China Briefing, 1 July 2021: ETS launch delayed; Massive hydropower station; Coal prices to fall

China Briefing, 1 July 2021: ETS launch delayed; Massive hydropower station; Coal prices to fall

Welcome to Carbon Brief’s China weekly digest. 
We handpick and explain the most important climate and energy stories from China over the past seven days.

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Snapshot

China’s national emissions trading scheme (ETS) has missed its target to start trading “by the end of June”. Bloomberg was the first to report that the long-awaited programme – which has taken more than 10 years to develop – would not meet the deadline, citing “a person familiar with its development”. As of writing, the Chinese authorities have not given a reason for the delay. It remains unclear exactly when the trading will begin.

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Separately, a massive hydropower station started generating power in China this week. The Baihetan hydropower station will be the world’s second-largest by capacity – after the Three Gorges dam, which is also in China – when it is in full use next year, according to state media. President Xi Jinping called Baihetan’s 16 generators – each having a maximum capacity of one gigawatt (GW) – a “major breakthrough” for China’s “high-end equipment manufacturing”. 

In other news, China’s national economic planner has predicted coal prices, which have been surging, to start falling this month. A spokesperson told state media that the fuel’s cost would see a “relatively big drop” due to several reasons, including increased domestic production and import volume. China’s coal prices have risen by about half since March due to strong demand and “supply-side limitations”, according to South China Morning Post.

Key developments

China’s ETS misses ‘end of June’ launch target

WHAT: China’s national ETS, the largest in the world, has failed to start trading “by the end of June”, as planned. After a reported launch date of 25 June had caused confusion (see last week’s China Briefing), Bloomberg broke the news on Monday that “trading won’t now happen until after 1 July”. The reported delay proved to be true after the highly anticipated carbon market – covering 12% of global carbon dioxide (CO2) emissions – had not been launched by the first day of July. 

WHEN: The Chinese authorities have yet to set a new deadline for the ETS. However, the Global Times, a state-run newspaper, said in an article on Tuesday that the scheme “may start trading as soon as next month (July)”, citing “industry observers”. It said that, according to “analysts”, a “slight delay” of the trading “won’t affect China’s plan to cut emission”. China’s national ETS is no stranger to delays. Carbon Brief’s in-depth Q&A has given a detailed account of how its launch has been repeatedly postponed. 

WHO: The end-of-June deadline was set by Huang Runqiu, head of the Ministry of Ecology and Environment (MEE), in February. According to an official release, Huang was inspecting the development of the national ETS in Shanghai and Hubei Province – the two regions in charge of the scheme’s trading and registration – when he issued the order. Huang “especially and repeatedly instructed comrades of the province (Hubei) and city (Shanghai)” to “ensure” that the trading scheme would go online “by the end of June”, the release said. If the target had been met, the national ETS would have started trading right before the celebration of the centenary of the Communist Party of China on Thursday.

HOW: There has been no official explanation yet as to why the trading has been delayed. “A person” at the Shanghai Environment and Energy Exchange, which will host the trading, told the state-run Global Times that the institute had not “received clear information on the opening date” from “the superior department”. Bloomberg reported that its source noted the postponement was caused by “a lack of organisation”. A senior analyst told Sixth Tone, a news site affiliated with the state-controlled Shanghai United Media Group, that the MEE “may need more time to prepare” for trade and compliance specifications. He expected the preparation to take another month or so, “if they’re quick”.

WHY IT MATTERS: According to Xinhua, the Chinese government considers a national carbon market as “a key policy tool” to realise its goal of reaching the CO2 emission peak before 2030 and achieving “carbon neutrality” before 2060. In an article from Tuesday, People’s Daily, the mouthpiece of the Communist Party of China, said that the national ETS was a way for China to “promote carbon emissions reduction using market mechanisms”. Matt Gray, co-chief executive of TransitionZero, tells Carbon Brief that the delay could be “a positive” for China’s overall decarbonisation efforts. He says: “China is likely delaying with the hope of coming out without something more substantive in terms of a timeline for the inclusion of additional sectors and future reforms, and that [the market] has genuine buy-in from local governments and SOEs (state-owned enterprises).” Carbon Brief’s in-depth Q&A has explained how the scheme might help China fight climate change.

Baihetan hydropower station starts generating power

WHAT: The Baihetan hydropower dam went into operation on Monday in south-western China after two of its generators completed a 72-hour trial run and started generating power, reported state broadcaster CCTV. The project comprises 16 generators in total – each having a maximum capacity of one million kilowatts (one gigawatt, GW) – the official channel said. They are the world’s most powerful hydropower generators by single-unit capacity, the report stated. The Global Times said that each of those generators could produce enough power in an hour to meet an ordinary Chinese family’s electricity needs for more than 400 years.

WHERE: Baihetan, which roughly translates as “white crane beach”, is situated on the Jinsha River on the upper stretches of the Yangtze and spans two counties: the Ningnan county of Sichuan province and the Qiaojia county of Yunnan province, reported the 21st Business Herald. The power it generates will initially be sent to the provinces of Jiangsu and Zhejiang in eastern China to “boost” their economic growth, the Chinese financial publication said. 

WHEN: The station’s generators number 1 and 14 went into operation on Monday morning, said CCTV. According to the plan, the rest of the generators will be complete and put into use by July next year, the outlet noted. The 16 generators will flank the Jinsha – eight on each side – with a 289-metre-tall dam towering over the rapid river, China National Radio reported. The station is expected to generate 62.4 terawatt hours of electricity on average every year when it’s in full operation, according to the state-run radio station. 

WHO: The project has been developed and built by the China Three Gorges Corporation, a state-run company that operates the world’s largest hydropower dam, the Three Gorges dam, Xinhua reported. It boasts an overall investment of 220bn yuan (£24.5bn) and will be the second-largest hydropower dam globally upon its completion, the state news agency noted. Moreover, the project has been built solely with Chinese know-how, it added.

WHY IT MATTERS: President Xi Jinping has called Baihetan a “key national project” to help transmit electricity from China’s resource-rich western part to its economically developed eastern part, according to Xinhua. Xi ordered workers to push forward its construction to make “even bigger contributions” to China’s 2030 and 2060 emission goals, as well as its “green” transition. It is estimated that Baihetan could help China save 19.68m tonnes of standard coal equivalent (tce) each year, reported CCTV. It is also expected to reduce the nation’s annual carbon dioxide (CO2) emission and sulfur dioxide (SO2) emission by 51.6m tonnes and 170,000 tonnes, respectively. Feng Xiating, an academic of the Chinese Academy of Sciences, has said that Baihetan carries “high significance” in alleviating China’s energy and electricity shortage.    

ENVIRONMENTAL CONCERNS: It has taken China more than 60 years to build the Baihetan dam, which, according to Xinhua, was first proposed in 1958 to tackle the energy shortage in southern China. After the central government approved the construction of hydropower dams in the lower streams of the Jinsha in 2002, the Baihetan project started but was soon suspended in 2004 due to “environmental evaluation problems”, reported Internet Energy Net. It took six years for the government to allow the project to resume before it underwent “a series of environmental assessments” again, the website said last year. It noted that the bulk of the construction started in August 2017. It added that the dam still faced concerns that it would end up “abandoning” more than 10 terawatt hours of hydropower each year because of the “delayed progress” of ultra-high-voltage (UHV) electricity transmission in China. The “difficult problem” was “solved” after a UHV project was approved last November to connect Baihetan to Jiangsu province, reported Shanghai-based Jiemian.

Other news

COAL PRICE: China’s National Development and Reform Commission (NDRC) has said that the nation’s coal prices would “enter a downward channel” and see a “relatively big drop” from July, reported Xinhua. A spokesperson of the Economic Operation Regulation Bureau at NDRC told the state newswire on Saturday that the fuel’s demand and supply would “tend to ease” due to higher domestic production and import, as well as the growth of hydro and solar power in summer. The comments came after coal prices had “rebounded” ahead of the Chinese Communist Party’s 100th anniversary, “for which social and economic stability is paramount”, said South China Morning Post

SOLAR POWER: China’s National Energy Administration (NEA) has proposed a “pilot” project to promote rooftop solar power generation across counties, cities or districts, reported Shanghai Securities News. A notice stipulated that photovoltaic (PV) panels should cover no less than half of the rooftop of government buildings and at least 40% of the rooftop of public facilities. The standards for factories and rural residential houses are no lower than 30% and 20%, respectively. 

TRANSPORT: The city of Chengdu unveiled a “new energy” suspension railway on Saturday, reported Chengdu Business Daily, a local newspaper. The so-called “sky train” – which travels along a track above it – is the first of its kind in the world and can be powered by electricity or batteries storing renewable energy, the report says. CGTN, the English channel of China’s state broadcaster, wrote: “Driven by new energy resources, the sky train is greener and more economical.” 

SPACE: China plans to use a new “super” heavy-lift rocket to build a “massive” space-based solar power station about 35,786 kilometres above the ground, SpaceNews reported on Monday. The website cited Long Lehao, chief designer of China’s Long March rocket series, and Qi Renfa, chief designer of the Shenzhou Spacecraft. It said that the project would require a large “collecting area” in geostationary orbit to receive solar power nearly constantly. The facility would then convert the energy before transmitting it to Earth via microwaves or lasers. [However, according to the Conversation, there is “still a lot of work to be done in this field” for humans to obtain solar power in such a way]. Hong Kong-based Takungpao also reported about the plan.

OVERSEAS INVESTMENT: Bloomberg reported on Wednesday that China’s biggest bank, the Industrial and Commercial Bank of China (ICBC), had “dumped” a plan to finance a $3bn (£2.2bn) coal-fired power plant in Zimbabwe. The newswire said that ICBC had withdrawn its plan to fund the 2,800-megawatt Sengwa coal project, but did not explain why. Lauri Myllyvirta, lead analyst for the Centre for Research on Energy and Clean Air, told Bloomberg: “It is the first time, to my knowledge, that a Chinese bank has proactively walked away from a coal-power project.”

CARBON TAX: Putting a tax on CO2 emissions could help China “dramatically” lower the emissions intensity of its economy and avert about 1.7m deaths by 2030 through reducing air pollution, reported Bloomberg, citing a report from the World Bank. The international financial institution said that carbon charges “could make a major contribution to emission reductions in the near term, while achieving multiple other social, environmental, and economic objectives”, Bloomberg wrote. 

IRON AND STEEL: China’s iron and steel industry has been designated by the MEE as the third “key sector” – after the power and construction sectors – to be incorporated into the yet-to-start national ETS, reported 21th Century Business Herald. China’s carbon market will initially include only the power sector when trading goes online. An official told the Chinese financial outlet that the iron and steel industry had the “necessity” and the “right conditions” to take the lead in carbon emissions trading. The China Iron and Steel Association has started seeking measures and suggestions around a series of related matters – such as emission monitoring and accounting, allowance allocation and carbon asset management – reported S&P Global Platts, citing an official notice.

Extra reading

New science

Amplified intensity and duration of heatwaves by concurrent droughts in China
Atmospheric Research

The annual occurrence of concurrent heatwaves and droughts increased “significantly” in China between 1980 and 2017, according to a new study. By analysing meteorological data from more than 2,000 weather stations in China during the period, the researchers found that heatwave intensity in “compound” heatwave-drought events is higher than that of heatwaves alone. In addition, more frequent long-lasting heatwaves – those occurring for more than seven days – were observed in compound events, the research finds. Dr Zhou Yuyu, a co-author of the paper from the Iowa State University, tells Carbon Brief that there is still a lack of “quantitative investigation” between heatwave-drought compounds and heatwaves alone. “Overlooking the compounding effect will lead to a significant underestimate of extreme events impacts,” he adds.

Potential integration of Chinese and European emissions trading market: welfare distribution analysis
Mitigation and Adaptation Strategies for Global Change

A new paper has found that the European Union (EU) and China would both see benefits if their respective ETSs were integrated. The analysis shows that China’s welfare would improve through the “net gain of selling the [carbon] allowance”. In comparison, the EU would face lower abatement costs by purchasing more permits from China, allowing the region to improve its competitiveness, the paper says. According to Dr Sigit Perdana from the École Polytechnique Fédérale de Lausanne, a co-author of the paper, the study is the first to analyse the welfare effects of the potential integration for each EU member state. He tells Carbon Brief the assessment reveals that EU countries with highly energy-intensive industries would benefit the most, while others would face opposite effects. He adds: “We also find that limiting the trade quota to 40% is the optimum level, as it captures most of the welfare gain coming from CO2 trading for the EU.”

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