Chinese emissions monitoring put to the test

Posted by () on Mar 15 2012
VERTIC Blog >> Environment

Hugh Chalmers, London

Last year China announced that it was taking preliminary steps towards implementing a nation-wide greenhouse gas (GHG) emissions cap-and-trade scheme. As trial projects begin in seven cities and provinces, it seems the world’s largest emitter of GHGs may soon join the EU as the second global actor to implement cap-and-trade. Following in the EU’s steps has given China the benefit of hindsight, and the nation is under no illusions as to the volatility and complexity of carbon trading. Such schemes require firm control and robust monitoring, reporting and verification (MRV), as the EU discovered when the value of their carbon credits plummeted to a four-year low in January. Is the current Chinese MRV infrastructure up to the task?

Following a directive from China’s National Development and Reform Commission (NDRC), the cities of Beijing, Tianjin, Shanghai, Chonqing and Shenzhen, along with the provinces of Hubei and Guangdong, will set overall emissions control targets and develop proposals for allocating these targets. Unlike Chinese nation-wide targets, which aim to reduce GHG emissions per unit of gross domestic product (GDP) by 17% by 2015, these local targets are the first to set absolute levels of GHG emissions. With such absolute restrictions in place, China can then set about allocating tradable emissions allowances; the first step towards a nation-wide emissions trading market.

A very short introduction to cap-and-trade
In general, emissions cap-and-trade schemes operate by translating an absolute limit of allowed GHG emissions, expressed as an equivalent quantity of carbon dioxide, into carbon credits. These credits are then assigned to various industries for use. These industries then consume their credits as they emit GHGs, and they can either save credits by limiting emissions or buy more credits from industries with credits to spare if they surpass their original allowance. For these credits to maintain both environmental and financial integrity, it is absolutely essential that industries are capable of accurately monitoring and reporting their consumption of emissions credits, and that national authorities can verify these reports.

The German Institute for Applied Ecology recently laid out a set of criteria through which any cap-and-trade MRV system can be assessed. Depending on individual circumstances, such an MRV system should offer, amongst other things, environmental integrity, data availability, transparency and institutional feasibility. To elaborate on these criteria, it is worth applying them to the EU cap-and-trade scheme to see how its MRV provisions check out.

The European Emissions Trading Scheme
As discussed in a previous post, the EU Emissions Trading Scheme (ETS) MRV system requires industries to develop a monitoring and reporting plan which has to be approved by a centralised body before being implemented. Through these plans, emissions can be monitored by the industries themselves, through either the calculation of projected emissions or by direct measurement. Although there is a tiered approach to monitoring accuracy, states are only allowed to implement less than the highest levels of accuracy when they can show that meeting such a standard would be financially unfeasible. Annual emissions reports are then submitted to accredited verification authorities who check the figures to ensure accuracy. Once these reports have been verified, industries must then surrender the corresponding number of emissions credits.

In this case, environmental integrity is met by requiring high levels of monitoring accuracy, the near blanket coverage of industries which require over a minimum level of power input, and the consistent application of detailed guidelines. The EU also provides numerous and varied methodologies for calculating and directly monitoring emissions levels, ensuring the availability of data. This data is also made freely available to the public, who can see exactly how many credits an individual installation has used, banked, purchased or sold each year. It seems that when measured against the Institute for Applied Ecology’s criteria, the EU ETS measures up pretty well. Indeed, the institute believes that the EU ETS can provide ‘important lessons for the setup of institutions and MRV of data’.

China’s MRV framework
Assessing China’s MRV framework against these criteria is not so simple. The pilot schemes are still in their infancy, and only one implementation proposal has so far been approved. However, a national framework for emissions MRV does exist, both to meet international reporting requirements and to track progress towards national targets of GHG emissions per unit GDP. This framework will probably form the backbone of any future cap-and-trade MRV framework. A report by the Climate Policy Initiative includes some interesting analysis on this framework and its suitability for use with a cap-and-trade scheme.

According to the report, China’s ability to monitor GHG emissions has developed substantially over the past few years. While this development was initially triggered by international requirements dictated by multilateral institutions, namely the UN climate change forums, growing domestic drivers have since become the most influential factor. Through this development, the state’s Statistics Indicators, Monitoring, and Examination System (SME) has come to play a core role. This system processes data collected by the National Bureau of Statistics which in turn collect emissions information from energy producers, circulators and consumers.

Up to the task?
Although detailed and consistent guidelines exist as to how this information should be reported, the depth of information to be reported currently depends upon the revenue produced by each subject. Industries which turn over less than a threshold level of revenue either report far less information to the National Bureau of Statistics, or no data at all. The risk of misreporting is also introduced as the career prospects of officials involved in reporting is often linked to their success meeting allocated targets. As such, reported emissions figures are verified and cross-checked by various layers of national and provincial bureaucracy through a system of inspections and examinations.

If this framework is assessed according to the criteria laid out by the Institute for Applied Ecology, certain aspects of the framework suggest that some improvements must be made before it is applied to a cap-and-trade scheme. Firstly, although local authorities are well-equipped to analyse and verify collected information, their access to information needs to be improved to ensure environmental integrity. Relaxing the reporting requirements for industries with a small contribution to GDP seems to go against the aim of reducing emissions per unit GDP, as unproductive but emissions-intensive activities may go unnoticed. As these targets are replaced by absolute emissions targets these reporting requirements should be expanded accordingly.

Secondly, if China hopes to eventually link its domestic cap-and-trade schemes to other schemes such as the EU ETS or a future UN scheme, it may have to improve the transparency of its verification procedures. As it stands the current framework follows guidelines for developing states established by the Intergovernmental Panel on Climate Change (IPCC). However this may not be sufficient for other actors when monetary value is linked to the results of the MRV process. If China hopes to develop carbon credit futures and options that can be traded on an international level, as proposed by a government advisor, customers must have confidence in the product they are buying. The recently-announced pilot schemes will serve as the ideal opportunity to refine existing MRV procedures, and the EU ETS could be a useful source of inspiration.
 

Last changed: Mar 15 2012 at 10:08 PM

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