China cap-and-trade market gives carbon pricing opponents 'nowhere to hide': UN

As Canada's provincial, territorial and federal leaders grapple over carbon pricing policy, China is moving ahead with a cap-and-trade market that some believe could transform the dynamics of the international climate change battle.

Chinese Premier Li Keqiang arrives Wednesday in Ottawa to begin a four-day Canadian visit, including bilateral meetings with Prime Minister Justin Trudeau.

The Prime Minister's Office will only say that environment and climate change are on the table for discussion, and a spokeswoman for Environment Minister Catherine McKenna said Canada "commends China's plans" to launch a national cap-and-trade market by July 2017.

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The Liberals have vowed to put a national price on carbon as part of a pan-Canadian plan with the provinces to put the country on track to meet its emissions-cutting promises under the Paris climate accord.

But the idea is once again coming under heavy political fire, led by the Conservative opposition in Parliament and Saskatchewan Premier Brad Wall.

No one seems to be paying much public attention to the Chinese market juggernaut gaining steam on the other side of the planet. But according to the executive director of the United Nations Environment Program, or UNEP, they probably should.

China has been running cap-and-trade pilot projects in two provinces and fives cities since 2013, including Sichuan province, which has a population of almost 90 million people.

China and U.S. are changing the game

Eric Solheim, UNEP's new executive director, said China's pending national program is "of enormous significance."

That's not only because China is the single biggest global polluter, but also because it has the manufacturing and trading power to drive global technological change.

"The fact that the Chinese stepped up also gives nowhere to hide," Solheim told The Canadian Press. "If you are under attack from your opposition or civil society, it's very difficult to hide when the Chinese and Americans start getting in."

As the Harvard Kennedy School's Ash Center for Democratic Governance and Innovation put it in a June report, the Chinese cap-and-trade market "epitomizes a monumental step for China to join the global action to address climate change."

China is Canada's second-largest single-country trading partner and two-way merchandise trade between the two countries reached nearly $85.8 billion in 2015, up 10.1 per cent over 2014.

Canada is also home to a budding, international cap-and-trade market.

A uniform global carbon price

Ontario recently joined Quebec and California in the Western Climate Initiative and talks with Mexico are underway about a pilot project to join the carbon trading bloc.

Mark Cameron of Clean Prosperity says he understands China models its plan in part on the Quebec-California-Ontario system, but the devil will be in the details.

"The more they have similar standards, the better that is," said Cameron, a one-time policy adviser to former prime minister Stephen Harper. "But it's really too early to tell."

The initiative is a step towards a global market price on carbon, said Cameron, which is key.

"Ultimately there's where we want to get: a relatively uniform carbon price globally, or at least among the OECD, G20 countries."

China's National Development and Reform Commission has said the program will cover eight industries, including power generation, petrochemicals, aviation and paper making, construction materials, non-ferrous metals and steel.

As consequentialas Paris

Josh Margolis, a China expert with the U.S.-based Environmental Defense Fund, said the pilot projects have had prices between $2 and $5 per tonne of emissions but the Chinese government has said prices could eventually rise to as much as $30-$45 per tonne. The national program could cover emissions seven times greater than the total annual volume of Canadian greenhouse gases, he said.

While China's market mechanism details are all-important, basic economic theory says the bigger the carbon-trading market, the more efficient and low-cost is the price per tonne of emissions reductions.

"China could play, on a huge scale, the role that California plays for Ontario and Quebec," said McGill University economist Chris Ragan, the chair of Canada's Ecofiscal Commission, which promotes evidence-based carbon-pricing policies.

That's why Glen Murray, Ontario's minister of environment and climate change, says China's carbon market "is probably as consequential, in some ways, as Paris" a reference to the landmark 2015 international climate accord.

"What is carbon trading going to look like after China establishes the world's largest carbon trading market?" Murray asked in an interview.

"And how are we as Canadians, with our American and Mexican friends, going to manage the trade issues and the impacts of a Chinese carbon market?"