China’s experiment with cap and trade

Dirk Forrister and Paul Bledsoe report from the NYT:

China, the world’s largest emitter of carbon dioxide, has begun its effort in the southern city of Shenzhen, paving the way for a national Chinese market in a few years. Like Europe, which voted to extend and improve its emissions market, and Australia and New Zealand, Shenzhen chose a carbon market as the most efficient way to lower its greenhouse gas emissions.

Under the Shenzhen program, the government will set limits on carbon dioxide discharges for 635 industrial companies and 197 public buildings that together account for about 40 percent of the city’s emissions. Polluters whose emissions fall below the limit can sell the difference in the form of pollution allowances to other polluters. These companies must decide whether it is cheaper to reduce emissions or pollute above their limit by buying allowances, whose price will be set by supply and demand. But the pressure will be on, because the limits will decrease over time. Six more regional pilot programs are planned over the next year.

This piece offers some further details, including this:

The caps require the emitters to collectively cut their carbon intensity by 6.7 per cent a year between this year and 2015.

After reading multiple sources, however, it seems that all these numbers involve fudges.  And over the longer run the cap is defined relative to gdp:

Beijing has not agreed to binding caps on its emission volumes, but has set a target to cut emission intensity – carbon emissions per unit of gross domestic product – by 40 to 45 per cent by 2020 from the 2005 level.

Here is further analysis from The Economist, which reckons that actual binding carbon caps will take ten years to evolve.  This will be one good way to study whether these regimes are time consistent, noting that Europe’s regime has been in place for about ten years and still doesn’t work.