Birds, Wetlands, and China's ETS

Patrick Wang is originally from Beijing, China. A student of International Environmental Economics and Psychology now at Tufts University, Patrick started caring about our environment as he witnessed the clear blue sky of Beijing gradually disappearing. Solving the universal issue of climate change became his goal ever since then. Step by step, he hopes his dedication can make an impact in the world.

When I was a small child, I always loved to take walks with my parents along the coast of Qinhuangdao, the Chinese coastal city where I grew up. Every autumn, in one of the coastal wetland parks, flocks of migratory birds would land to rest on the shore and catch small fish and crabs. Each time we crossed the wooden bridge which connects the wetland with the shoals, birds would fly right overhead. Then, my parents and I would slowly walk through the wetland and, if we were lucky, catch the sunset.

When I first heard the term “Climate Change” at 9 years old in primary school in Beijing, it all seemed abstract to me, the effects of climate change were nothing more than a textbook picture of a polar bear standing on a melting iceberg somewhere far away. That changed when I returned to my hometown several years later.

One autumn afternoon, I retraced my childhood steps through the wetland parks, I could not find a single migratory bird. Water flooded under the bridge we used to walk on. I later learned from local fishermen that the birds were forced out of their habitat as the tide rose higher and higher, flooding the wetlands more and more frequently. Their claim was corroborated in my geography class that discussed how climate change causes the sea level to rise and floods coastal areas more often. I’ve never seen birds in that park since.

In college, I learned that climate change is altering much more than migrating birds along the coast. Humans, who caused this climate change, are also influenced, though unequally. If warming continues at its current rate, millions of people living in the coastal area will be forced into displacement in coastal Shanghai; change in precipitation pattern and seasonal droughts will reduce agricultural production by 8 percent by 2030 in some places.

While I’m deeply worried about climate change’s impact on China, China has taken its first steps by implementing its own Emission Trading System (ETS). On September 25th, 2015 during a visit to the United States, Chinese president Xi Jinping announced China’s ambitious plan to implement the world’s largest carbon cap-and-trade program by the end of 2017. Now, China is very likely to take the leadership position in global climate control if the carbon market is successful. But, is China really ready for implementing a carbon market of such scale?

In his Financial Times article “China’s Emission Trading Scheme Awaits Green Light,”  James Kynge noted that China was not on track to launch its ETS by 2017 as scheduled. Originally, the Chinese government was to announce the implementation during the United Nation’s climate change conference in Bonn, Germany, in November of that year. This delay was likely due to a report by the Global Carbon Project that predicted a 3.5 percent growth in emissions in China that year, which drove government in Beijing to reconsider their goal.

At first glance, all seven pilot trading systems implemented in different regions across the country from 2013 to 2017 appear successful. They created a market for 197 million tons of carbon dioxide; permits for this pollution sold for a total of 4.5 billion Chinese yuan. But these numbers hide a subtler story.

In a functional ETS with a high carbon price, companies should trade for the limited permits proactively as they generate or reduce their emissions. But in the pilot studies, companies mostly traded at the end of each regulatory period instead.

Li Gao, Director General of the climate-change department at the National Development and Reform Commission in China thinks this pattern reveals a flaw in the ETS. “Trades may often occur at the end of a deadline when companies have to settle their carbon-quota allocations,” he said. In other words, companies are just going through the motions according to the regulation deadlines, and are not being influenced by the ETS itself.  

At 21 years old, I am now a student of environmental economics at Tufts University. I would like to dig deeper into the issues and better understand how my home country can overcome the obstacles facing its ETS.

One concern in the policy is how to distribute permits to polluters. Here, in New England, the commission overseeing our carbon price holds an auction at which polluters of any size can directly purchase the exact number of permits they need.

On the contrary, in China, the commission which oversees the ETS only gives permits to a select group of large firms. In theory, the number of emission permits each company gets should not affect the permit price since polluters should trade until those with lots of emissions buy any extra permits from companies with low emissions. But the reality is a different story.

The large firms end up getting these permits, which value in the $ billions, for free while the small companies are forced to buy every single permit they need from the large firms. Not only is this unfair, but it is extra difficult for the small firms who already need to spend a higher percentage of their earnings to reduce their emissions than their larger counterparts.

China’s ETS is also heavily criticized for focusing only on three industries, rather than the eight it originally planned. Theoretically, the more industries covered the better, maximizing the influence of the carbon price. However, after studying it myself, I think the commission made a difficult but strategic choice.

When you have a limited budget, more does not always mean better. The commission chose three industries--coal-fired power, aluminum, and cement--that not only have large carbon footprints but also make only one product by a simple method. This makes their emission data easy to gather and cheap for the government to monitor. Hopefully, as the ETS matures, they will expand to include more and more industries.

China has a long way to go to address its ETS weaknesses. But Rome wasn’t built in a day. As it grows and interacts with the international movement, Chinese business leaders and consumers will gradually build a new status quo of emission control.  

Those migrating birds in my childhood memory might not come back instantly after emission control. But I can imagine one day, on a beautiful autumn afternoon, I will bring my kids out for a walk along the coastal wetland. I will say to them, “when I was a kid, I witnessed the migrating birds disappear because of climate change, so I worked hard to not only bring them back but to create a better environment for you to live in.” And maybe, at that moment, a pair of birds will swoop overhead toward the wetland in search of crabs to eat.

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