China Energy Industry

Clean Development Mechanism in China: Taking a proactive and sustainable approach

The World Bank
September 1, 2004

The Clean Development Mechanism (CDM) offers important opportunities for sustainable development in China. The energy sector, in particular, could benefit through new approaches in energy efficiency and renewable energies. Emissions reduction options, which can be transferred to industrialized countries to meet their obligations under the Kyoto Protocol, are also available in other sectors.

The CDM sets out a challenging and complex procedure to be applied in country-specific circumstances. China still has to decide on a detailed national approach for the CDM. In addition, policy issues will also influence the CDM approach. When initiating this studyproject in late 2001, the four principal sponsors— the Chinese Ministry of Science and Technology; the Deutsche Gesellschaft für Technische Zusammenarbeit (German Technical Cooperation GTZ), on behalf of the Federal Ministry for Economic Cooperation and Development; the Swiss State Secretariat for Economic Affairs (SECO); and the World Bank—therefore realized this would be a challenging task.

The study’s sponsors also realized that established CDM methodology could be challenged in the face of China’s varied economic conditions and potentially critical role in the international climate change regime. From the outset, the Chinese Government emphasized that the study should have a strong upfront focus on CDM case study development in order to optimize its operational relevance. Since other studies also were under way in China, the sector focus was narrowed to the electric power generation sector.

Furthermore, the Chinese Government expressed keen interest in obtaining scientifically based projections of China’s potential position in an international carbon trading market under different scenarios. The study also needed to include estimates of CDM’s possible impact on China’s national economy.

Based on this analysis, the study came to a number of conclusions.

First, the study questions the conventional wisdom that a rather large pool of cheap carbon dioxide reduction options are available in China, at least in the power sector. The potential share for China in the world carbon trading market still appears large—perhaps on the order of 50 percent in the long run. At the same time, there are large differences in emission reduction costs among sectors, indicating that only a limited part of the studied sectors—the low-cost sectors—may immediately be relevant for CDM application. These factors suggest that China may not completely dominate the market.

Second, there is a strong need for capacity building through actual CDM project development and in transferring this knowledge to the provinces and local areas in China where CDM projects are being developed. It is important to strengthen the linkages between the central government’s interest in CDM and local initiatives.

Since the Kyoto Protocol—and thus CDM— may become a reality, China has many challenges ahead in capitalizing on possible CDM options. China is now soundly engaged in formulating a CDM policy that responds to many of the issues reflected in this report. We are convinced that China will—as it has in so many other cases of international cooperation— shape and implement a policy that wisely integrates the achievements of international agreements with specific Chinese development demands.

We believe this study-project was an important step that will help China’s efforts to develop a proactive and sustainable approach to CDM.

Read the report.

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