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China has a cap-and-trade model: the U.S.

Amy Scott Sep 25, 2015
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The world’s two biggest emitters of carbon dioxide took a big step toward addressing climate change Friday. In a joint announcement, China and the United States outlined new steps to dramatically cut greenhouse gas emissions, following up on a deal reached last November.

As part of the announcement, Chinese President Xi Jinping confirmed plans to launch a national cap-and-trade system in 2017.  In setting it up, China has a successful program to study here in the U.S.

In June 1989, President George H. W. Bush proposed a new Clean Air Act. It would cut sulfur dioxide emissions that caused acid rain by imposing an overall cap.

“We’re allowing utilities to trade credits among themselves for reductions they make to let them decide how to bring aggregate emissions down as cost-effectively as possible,” he said at the time.

A power plant that cut its emissions more than required could sell credits to one that couldn’t — or wouldn’t — meet the limits.

“It was a big experiment,” said Robert Stowe, executive director of the Harvard Environmental Economics Program. “No one had really done it certainly on that scale before.”

The experiment worked. The plan aimed to cut sulfur dioxide emissions in half by 2000.

“The country has now reduced emissions by over 70 percent, and just at a fraction of the cost that was estimated,” said Fred Krupp, president of the Environmental Defense Fund, which helped develop the program.

Krupp’s group has advised China as it applies that same approach to planet-warming carbon emissions in seven regional pilot programs.

As China’s cap-and-trade system goes national, it’s critical to set overall emissions allowances at the right level, said David Waskow, director of the International Climate Action Initiative at the World Resources Institute.

If power plants and factories can buy credits too cheaply, he said, “the incentives throughout the market to put in place low-carbon approaches will not be what one would hope for.”

That’s what happened initially in Europe’s decade-old cap-and-trade scheme. The EU has taken steps to bolster the market.

“Since those problems have been corrected, the European Union has been below its cap,” Krupp said. “From the standpoint of the environment, it’s worked well.”

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