Important New Chinese Carbon Market

This last week China has announced that start of a huge Carbon Market trading scheme for buying and selling of greenhouse gas allowances. The announcement came just days after the EU came with our “Fit For 55” major Climate Change Program.

The Chinese scheme will be the largest carbon market in the world covering initially roughly a third of China’s emissions. Only the energy sector is included in trading this year while other polluting sectors like steel and cement are expected to be added later. However heavy dependence on coal-fired power means that some 40% cent of the country’s carbon emissions are covered.

The scheme is just starting and its impact will increase each year – this is good news for the world.

In the USA, the Democrats are planning for a tax on imports from carbon-polluting countries to help pay for a $3.5 trillion package in new government spending on everything from universal childcare to an expansion of public healthcare benefits. This too came on the same day as the EU published its plans to impose a levy on imports based on their carbon footprint.

Paul Krugman makes an important point in the New York Times when he says that:

“…some form of international sanctions against countries that don’t take steps to limit emissions is essential if we’re going to do anything about an existential environmental threat. Developing countries, especially but not only China, are already responsible for most carbon dioxide emissions; even a big effort to decarbonize on the part of the United States and Europe will accomplish little unless it’s matched by efforts in other nations.”

China’s announcement today means that there is the potential to substantially increase ambition in the fight against climate change a the international COP26 climate negotiations later this year in Glasgow.

Let’s hope it is a game changer.

For the record, some equity investors are busy trying to calculate how the price of carbon will impact share prices. One group is saying that equity prices will fall by 20% while another claims they will fall by 40%. They may be right in the short-term but the irony is that the prices will be near zero if nothing is done! Here in Finland we have had the hottest summer on record ever so let’s not fool ourselves about Climate Change…

Another more serious group of investors have suggested setting a global price on carbon because different nations like Japan, Mexico and South Africa have prices ranging from €3 to €5,  Canada, California and the UK price carbon between €15 and €30, while the EU is using almost €50 a ton!

The investors are suggesting a global system managed by the UN called the “UN-convened Net-Zero Asset Owner Alliance”. It is worth reading their website for this excellent idea that approaches the challenge in a way that bring all of out nations together: 

They are an international group of over 40 institutional investors delivering on a bold commitment to transition their investment portfolios to net-zero greenhouse gas (GHG) emissions by 2050.

Representing over $6.6 trillion assets under management, the United Nations-convened Net-Zero Asset Owner Alliance shows united investor action to align portfolios with a 1.5°C scenario, addressing Article 2.1c of the Paris Agreement.

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