Experts and policy advisers said the proposed national carbon trading plan would test a government that, during stock market turbulence in recent months, has shown that it can swiftly turn against private investors and subvert transparency.

“You can envision there’s a lot of political and technical challenges ahead,” said Ranping Song, the developing country climate action manager for the World Resources Institute in Washington. “There’s no guarantee that this will go smoothly.

“Even if it’s national coverage, it will take time, a few years, for the government to ramp up its efforts. But this coming from the head of state, Xi, gives more confidence that this is going to be fairly significant and is a lot less likely to be watered down.”

Since 2013, China has experimented with pilot plans across seven economically varied areas, including Beijing and Guangdong Province, that allow designated companies to buy and sell the right to use power or burn fossil fuels and release carbon dioxide into the air.

The trial plans initially struggled with murky rules; reluctant companies picked by the government to take part; and regulators inexperienced in measuring how much pollution the factories, boilers and buildings release. Similar problems have troubled carbon markets in advanced economies like Europe and California, and several experts said China’s markets were improving.

“The performance of the trial markets has improved and is better than many expected,” said ZhongXiang Zhang, an economics professor at Tianjin University in northern China and author of a recent assessment of China’s emissions trading plans.

“This has established a basis of experience and lessons,” he said. “But developing a national market will still be a process.”

That process will start with big companies in several industrial sectors, including steel, chemicals and construction materials, setting quotas and prices so they start trading the right to consume power and fossil fuels, said Mr. Zhang and other researchers familiar with China’s plans.

He estimated that thousands of companies could be involved in the national market once it gets going. That would still be only a wedge of China’s huge economy, but ultimately the market could be far larger than the world’s current biggest emissions trading system, the European Union’s.

Chinese officials have been studying that market and others. But the lessons have not always been promising. Europe’s emissions trading system has stumbled amid criticism that it gave out emissions permits too generously and failed to make companies change their energy habits.

The challenges in China are compounded by unreliable statistics, corruption and local officials who have made blazing economic growth a point of honor. Overcoming those problems will demand far-reaching changes to the energy sector, so that trading in emissions translates into reduced consumption of coal and other polluting fuels, several experts said.

Under China’s plans, the government would not place an overall cap on carbon dioxide emissions, an idea the government has rejected as premature.

Instead, the system favored by Chinese policy makers would limit the emissions for designated companies in certain industries. The companies would obtain quotas for their emissions through allocations, auctions or initial purchases.

“Internally, among experts, there’s still some debate about whether a carbon market really is the right solution for China now,” said Dimitri de Boer, the vice chairman of China Carbon Forum, a group based in Beijing. “If the president says that is, it certainly puts weight behind the idea that this is going to happen, and that it will happen in a serious way.”

By Chris Buckley