WASHINGTON, DC—Resources for the Future (RFF) today released a new installment of Resources Radio: “China’s Emerging Policies for Emissions Reductions, with Dick Morgenstern.”
In this episode, host Daniel Raimi talks with RFF Senior Fellow Dick Morgenstern about the ambitious new emissions reductions program that China is pursuing. Rather than employing a cap-and-trade model with a hard limit on emissions, China has opted for a “tradable performance standard,” which sets a ratio of emissions to output that individual firms have to meet. While the standard is not as efficient as more typical models, it stands to significantly reduce emissions once it expands beyond the power sector—without necessarily curbing China’s economic growth.
Notable quotes from the podcast:
- A far-reaching emissions reduction effort: “When [China] announced this program back several years ago, they said it was going to cover seven sectors, which the biggest and first one of course would be the electric sector … But they also identified major industrial sectors—for example, iron and steel, petroleum refining, cement, and several others—that would be included in their emissions trading system.” (8:24)
- Concerns over a system that might constrain economic growth: “China and other developing countries for some time have been going to negotiations and discussing the importance of economic growth for their future. They are afraid … to lock in to some fixed cap that they fear might limit their economic growth. By defining their goals as this ratio, they have allowed themselves the opportunities to grow economically, while at the same time becoming more efficient … I have heard talk in international circles that some other countries have started to think about this. I think many countries are waiting to see how the Chinese system actually works out.” (20:28)
- Inefficiencies aside, the program is poised to reduce emissions: “What the environment really cares about is that total emissions are reduced. There are different ways and different incentive structures that one can set up to reduce total emissions. A cap and trade is a very clear, transparent way of limiting emissions, but a tradable performance standard has the potential to reduce emissions, as well. It [is not] quite as limiting on emissions and on the economy as cap and trade, to be sure, but if it has the intended effect—which is to make emissions more expensive and less attractive for firms—then it's a good thing.” (22:31)
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