The first signs of emissions trading in China have emerged in the port city of Tianjin, in an initiative to help meet the country’s emissions intensity targets. In three voluntary transactions, investment bank Citigroup and Russian gas utility Gazprom made forward purchases of carbon credits for emissions savings at energy utilities supplying heating to businesses and hospitals.

The credits represent the carbon emission savings, yet to be verified, flowing from energy efficiency improvements. The sales value each emissions credit at around $US6.35 per tonne of CO2. The transactions are a forerunner to a mandatory regional emissions intensity trading scheme being established in Tianjin, which lies at the heart of the designated financial innovation zone called the Binhai New Area.

China announced in the lead up to the Copenhagen climate conference a commitment to cut the greenhouse intensity of its economy by 40 to 45 per cent below 2005 levels by 2020. The intensity goal requires reducing the level carbon emissions per unit of GDP rather than making absolute cuts to emissions. An earlier target to cut intensity by 20 per cent by 2010 is expected to be met this year.

The Tianjin city government is in turn imposing energy efficiency targets on the city’s energy utilities and its residential, commercial and government buildings. It is working with the fledgling Tianjin Climate Exchange (TCE) and others to set up a trading scheme by next winter. Just like other cap-and-trade schemes, covered entities will be able to sell credits they earn for beating their targets to others who under-perform.

"We see this as a start for building a fully implemented carbon-intensity market in China," John Shi, the CEO of broker Arreon Carbon told the Wall Street Journal. Arreon worked up the deal with the Tianjin government, both of which aim to develop cap and trade in the region to help meet the national carbon intensity target, he said.

TCE was set up in 2008 under a joint venture by the city government, state-owned China National Petroleum and the owners of the Chicago and European Climate Exchanges to trade in CER carbon credits under Kyoto’s CDM.

Reuters, Wall Street Journal 9/2/10