Tianjin unveils carbon trading market

The launch of China's first national emissions exchange in Tianjin signals the opening of the domestic carbon trading market, but it will take time for the system to generate significant revenue.

The Tianjin Emissions Exchange opened on October 6, with general manager Gao Zhengqi being quoted by the People's Daily as saying that China will certainly start a domestic carbon trading market within the next year.

“For strategic investment, China could potentially be the biggest market,” said Tom Luckock, a Beijing-based partner of Norton Rose who specialises in climate change projects. Around 80% of emission credits are sourced out of the Chinese market.

Despite other legal media reports that emissions trading could provide a lucrative revenues stream for law firms and an opportunity for their clients to generate income, Luckock also points out that for the short term the opportunity may not be as big as expected. This is due to a drop in the market because of uncertainties related to the approaching Copenhagen climate change meeting as well as challenges related to getting projects approved in China.

“European companies have obligations to reduce emissions but Chinese companies currently do not. Given this, it is difficult to understand where the demand for credits from the PRC exchanges will come from,” said Luckock, adding that the world market for voluntary emissions, particularly from buyers within Asia, “is not that deep”.

Luckock suggested that investors need to be challenge-controlled to get qualified credit and consider where to buy from existing projects and how to sell it.

The Tianjin Emissions Exchange, which was jointly founded by the Chicago Climate Exchange, CNPC Assets Management and the Tianjin Property Rights Exchange, covers the trading of major pollutants such as sulphur dioxide and COD (chemical oxygen demand – an index of water pollution), as well as energy efficiency.

Simon Bai, a partner of Tianjin-based Winners Law Firm which advised the Tianjin government in the establishment of the exchange, also took a more prudent view when referring to the ratification of emission reduction techniques.

“There is a problem of credibility of institutes which certify the emissions reduction. China does not have a recognised body to assess [this], while the standard of reduction varies from country to country,” said Bai.

He said also that it will take time for the market to prosper before China can assume the obligation of emissions reduction, issue relevant laws and be integrated with the rest of the world.