Carbon Pricing Requires More International Cooperation and Dialogue

By Jo Li

Achieving the goal of carbon and carbon neutralization is not only an internal requirement for sustainable and high-quality development in China， but also the inevitable choice to promote the construction of a community of a shared future for mankind. China-EU carbon pricing became a hot topic at the recent International Financial Forum （IFF） .

Carbon pricing is highly important

At the two sessions this year， China promised to reach peak carbon emissions by 2030 and carbon neutrality by 2060.

In this statement， the peak in carbon emissions refers to the level at which carbon emission will start on a steady decline， and carbon neutrality refers to zero carbon dioxide emissions overall.

Wang Yi， Deputy Director of the Institute of Science and Technology Strategy Consulting， Chinese Academy of Sciences， pointed out that China is making more stringent policies in carbon pricing and carbon-related areas. Carbon pricing may play a very important role in the carbon peak and carbon neutrality in the future. This is determined by the systematic， leading and practical characteristics of carbon neutrality. In addition， the carbon pricing mechanism itself is not based on the free market， but often intervened by the human-driven market. Whether it is the setting of a total amount， or the rate and direction of its emission reduction， the cost needs to be determined.

Regarding the construction of Chinas carbon market in the future， Wang Yi suggested that we should make a better analysis of the current quota and the trend of carbon prices in the whole trading process； It is necessary to gradually clarify macro policies， including the amount of peak carbon emissions and industrial policies； the coordination mechanism of carbon pricing should be determined. In the future， Chinas policies should consider the coordination of each other， including the carbon market， carbon tax， carbon pricing， as well as the coordination with foreign carbon border regulation mechanisms and the domestic investment and financing policies； we should adopt multi-step measures and competition strategies， consider the current situation of China， seek truth from facts， and not rush to launch a substantial carbon pricing policy. On top of that it is also important to strengthen international cooperation and dialogue.

Domenico Siniscalco， Vice Chairman of the IFF， Global Vice Chairman of Morgan Stanley and Former Finance Minister of Italy， introduced the basic situation of the European carbon market and the carbon pricing mechanism. He said that political and social factors should be taken into account when it comes to carbon pricing. The carbon price shall also vary in different regions because of different economic characteristics and industrial structures. However， the price of carbon shall be stable and not too volatile.

Domenico Siniscalco also suggested that China could learn from the experiences of many other countries and adopt the model of combing carbon pricing and carbon tax in the future.

Cyril Cacisa， Senior Energy Analyst of the Department of Environment and Climate Change of the International Energy Agency， also expressed his opinion of Chinas carbon trading market. He pointed out，“China has special advantages because many people have rich experiences， which will promote reform and improvement， and better pilot the carbon trading system to achieve greater progress. Chinas carbon trading market will be conducive to Chinas achievement of long-term goals. Therefore， we are very glad to see the attempts and efforts in Chinas carbon trading market this year， which will certainly promote Chinas future development up to 2050 and even further in the future. We are confident that China will make rapid progress in this respect， and will establish a very significant and effective pricing system for China， and be able to better transform its own industrial system.”

Mei Dewen， General Manager of the Beijing Green Exchange， praised such comments. He said， “China has the worlds largest green bond market， which exceeded RMB 12 trillion last year. The carbon market quota to be launched this year is nearly 4 billion tons， which has surpassed that of the European Union. China is also the worlds largest carbon market. Therefore， the Chinese market needs an effective， flexible， stable and inclusive carbon price signal that can reflect marginal costs and externality costs for emission reduction.”

Strengthen international cooperation

Regarding specific carbon trading， Wang Yuanfeng， member of the IFF academic committee and Deputy Chairman of the China Development Strategy Research Association， envisions the personalization of carbon trading. Wang Yuanfeng said，“with the continuous improvement and maturity of the system， we will have more individuals and small and medium-sized enterprises involved in carbon trading. It is important for all people to engage in carbon trading and pricing， to get consumers deeply involved and have them understand which products feature high carbon or low carbon. In the end consumers will not choose high-carbon products and save energy and reduce emissions through their own choices.”

“Carbon prices should not be either too low or too high. If the price is too low， carbon emitters will not care about the costs for emission； If it is too high， costs will be a great burden for enterprises and consumers，” said Wang Weiquan， Deputy Secretary General of the Renewable Energy Professional Committee of China Association of Circular Economy.

Mei Dewen stressed the need for releasing an effective， flexible and stable carbon price signal that can both reflect the marginal and externality costs for emission reduction. To achieve this goal， it is imperative to make nine changes： carbon emission reduction should be shifted from the current relatively soft constraint to more stringent emission reduction， or total amount emission reduction； carbon emission accounting should be more direct and rigorous； the main market players of the emission reduction shall extend from emission-controlled enterprises only to the focus on emission-controlled enterprises， non-emission controlled enterprises， financial institutions， intermediaries and individuals； products should shift from spot goods to spot， futures and derivatives to convert risks and liquidity； the allocation of quotas shall change from free allocation to “free + paid allocation” ； the key emission-controlled industries should shift from eight industries to emission facilities that meet certain emission standards； the service model shall change from intermediary service of account opening and settlement to market makers； the intermediary service institutions shall turn from consulting and monitoring services to other services like business exploring， sharing and arbitrage； the market scope shall expand from local market to the whole country and the focus shall shift from the domestic market to the international market.

“We need to change the social cost of carbon emissions from a narrow carbon price to green premium， which is a more comprehensive governance concept.” Peng Wensheng， Chief Economist of CICC， said that the so-called green premium is the difference between the cost of clean energy and the cost of fossil energy. There are three ways to reduce green premium and promote economic entities to use more clean energy： first， reduce the cost of clean energy through technological progress and public policy investment； the second is to increase the cost of fossil energy through the carbon emis- sion price； the third includes means of social governance in terms of culture， value and living habits.

Alain Quine， Chairman of the French Carbon Pricing Committee， believes that there are two ways to achieve carbon neutrality. One is innovation， and the other is international cooperation. “As for the carbon trading market， it is not only a matter of price. I believe we have made a lot of progress on the issue of price， mainly about the scope. In addition， the countries should use carbon pricing as an incentive to enable enterprises and individuals to achieve these easily-obtain results，” said Alan Quine.

Regarding international cooperation， Edmond Alphandery， Vice President of the IFF， Chairman of the European Carbon Pricing Action Group and former Finance Minister of France， said， “the carbon pricing shall be promoted only when China， the U.S. and the EU， the worlds three largest economies and emitters， work together. The cooperation among the three parties will have a significant impact on the world. At present， both China and Europe have issued positive measures in terms of carbon market. He hopes that China and Europe can work together to promote the U.S. to establish a long-term carbon market and realize the fundamental change of energy transition.”