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Climate Policy Greenhouse Gas Impact Assessment - A Case Study of Beijing Emission Trading Scheme

This study assessed the GHG reduction impact of Beijing Emission Trading Scheme (ETS) and tracked the implementation status of this policy, using the two WRI-developed tools – Greenhouse Gas Protocol: Policy and Action Standard, and Climate Policy Implementation Tracking Framework. Based on the assessment results, we discussed the relation between ETS policy and power sector emissions reduction, and the issue of using emission offsetting credits in ETS. Recommendations on conducting ex-ante and ex-post assessments, and implementation tracking on climate policies in China are provided. The study proved the applicability of the two WRI tools in China’s policy context.

Executive Summary

Ever since Beijing’s ETS was officially launched in November of 2011, scheme development, emission allowance allocation, trading, and compliance etc. have been operated smoothly. Our assessment results show that, Beijing ETS can result in a reduction of 0.41 million tons CO2 for 2013, 1.55 million tons CO2 for 2014, and 2.90 million tons CO2 for 2015. These reductions make up 0.60%, 2.25%, and 4.19% of baseline scenario CO2 emissions for 2013, 2014, and 2015, respectively. Cumulative emissions reductions totaled 4.86 million tons. The gradual tightening of emissions control requirements under the ETS changed the trend in total emissions. Under the policy scenario (which includes the implemented ETS), the 2014 emissions of key emission institutions (which are companies and organizations who are covered by Beijing ETS) already represent a drop since the previous year, reversing the increasing trend in emissions that occurs under the baseline scenario (which does not include the implemented ETS). Therefore, the ETS will have a important contribution towards peaking Beijing’s overall emissions.The study discussed two key issues regarding to ETS:• ETS and power sector emissions reductionThe national ETS mechanism can learn from Beijing’s experience and include indirect emissions related to power consumptions under the ETS. In regard to power production, including the direct emissions from power production in the national ETS can encourage the market-oriented emissions reductions. At the same time, Beijing’s experience also showed that only when the power sector’s emissions control requirement is appropriately strict, can the sector release its full reduction potentials. How to scientifically set a proper control requirement for the power sector, while realizing the full emission reduction potential of the varying installation capacities and technologies, as well as ensuring a operation of these power companies, is a problem that requires in-depth research and careful calculations.If the national ETS covers direct emissions from power production and indirect emissions from power consumption, we would face the problem of double counting. Some emission allowances allocated to power companies and that of power users will correspond to the same emissions ; in the carbon market, one ton of emission allowance does not strictly correspond to one ton of CO2 emission. This could create barriers for linking China’s carbon market with an international carbon market in the future. Therefore, the design of the ETS should provide a solution to this potential problem.• Use of Carbon Offsets in the ETSBy tightening the approval and issuance process, the government can more flexibly manage the available amount of carbon offsetting credits (e.g. CCER). However, this kind of measure relies largely on administrative enforcement, and involves a large degree of uncertainty as well as arbitrariness. This measure does not help the market players to reasonably forecast the future use of carbon offsetting credits. In the long term, it is important to design a mechanism in ETS to avoid a situation that the carbon offsets used exceed the emission reductions can be resulted from ETS. GHG impact assessment of ETS policy can be referred in the design process. Possible solutions include reducing the emission allowances or tightening the limit on carbon offsets use. Policy RecommendationsThe Policy Standard provides a simple and easy framework for assessing the greenhouse gas impact of climate policy, and is applicable to Chinese policy context. Additionally, the Tracking Framework provides a detailed guidance in tracking the implementation of policy. Based on assessment results and the experience of using these two tools, we have raised the following recommendations.• Conducting systematic ex-ante assessment of major energy policies and climate policiesIn the processes of planning, formulation, and revision of major energy and climate policies, governments should conduct ex ante assessment of policy’s GHG impact to estimate the expected impact on GHG emissions, understand the enabling mechanism of the policy, and based on that, improve the policy’s feasibility and effectiveness. The results of GHG impact assessment of policy can also be integrated with the other kinds of impact assessments to obtain a clear, comprehensive understanding of policy’s “input-output” performance.• Policy impact assessment should comprehensively consider the impacts of Other existing or planned policies and non-policy factorsIncluding the interactions of different policies in the policy impact assessment can help to realize synergy and even mutual promotions of different policies. Additional to impact assessment of a single policy, we also suggest assessing the GHG impact of a package of different policies. Such assessment can inform the allocation of resources between different policies in order to achieve the greatest environmental and climate benefits. Furthermore, non-policy factors such as macroeconomic conditions will also influence emission reduction results, and should therefore be considered in the assessment.• Strengthening the tracking of the implementation process of major energy and climate policies, and increasing the transparency of policy implementationMonitoring the implementation of policy can timely grasp the resource allocations, implementation of various administration functions and other situations. Increasing the transparency of policy implementation monitoring information can help companies, society, etc. better understand and comply with the policies.• Conducting ex post impact assessment of the major energy and climate policiesDue to data availability, model limitations and other unforeseeable factors, there remains a relatively large degree of uncertainty in ex ante assessment of policy impact. Ex post assessment, however, can provide a more accurate conclusion, and it can inform further improvement of policy. By determining and tracking key indicators of policy implementation, and identifying the implementation status of policy, governments and other stakeholders can collect data for ex post impact assessment. We recommend making ex post impact assessment an integrated part of policymaking process; by unifying the experience of policy design and implementation, we can develop policy more scientifically and effectively.

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